How Green-tech is Transforming the Venture Capital Landscape
Xponents Ventures
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It is widely believed that humanity is facing its greatest innovation challenge yet - The Earth's current temperature is about 1.1°C higher than it was in the late 1800s, and it continues to rise due to increasing emissions.
To prevent global warming from exceeding 1.5°C, as outlined in the Paris Agreement, emissions need to be reduced by 45% by 2030 and completely offset by 2050. With the current global challenges of climate change and increasing energy costs, the importance of green technology has become paramount.
Green tech refers to the use of technology to decrease the negative impact of humans on the environment. This can involve finding new sources of clean, renewable energy or creating methods for repurposing materials in a circular economy.
Entrepreneurs who can develop innovative green tech business concepts will be well-positioned to capitalize on the expanding demand for these solutions. In this article, we will explore the current shift towards green technology and VC investments in this sector.
Investment in Climate Technology: Continuing To Show Strong Growth
Eco-friendly technologies such as solar power and electric vehicles, once considered niche, have now become prevalent as we strive to address climate change. According to PwC's State of Climate Tech 2022 report, climate technology funding in 2022 accounted for more than 25% of all venture dollars invested in the year, which is within the range of 20-30% observed since 2018.
The investment in climate technology has remained in the range of $15-20 billion per quarter, similar to the first half of 2021. This amounts to a total of $260 billion raised for climate tech since the beginning of 2018, with over $50 billion coming in 2022. The report also notes that funding is now more effectively targeting technologies that can significantly reduce emissions.
In 2021, start-ups targeting sectors responsible for 85% of emissions received only 39% of the investment, but in 2022, those start-ups received 52% of climate tech investment.
A Spurt of Growth in Clean Energy
Despite challenges such as supply chain issues and higher costs, the International Energy Agency (IEA) predicts that renewable energy will set another global record in 2022. Despite encountering supply chain issues, delays in construction, and high raw material prices, the world saw 295 gigawatts of new renewable power capacity added in 2021. It is further expected to rise to 320 gigawatts in 2022.
This is due to the growing adoption of solar, wind and other renewables, as well as the decreasing costs of sustainable energy generation. While new technologies may take longer to become widely used, we can expect significant advancements in 2023.
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ESG Goals and Increasing Corporate Commitment
A business segment or company can set the use of green technology as a goal, which is often specified in the firm's environmental, sustainability, and governance (ESG) statement or mission statement.
In addition to venture capitalists, JP Morgan also recently established three new sustainability investment funds. This follows a trend of companies creating clean energy investment funds in response to the increasing demand for environmentally, socially, and ethically responsible investing, referred to as ESG investing.
Corporations are now prioritizing sustainability in their responsibility efforts. As an example, Google asserts that the eco-routing functionality of Google Maps has cut greenhouse emissions by over 500,000 metric tons.
Apple has made its operations carbon-neutral and is striving towards a goal of being completely carbon-neutral by 2030. To achieve this, the company is encouraging its suppliers to make use of clean energy and is focusing on its Power for Impact program, which aims to bring clean energy to people around the world.
Intel has also committed to net-zero greenhouse emissions in operations by 2040 and is working towards being net-positive in water, having zero waste going to landfills, and using 100% renewable electric energy.
Frontier, a partnership consisting of Alphabet, Stripe, Shopify, McKinsey, and Meta, has already made a preliminary investment of $925 million in five various startups that focus on carbon dioxide removal. The First Movers Coalition, which includes Alphabet, and Salesforce, has also pledged $500 million towards CDR elimination by 2030.
The Innovative Startup Landscape
There are several startups that are making innovative advances in the carbon removal space. Brilliant Planet is utilizing algae to segregate carbon on a large scale and in an affordable way. The firm grows microalgae in open-air ponds on desert land, which do not need fresh water. It has set up a 30,000-square-meter production space and an algae growth pond in Morocco, which is the largest in the world, to support its future growth.
Climeworks incorporates direct air capture technology to extract carbon dioxide from the air and store it permanently underground, where it will not contribute to climate change. Their website allows people to make a climate purchase or give it as a gift, with more than 16,000 people in 56 countries already involved.
Blue Planet System is also focused on carbon removal and aims to mineralize CO2 and stock it in the built environment to neutralize the harmful impact of concrete, which contributes about 8 per cent of global CO2 emissions.
As demand for cleantech solutions increases, startup innovation is likely to expand in various areas such as hydrogen and electric vehicles, wind and solar technologies, and affordable renewable energy storage solutions through battery innovation. It is hoped that collaboration between corporations, startups and investors will lead to the development of innovative solutions to current global challenges.