Climate Tech Investment Triples: Emissions-Cutting Tech Lags

Climate Tech Investment Surges

Funding from venture capital (VC) and private equity (PE) firms in climate technology is experiencing substantial growth. A recent report by PWC indicates that $87.5 billion was invested during the second half of 2020 and the first half of 2021.

Over $60 billion of this investment occurred in the first six months of 2021 alone.

Significant Increase in Funding

This represents a 210% increase compared to the $28.4 billion invested in the preceding 12-month period. Approximately 14 cents of every dollar of VC funding is now allocated to climate tech initiatives.

Investment Focus and Opportunities

Despite the positive trend, the majority of investment is currently directed towards technological solutions. These solutions account for only 20% of the potential for emissions reduction.

PWC suggests a strategic opportunity exists to redirect investment towards areas and technologies that have a more immediate and substantial impact on lowering emissions.

Early-Stage Investment Trends

While overall growth is evident, the number of early-stage VC investments – including seed and Series A funding – in climate tech has remained relatively stable since 2018.

Disparity in Investment Allocation

An analysis of 15 different solutions revealed that the top five, which collectively represent over 80% of potential emissions reduction by 2050, received only 25% of the total climate tech investment between 2013 and the first half of 2021.

This indicates a need for VC firms to prioritize investments that directly address emissions, rather than solely focusing on platforms that monitor them.

Expert Commentary

Emma Cox, the global climate leader at PwC U.K., stated:

“Climate tech encompasses technologies specifically designed to reduce greenhouse gas (GHG) emissions. Investment in climate tech experienced a slowdown between 2018 and 2020, but has since rebounded strongly in the first half of 2021.

This resurgence is fueled by a renewed emphasis on Environmental, Social, and Governance (ESG) factors in private markets, the emergence of new regulations and standards, and an increasing number of companies committing to net-zero strategies.”

Key Findings from the PWC Report

The United States currently leads in climate tech investment, attracting nearly 65% of VC funding – totaling $56.6 billion from the second half of 2020 to the first half of 2021.

China is estimated to have received $9 billion in climate tech investment during the same timeframe.

Europe’s investment reached $18.3 billion, driven by a substantial increase – nearly 500% (494%) – in the Mobility and Transport sector between the second half of 2020 and the first half of 2021, compared to the previous 12 months.