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Climate Tech Investment Plunges 40%: Economic Uncertainty Casts Doubt on Green Future

Climate Tech Investment Plunges 40%: Economic Uncertainty Casts Doubt on Green Future

Despite a 40% decrease in climate tech investment, the sector has performed relatively well compared to other areas, and the share of funding going to climate tech continues to rise.

According to a report from PwC, investment in climate technology has fallen by 40% in the last year. The decrease in investment reflects market conditions rather than a deliberate move away from climate tech. Economic uncertainty and geopolitical conflict have dented investor confidence, leading to a decline in climate tech investment.

However, the fall in climate tech investment is smaller than the venture capital and private equity average across sectors, which stands at 50%. In fact, the share of funding going to climate tech has continued to rise, accounting for more than 10% of private market start-up investments in 2023.

Emma Cox, global climate leader at PwC UK, emphasized the importance of developing and scaling up climate technology to meet the climate challenge. While the absolute levels of investment in climate tech have fallen along with the market, Cox expressed concern and called for a shift in the balance of investments towards technologies that can have the greatest impact in cutting emissions.

The report also highlighted a shift towards greater efficiency in spending for emissions reduction. However, a disproportionate share of investment is still going to technologies with lower potential. Despite the overall decrease in investment numbers, there has been a rise in the share of climate tech private equity and venture capital, as well as grants for start-ups working on higher emissions reduction potential technologies.

Solar power’s share of investment has increased by 24%, while green hydrogen has seen a 64% increase. Carbon capture, utilisation, and storage have also seen a 39% increase since 2022, although it still represents less than 2% of total climate tech funding.

On the other hand, investment in light-duty battery electric vehicles has decreased by 50% since 2022, and investment in micromobility (such as e-bikes) has decreased by 38%. However, mobility in its various forms still accounts for 45% of investment.

The industrial sector, one of the highest emitting sectors in the economy, has experienced a surge of investment in climate tech venture funding. The share of investment into the sector has almost doubled between Q4 2022 and Q3 2023, reaching 14%. This shift in investment reflects the growing recognition of the need to address emissions in the industrial sector.

Investors have also shifted away from early-stage deals to mid-stage deals, mainly due to challenges around scaling or implementing capital-intensive climate tech, as well as a challenging macroeconomic environment. Early-stage deals accounted for more than two-thirds of all climate tech deals in 2018 and 2019 but dropped to around 47% in 2023.

Will Jackson-Moore, global sustainability leader at PwC UK, acknowledged the challenging macroeconomic environment and geopolitical turmoil that have led to a 40% drop in capital flows to climate tech ventures. However, he also emphasized that these dynamics present significant first-mover opportunities for investors to engage in the current dip, as the need for climate tech innovations will only grow stronger.

Overall, while the decline in climate tech investment is a cause for concern, the sector has performed relatively well compared to other areas. The report highlights the importance of increasing investment in all technologies with the potential to cut emissions, as well as the need for a shift towards technologies that can have the greatest impact.

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Nayan Kumar
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