Widespread gloom still swirls around humanity’s chances of tackling the climate emergency in spite of the progress made at the COP26 summit in Glasgow in November. “We have 98 months to halve global emissions,” said Aminath Shauna, environment minister of the Maldives, adding that failure to do so would result in a “death sentence” for her archipelagic country.
Policymakers must move a lot further and faster before we stand any hope of achieving that target in the necessary timeframe. But in at least one area there has been far more encouraging progress this year: the massive investments made in climate tech. By itself, technology will never solve the problem of climate change. But technology remains an indispensable part of the solution. And there are many positive signs that executives, entrepreneurs and investors now appreciate the scale of the challenge and are stepping up to meet it.
According to PwC’s recent State of Climate Tech report, some 6,000 investors, ranging from venture capital and private equity firms to government funds and philanthropists, have backed more than 3,000 climate tech start-ups since 2013. In total, investors have sunk about $222bn into these start-ups. Funding has increased 210 per cent over the past year.
As is the nature of the speculative VC sector, most of these start-ups will fail. Some investors may also think that they have seen a similar green boom-and-bust movie before. In the late 2000s a surge of money flowed into clean tech companies in anticipation of significant policy changes, which governments never delivered. The resulting market crash has deterred many investors from playing the game again.
Yet there are reasons for believing the latest investment surge will prove more durable. First, the need is demonstrably more urgent. Second, policymakers are finally creating a more permissive investment environment, even if they have not yet adopted wholesale carbon taxes. Third, many green technologies have significantly evolved and some genuinely exciting innovations are beginning to bear fruit.
There have been some stunning advances in the efficiencies and cost dynamics of solar, wind and battery technologies. Many investors are betting big on hydrogen, next-generation nuclear and carbon capture, too. Further out, hopes are rising that nuclear fusion tokamaks and space-based solar power may provide carbonless sources of energy across the world.
The size of climate tech deals has nearly quadrupled to $96m in the first half of 2021 compared with the year before. But for any of these technologies to make a meaningful contribution to reversing global warming trillions of dollars will have to be spent. Big institutional investors will now need to mobilise to scale the deployment of the most impactful technologies.
Some environmentalists claim that betting on technological breakthroughs is a distraction that will hamper sensible efforts to deploy existing technologies that can make more difference. In truth we have reached the stage where we have to make every bet we can. “We need the now and we need the new,” as John Doerr, the chair of VC firm Kleiner Perkins and active climate tech investor, has put it.
Perhaps the biggest driver of the wave of climate tech investment is self-interest, which in this instance counts as an unambiguously good thing. Tackling climate change may well rank as the biggest market opportunity of our lifetimes. Outsized returns often result from solving outsized challenges. Institutional investors should be prepared to jump on board.
