In such an innovative world, full of technology that is constantly nudging the bounds of what might be possible, there comes an all-new savior to this saga of our planet's future: Climatech. This matching of climate with technology remains a potential key to unlocking a sustainable future—perhaps even a beacon of hope serving in our global efforts to diagnose, treat, and mitigate the maladies associated with climate change.
As the Native American Proverb goes: "We do not inherit the earth from our ancestors, we borrow it from our children."
The State of Climatech: A Snapshot
Recent insights from PwC’s fourth annual State of Climate Tech report illuminate a paradoxical landscape. Despite the surging urgency for innovative solutions to combat climate change, the climate tech world has navigated turbulent waters over the past two years. Investment in climate tech startups witnessed a significant contraction, declining by 40.5% year-over-year. This downturn, however, isn't just a tale of numbers but a reflection of broader challenges gripping private markets—from geopolitical strife to economic pressures reshaping the investment climate.
Yet, in this narrative of contraction, there's a subplot of resilience and potential. Climate tech's share of private market equity and grant investment saw an uptick, reaching 11.4% in Q3 2023. This growth, set against a backdrop of declining investments, signals a sector defiant in the face of adversity, adapting, and realigning towards sectors with the highest emissions and, consequently, the highest impact potential.
A Tapestry of Challenges and Opportunities
This juxtaposition of decline and growth in the Climatech sector brings to light the complex tapestry of challenges and opportunities that define this moment in history. The decline in startup funding, taking it back to levels seen five years ago, seems a stark reminder of the volatile path of innovation. Yet, it's within this volatility that the seeds of opportunity are sown.
The global decarbonisation rate remains alarmingly slow, necessitating a sevenfold acceleration to curb warming to 1.5°C above pre-industrial averages. Herein lies the opportunity for Climatech—a call to arms for innovators, investors, and policymakers alike. The innovation capital required to bend the decarbonisation arc is monumental, especially as we consider that over one-third of the emissions reductions in 2050 depend on technologies still in development.
Fostering Growth Amidst Adversity
The silver linings are as evident as the challenges. With a strategic shift towards higher-emission sectors and a burgeoning interest in technologies with significant emissions-reduction potential, the Climatech sector is recalibrating. Investments are slowly but surely moving towards sectors like industrials, which account for a substantial share of global emissions, and technologies that promise a higher emissions reduction potential, such as carbon capture, utilization, and storage (CCUS); green hydrogen; and alternative foods.
This strategic realignment, coupled with an increase in renewable energy investments hitting a record high, underscores a sector not just resilient but ripe with potential. The rise in first-time funders joining deals further paints a picture of a sector diversifying its investor base, expanding its horizons to encompass a broader swath of innovation and impact.