The New Age of Climate-Focused Venture Capital

by | Nov 6, 2021 | Blog

The sun shining above a solar panel and wind farm.

Summary

  • Venture capital offers businesses and early-stage projects external funding to increase their growth potential. External investment may help navigate potential risk factors by availing advice from a team of experts.
  • The lack of climate-focused investment has hindered progress towards a net-zero future. However, with venture capital opportunities rising, climate solutions are becoming more accessible. With these investments, new technology may help reduce carbon emissions and slow global warming.
  • As climate-focused venture capital continues to grow at impressive speed, we may see solutions such as recycling solar batteries, improving renewable energy capacity and greater access to electric vehicle charging points.
  • With changing attitudes towards climate change and better funding, we are likely to see climate-centred technology become not just a lucrative sector to invest in but an essential one.

Introduction

Although the future seems uncertain, one thing that remains likely is the continued focus on climate solutions.

Venture capital (VC) is one method of funding emerging companies and early-stage projects with high-growth potential. When someone invests in a company projected to grow significantly, they are known as a venture capitalist.

Despite the limitations that arose after the pandemic, VC reportedly skyrocketed in the past year. One investment area that caused this spike is the growth of new climate tech. Although the future seems uncertain, one thing that remains likely is the continued focus on climate solutions. That said, we are likely to see a connection between sustainable investments and VC.

This article explores how venture capital may aid the climate revolution and world leaders in their mission to cut emissions to net-zero.

An infographic showing investment icons, wind turbines, and solar panels.

Investments into Climate Tech are Essential to Reach Net-Zero by 2050

While new technology may be the key to reducing climate change, the lack of investment is holding back progression.

As the recent COP26 summit sees world leaders outline their action plan to reduce the effects of global warming, more people are looking for ways to reduce their carbon footprint.

Many countries signed the Paris Agreement, setting out to reach net-zero emissions. Canada is amongst those promising to reach this target by 2050.

Theoretically, it’s possible to reach these goals with the current technology, but doing so requires a considerable change to global infrastructure and reviewing how every industry can become carbon neutral or negative.

Realistically, the current climate tech faces limitations that may hinder progress towards net-zero, such as disposal of renewable equipment and power capacity. The world needs innovative technology to address the current challenges and make these climate goals attainable. However, while new technology may be the key to reducing climate change, the lack of investment is holding back progression.

Investing in climate-focused innovation could help fund research and development projects, pushing them through the challenging early stages of production. Financing new technology may make climate goals more feasible.

What Is Climate-Focused Venture Capital?

…between 2013-2019 VC and corporate investing in climate technology grew faster than any other VC investments.

The term “climate-focused venture capital” (VC) categorizes climate-related investments, such as in green energy companies or projects. VC provides an accessible way to fund large amounts of money into businesses. In the case of climate projects that need significant funding to develop, they could receive VC to get them off the ground.

Climate-focused venture capital may benefit from having a team of experts oversee the company’s growth or project. Having external funding may give you access to advisors who can help mitigate and navigate potential risks. Having an advisory board oversee risk management could be beneficial, as developing new climate technology may be unpredictable.

Moreover, VC differs from traditional loans. If climate tech companies can receive VC, they will not have monthly repayments, allowing them to distribute the money amongst other business areas. A venture capitalist will invest in a company in return for equity; therefore, the business can focus its assets and capital on growing its climate tech and developing new solutions.

Climate tech has been a growing sector for years; in fact, between 2013-2019, VC and corporate investing in climate technology grew faster than any other VC investment. Despite most climate solutions still being in the early stages, investments grew from $418 million per year in 2013 to $16.3 billion by 2019. Interestingly, Canadian climate tech startups received about $29 billion of this fund.

To put this in perspective, VC investments in climate tech grew five times the average rate and three times faster than investments into AI technology during that time.

According to PitchBook, $30.8 billion has been invested into climate tech during the first three quarters of 2021. The data shows the climate tech sector will continue growing as figures at the end of Q3 are already 30% higher than the entirety of 2020. Interestingly, investors raised more climate-centred investments in 2021 than the past five years combined.

An infographic showing climate tech opportunities like green energy and electric cars.

Climate Tech Is Leading the New Age of Venture Capital

Despite the limitations of the 2020 pandemic, climate tech raised approximately $17 billion in venture capital during that year.

Climate technology is key to powering a greener future, but what is it? Climate tech refers to new innovative solutions and companies that are developing technologies to slow global warming. As we try to reduce the effects of climate change, new climate tech may address some of the current hurdles standing in the way. For example, although renewable energy and electric vehicles (EV) provide powerful solutions to making the energy and transport sectors cleaner—they also face limitations.

Between limited driving range, cost and a lack of EV charging points, many people worry about how an EV will work for them. New climate tech may address this issue by increasing the capacity and number of EV charging stations worldwide.

Moreover, solar panels and storage batteries offer companies and residents a way to generate renewable electricity in an affordable and environmentally-friendly way. However, the life expectancy of a solar panel ranges from 30-50 years, after which it must be disposed of appropriately. Recycling solar equipment is an area that needs technological advancement; with the rise in climate-focused VC, this is one area that may benefit.

Climate tech spans many different areas, and it has caused a considerable spike in VC investments. Despite the limitations of the 2020 pandemic, climate tech raised approximately $17 billion in venture capital during that year. That said, many people are questioning why the growth has been so significant.

New Opportunities Where Climate Solutions Are Concerned

The newfound popularity has led to an increase in jobs, especially where renewable energy is concerned.

As climate change becomes one of the most talked-about issues in our lifetime, the data shows clearly that more money is going into climate-focused ventures. With the changing attitudes, most leaders try to stay ahead of the curve and invest in these sectors.

The newfound popularity has led to an increase in jobs, especially where renewable energy is concerned. Canada’s clean energy sector is predicted to grow by 58% by 2030, reaching approximately $100 billion. What’s more, clean energy Canada believes the industry will employ 559,400 during that time. Although the fossil fuel industry may lose 50,000 jobs, it expects a net increase of 110,000 new jobs in the Canadian energy industry.

The Next Generation Is Changing Attitudes to Climate Change

In a survey, 70% of millennials said they were more likely to join a company if it had strong, sustainable goals.

We are seeing this increase in climate-focused VC because of the changing attitudes towards the planet. In a survey, 70% of millennials said they were more likely to join a company if it had solid and sustainable goals. This fascinating data shows that companies have had to rethink their investments to cater to this attitude. It’s not enough to use buzz words like sustainability as more people are demanding actionable steps to reduce carbon footprints and give back to the planet.

While there has been a peak in climate-focused investments before, current consumer trends are dramatically different as individuals are determined to impact the planet positively. This new age of climate-centred decisions affects almost every industry and reflects the recent rise in VC.

Carbon Neutral or Carbon Negative Solutions Are More Affordable

Carbon neutral or carbon negative solutions, such as solar, are slowly becoming more accessible.

An additional reason sustainable investments are rising is that they are becoming more affordable. For instance, solar power has become one of the cheapest electricity sources in history, meaning more people are likely to invest in this sector compared to fossil fuels. Carbon neutral or carbon negative solutions, such as solar, are slowly becoming more accessible.

Read more: Shaping the Solar Sector: Meet the New Generation of 500 Watt Panels.

Final Thoughts

The new age of climate-centred venture capital is unlikely to slow down. With more people looking to world leaders to act against global warming, investments in climate tech rise with demand. Interestingly, as the motivation behind these investments changes and public opinion adapts, investors have no other option but to fund new climate technology.

The rise of climate-focused venture capital may see the development of sustainable and recyclable equipment, steps to decarbonize the national grid, and green solutions becoming accessible for everyone.

Frequently Asked Questions (FAQS)

What is climate-focused venture capital?

Venture capital is one way for startups and early-stage businesses to raise funding. In the last few years, climate-focused investments have risen and propelled venture capital into a new age. In fact, between 2013 and 2019, investments grew from $418 million to $16.3 billion per year—with Canadian climate tech startups contributing to approximately $29 billion.

 

What is climate tech?

Investments in ‘climate tech’ go towards green companies or projects contributing to the fight against climate change. For instance, some of these investments may go towards new renewable energy farms, better recycling schemes (especially where solar equipment is concerned), and increasing the capacity of EV charging stations.

 

Why is it essential to invest in climate projects?

Investing in climate projects and businesses is vital to meeting global climate targets. To reach net-zero by 2050, countries have to work together to rethink how they produce and use current resources. Funding into climate projects may make current technology more sustainable.

 

Where are climate investments coming from?

Venture capital funds come from various places including, traditional VC firms, firms specializing in sustainability, and sometimes government investments.

 

Why are climate investments growing?

There are several reasons why climate-focused venture capital is on the rise, but it may primarily be down to public opinion changing. As the next generation demands more from world leaders and companies, there is a massive push for sustainability in every area of life. In fact, many people base their purchasing, career and investing decisions on companies’ green efforts, giving corporations an incentive to go green.