ClimateTech investment: The key issues you should know

Investment in climate tech is not at the level needed to address climate change. The majority of the solutions we need already exist, but investments aren't going to the locations where they're most needed. We will only meet net-zero goals when we address scalability, infrastructure and skills. Investing in emerging economies is not hampered by a lack of financial resources, but rather by a lack of confidence among investors, legislative barriers and risk related to delivery of the projects. It is the responsibility of companies to improve this confidence by evidencing training and implementation strategies. As the COVID-19 pandemic demonstrated, finance and community-led solutions can be found in the face of existential threats. Addressing the need for finance now will enable us to upscale the delivery of regional projects that will have the biggest impact on meeting our Paris Agreement goals.

In part one of our ClimateTech investment series, we address the key issues surrounding the topic. As we continue to explore this topic, we will be interviewing industry experts, thought-leaders and regional stakeholders on the solutions.

Where is the money required to have the biggest impact on climate tech?
Data shows that environment-focused tech companies have raised anywhere between $2.41bn and $50bn in venture capital (VC) [1]. Estimates from recent COP host countries Egypt and the UK place the need for investment at around $1 trillion to abate climate change. While these figures are disputed, it is agreed that investment needs to increase, especially in emerging nations to keep within 1.5-2° of global warming.

The money is required in the worst-polluting industries and in the countries where the focus has not been. Energy and transport are significant emitters, and the Global South countries have not received the investment needed to curtail emissions. While energy investment was up 8% in 2021 and the majority of the increase was due to renewable energy, this investment is concentrated in Global North countries. The International Energy Agency states that renewable energy investment in emerging economies has to increase by seven times by 2030 (around $1 trillion) to meet net zero emissions by 2050 [2].

How are the worst offending industries - such as heavy industry, power and energy, and heavy-duty transportation - evolving? Are they receiving the backing they need?
We face many challenges in decarbonising certain industries. Some of the technology needed to decarbonise sectors such as steel and cement, as stated by the Intergovernmental Panel on Climate Change, does not exist [3]. It is incumbent on governments to provide subsidies and VC to invest in projects that won't attract the investment of private venture capitalists.

We also need to address the issue of labour by ensuring we are upskilling an agile workforce with a global mindset to operate and maintain climate technologies of the present and near future. We have technology enabling us to collaborate in real-time but not the communication and technical skills needed for operating the technologies.

Wealthy nations can invest in the workforce needed for large-scale decarbonisation projects while emerging nations do not have the capital. India secured 5,000 electric buses at almost half the price of previous tenders in 2022 [4]. Scaling up further will require skills training as electric vehicles need specific skills to operate compared to internal combustion engine vehicles.

With the high capital costs of many climate technologies, emerging economies need creative and long-term financial solutions which may not appeal to investors seeking quick returns. Ultimately, emerging nations are increasing their wealth year-on-year, with significant growth rates in India, Indonesia, Malaysia etc. Decarbonisation can be incorporated in their journey towards economic growth and investors can invest now to reap the benefits. Alternatively, these countries can transition to a green economy once they have the capital to decarbonise at the market price, but at the devastation of the climate. The latter scenario will severely impact businesses and investment returns due to negative climate change effects, such as supply chain disruption, labour shortages and flooding. We need investment now.

Is capital being put off by unpredictable timelines for product development and as yet unproven tech?
It is understandable that as-of-yet unproven technologies may deter investment. Not simply because they are unproven, but because it is yet to be established if they can produce a return. The cost of not investing in these technologies is ultimately greater than the cost of investing in them since climate change will affect all areas of business operations, such as supply chains, geopolitics etc. Some investors may be more inclined to take these risks, while the more rational investors may be more inclined to place investments in projects that are already producing returns.

What is the roadmap for success in ClimateTech and is there a crossover between sectors?
Coal, oil, and gas use translates not only into domestic energy usage but also into heavy industrial processes. Decarbonising and reducing emissions, the energy supply of heavy industry and other industries, including transport, is perhaps the most efficient way to decarbonise. Creative solutions, like the implementation of electric mass transit systems while simultaneously investing in renewable energy supply, infrastructure, innovation and technology to power those vehicles, can tackle issues from multiple angles and efficiently reduce emissions.

Clean technology today, is it scalable?
Promising technologies including hydrogen, carbon dioxide removal and electric mass transit are accelerating at a rate that is bordering on being unsustainable. To support exponential growth we need investment.

Not all tech is easy to scale. Hydrogen is experiencing issues in terms of scalability despite the promising emissions-reduction potential. While electric vehicles are proving scalable, the barrier remains investment.

Funding gap arguments between climate tech sectors are also valid but the reality is more nuanced. Take renewable energy and electric vehicles, for example. They represent a significant proportion of climate investment, yet a large portion of this investment is concentrated in Global North countries [5]. Emerging economies need investment to decarbonise as well.

What can we do about this?
With many of the world's economies facing recession or economic hardship [6], we have no choice but to look at creative, sustainable solutions to fund climate-related technologies across various sectors. On that note we would like to leave you with some questions:

- How can we bring together people, innovation, and finance to establish new organisational solutions that help global teams share knowledge and budgets?

- How can companies show the viability of projects and organisational structure to build confidence among investors ensuring we can fund projects that will meet demand?
 

For more information on CAUSIS, click here.

CAUSIS is a sponsor of Campden Wealth’s ClimateTech Investing Forum 2022 in Lausanne, Switzerland, on December 6 and 7. 

For more information and to book a place, visit www.climatetechinvesting.com.

To participate, email Anton Paul via antonpaul@campdenwealth.com
 

[1] https://www.verdict.co.uk/cop27-take-note-climate-tech-funding-has-soared-in-2022/
[2] https://www.iea.org/news/it-s-time-to-make-clean-energy-investment-in-emerging-and-developing-economies-a-top-global-priority
[3] https://unfccc.int/topics/mitigation/workstreams/response-measures/modelling-tools-to-assess-the-impact-of-the-implementation-of-response-measures/integrated-assessment-models-iams-and-energy-environment-economy-e3-models
[4] https://www.iea.org/reports/electric-vehicles
[5] https://www.iea.org/reports/world-energy-investment-2022/overview-and-key-findings
[6] https://www.imf.org/en/Publications/WEO/Issues/2022/10/11/world-economic-outlook-october-2022