Investment from VC and PE into climate tech is booming, reaching $87.5 bilion over H2 2020 and H1 2021, with in excess of $60 billion in the first half of 2021 alone, according to a new report from PWC.
This is a 210% increase from the $28.4 billion invested in the 12 months prior; some 14 cents of every dollar of VC now going to climate tech.
However, not all is rosy. The investment is mostly focused on technology solutions accounting for 20% of emissions reduction potential. So PWC says there is an opportunity to shift the focus to areas and technologies with a more direct impact on emissions.
Despite this overall growth, the number of early VC, seed and Series A investments in climate tech has remained largely stagnant since 2018.
Of 15 solutions analyzed, the top five, representing more than 80% of emissions reduction potential by 2050, received just 25% of the climate tech investment between 2013 and H1 2021.
In other words, VC needs to put more into directly affecting emissions not just SaaS platforms, etc., which track them.
Emma Cox, global climate leader, PwC U.K., said:
The world has 10 years to halve global greenhouse emissions if we are to have hope of achieving net-zero by 2050 … However, our research has found there is potential to better channel and incentivize investment in technology areas that have the greatest future emissions reduction potential. This raises the question of why these sectors are missing out — are investors missing a valuable opportunity or is there an incentive problem that needs the attention of policymakers?
Climate tech encompasses technologies focused on reducing greenhouse gas (GHG) emissions. Climate tech investment plateaued in 2018-2020 but has rebounded in the first half of 2021 — driven by a refreshed focus on ESG in private markets, emerging regulations and standards, and more companies committing to net-zero strategies.
Here are some extracts from PWC’s report:
• The average climate tech deal size nearly quadrupled in H1 2021 to US$96M, from US$27M one year prior.
• About 1,600 investors were active in H1 2021, compared to fewer than 900 active investors in H1 2020 as the wider investment community becomes familiar with the opportunities in climate tech as an asset class.
• SPACs (special purpose acquisition companies) were tested to further stimulate climate tech’s growth and raised US$25bn in H1 2021, accounting for more than a third of all funding.
• Mobility and Transport continues to receive the lion’s share of climate tech funding as electric vehicles (EVs), micro-mobility and other innovative transit models attract investor attention. This challenge area raised nearlyUS$58bn between H2 2020 and H1 2021, representing two-thirds of total climate tech funding raised in the period.
• Mobility and Transport, Industry, Manufacturing and Resource management (IM&R) and Financial Services saw the fastest growth year over year between H2 2019 – H1 2021, each more than 260%, reaching US$58bn, US$6.9bn and US$1.2bn respectively.
• The top five technologies representing over 80% of future emissions reduction potential include: Solar Power, Wind Power, Food Waste Technology, Green Hydrogen Production, and Alternative Foods/Low GHG Proteins.
PWC said the United States leads in climate tech investing, attracting nearly 65% of VC investment, $56.6 billion from H2 2020 to H1 2021. China is estimated to have seen $9 billion in climate tech investment in the same period, while Europe totaled $18.3 billionn, driven by a nearly 500% (494%) increase in Mobility and Transport in H2 2020 and H1 2021, compared to the prior 12 month period.