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Navigating Climate Tech Investments in the Funding Winter

By June 29, 2023No Comments
Climate Tech startups Investments Funding Winter

Gloomy climate change headlines such as – carbon dioxide levels in the atmosphere continuing to climb, the “Doomsday Glacier” melting quicker than expected, increase in greenhouse gasses, climate change’s impact on increasing the risk of extinction of hundreds of species may be rife but there remains one glimmer of hope through the startup ecosystem. It is manifesting in the form of wiser and calculated investments.

The funding winter of 2022 has had little impact on the Climate tech sector. Despite the substantial geopolitical and financial challenges that roiled most global capital markets, climate-related investments rose dramatically in 2022.

According to PwC’s State of Climate Tech 2022 report, more than a quarter of all venture capital funding went to climate technology businesses that were specifically focused on emission reduction technologies. Across the globe, financing in major sectors such as FinTech, Retail, EdTech, and HealthTech fell more than 35% year on year, whereas funding in the Climate Tech space dropped only 5% year-on-year in 2022.

Climate-related private market investment significantly exceeded the overall market in terms of deal activity, cash deployed, and capital flows into specialized funds. The upward trajectory appears certain to keep pace in 2023, as governments, firms, and investors speed the deployment of climate solutions, which have the potential to support energy security, affordability, and sustainability goals.

Facilitating Greener Pastures

In response to the current energy crisis, many nations have kept up, and in some cases increased, their short-term reliance on fossil fuels in response to the ongoing energy crisis. However, both public and private organizations have made extensive promises to cut greenhouse gas emissions across all sectors of the economy and technologies.

Long-term demand for climate and decarbonization technology is predicted by multiyear offtake agreements for renewable fuels, low-carbon materials, and essential input materials. In the United States alone, the need for clean energy through industrial power purchase contracts has nearly quadrupled since 2015.

Rather than just being a decarbonisation instrument, in the aftermath of the Russia-Ukraine conflict, funding in the climate tech sector is acquiring traction as a means of attaining energy self-sufficiency. Moreover, governments, notably those in large economies have introduced substantial legislative and regulatory measures in order to promote their priorities for climate and energy transition. Programs such as the European Union’s Green Deal (2019), Fit for 55 (2021), and RePowerEU (2022) have gradually increased the participating states’ emission reduction goals.

The transdisciplinary nature of many of the solutions is one of the distinctive features of climate technology. It is used in a variety of fields including, but not limited to, solar, wind, energy storage, energy transmission, carbon capture, bioplastics, climate data and reporting, geothermal energy, software, manufacturing, and engineering; which are needed to end the climate crisis.

There is also a decline in green premiums for climate solutions. According to Mckinsey sustainability’s report, when compared to fossil fuel alternatives, certain mature climate solutions, such as utility-scale solar or wind, have already attained cost parity—or discounts. As a result, they have access to substantial value pools. Solutions that are still considered green, such grid-scale storage or hydrogen, are still in the early stages of development.

McKinsey analysis predicts substantial cost savings through the 2030s that will ultimately result in cost parity between green hydrogen (produced using renewable power) and grey hydrogen (produced using natural gas), particularly among nations with plentiful cost-effective renewables like Australia, Chile, and China. While the cost of clean hydrogen has most recently increased, largely driven by development costs, analysis suggests noteworthy expense drops through the 2030s. Moreover, The total expense of ownership (TCO) for medium and heavy duty battery EVs will be cheaper than the TCOs for their internal combustion engine (ICE) equivalents as early as 2025.

Making Dents with Robust Investments

With climate tech companies undergoing rapid innovation, investors are taking note of the cutting-edge solution-centric ideas and the potential these businesses promise.




Into the Future 

With the reversal of climate change gathering considerable international favor, several governments presented plans and pledges at the 2021 COP26 conference in Glasgow. India has also vowed to achieve Net-Zero emissions by 2070, and its leadership is actively moving in that direction. The recent Energy Conservation Amendment Bill 2022, which promotes non-fossil energy sources and introduces and supports the trading of carbon credits, is an example of this.

Moreover, with continued support from business giants investing in environmentally friendly technologies, the climate tech market is poised for remarkable expansion in the coming years. Information technology giant HP is investing in the development of energy-efficient tools and services to keep its products operating for a longer period of time. HP is also actively moving away from expanded plastic foam packaging cushions in favor of those made from recycled, molded pulp, which should prevent the need to dispose of over 900 tonnes of expanded plastic foam annually.

Yvon Chouinard, the founder of American outdoor clothing retailer Patagonia, pledged to donate all profits not invested in the business towards fighting climate change, a sum equivalent to $100 Mn annually. In line with this, Microsoft co-founder Bill Gates recently donated $20 billion to the battle against social and environmental problems worldwide.

We at Purple Quarter believe that while climate technology projects throughout the globe have already achieved significant progress, ideas that attempt to address different facets wherein climate change and its consequences show themselves, will have the greatest impact. There are many unidentified situations and consequences caused by climate change, and we have only scratched the surface of these complicated and centuries-long relationships. More innovative ideas, technological acumen, mathematicians, data scientists, tools, and technologies are needed to refine this understanding while shooting at a shifting target.

The future prosperity of climate tech businesses will be determined by how they can assist developing nations in achieving sustainable growth faster and with a greater sense of responsibility than the rest of the globe. Given the urgency, innovators of climate technology today are motivated by the need to innovate, disrupt, and solve pervasive issues that touch a critical mass of people—a feat fueled by macro and micro variables that promise a different result from its forebears.


Authored by Nishka Agrawal

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