Climate tech investment tumbles 40% over 2023
Climate technology has been one of the major casualties of the last year’s M&A slowdown, with the volume and value of related deals sinking to their lowest rates in over five years. The amount of venture capital invested in greenhouse gas capture and storage has halved in the last year alone.
Total venture and private equity investment fell 50.2% to $638 billion in the 12 months to September, year-on-year. In that muted market, the climate technology market actually looks larger than it was in previous years.
In the M&A boom of 2021, it accounted for 8.41% of the market, which has now risen to 10.02%, by the reckoning of PwC. But while that masks a downward spiral in terms of funding that could have wide-reaching impacts on the global push for net zero.
The last 12 months have seen investment and grants in climate tech startups fall by just over 40% through the last 12 months. The drop might be lower than the 50.2% drop which the wider market endured, but it still takes climate tech start-up funding back to the level of five years ago.
In the context of a mounting global climate emergency, painting this as a gain for climate tech, and suggesting it has a "growing share of a muted market", this is not welcome news to many climate experts. PwC’s own report subsequently noted that the world is far behind the level of decarbonisation needed to hold the rise in global temperatures to 1.5C as per the Paris Climate Accord.
Sectors that need the technology the most to get that back on track, include agriculture and the built environment which includes commercial and residential buildings. Each are seeing relatively small and decreasing interest from investors. The built environment saw investment drop from $5 billion in 2022, to $2 billion this year. Meanwhile, agriculture saw a decline from $8 billion to $3 billion over the same time. And technologies which could be used to capture and store emissions across all sectors saw funding slashed from $2 billion to $1 billion in the last year.
Something which may cause even more concern about those following the market, is where the falls in investment are predominantly occurring. Early-stage deals have fallen off relative to mid and late-stage deals – meaning it is harder for new projects, with innovative technology that could make a huge different to climate change, but also might take longer to monetise, to get off the ground.
Illustrating this, investors which PwC spoke to cited two main reasons for the relative decrease in early-stage deals. One is investor judgment. Investors noted that there were “too many things that are interesting and have a lot of potential,” but had little potential for scaling or monetisation. Because the investors are ultimately not motivated by the goodness of their hearts, but the requirement to make profit on their funding, they deem many of these prospects “not investable”.
Commenting on how to move past this paradox, PwC’s report concluded, “If climate tech is to deliver significant impact, it will take much more financing than is currently flowing into the category: not just venture capital, but also growth capital to help start-ups expand quickly and financing to help companies and governments deploy climate tech solutions en masse. Crucial, too, are shifts in policy and standards, and greater cooperation among organisations of all sizes and sectors. The more value the world places on climate action, the more opportunity there will be for investors who are at the frontier of innovation.”
