Climate Tech on the Rise

KPMG Venture Pulse Report shows a downward trend in VC investments which plummeted to USD13.5 billion, end of Q1 2023, marking the lowest quarter so far in the region over 8 years period. Electric vehicle (EV) and alternative energy deals, however, are still appealing to investors during this depressed market.

Climate tech, in particular, has harbored extra interest in the VC investment deals. Despite facing challenges in overall VC investment decline, geopolitical factors that affected oil and gas prices and unemployment stress from layoffs in the tech sector, climate tech is reportedly marking an incredible increase of about 89% to reach USD70.1 billion in 2022 from 2021.

Source: Alta Views

In 2022, the investment landscape witnessed a notable surge in the domains of energy storage and mobility. These two sectors, encompassing energy storage solutions like batteries, grids, and EV charging infrastructure, as well as transportation modes like EVs and micro-mobility vehicles, recorded a significant year-on-year growth increase of more than 40%. Collectively, they accounted for more than 25% of all deals. 

The climate tech industry witnessed an impressive expansion in the scale and volume of investment deals, as evidenced by a significant increase in the size of large deals. A total of 60 funds focused on climate tech successfully closed, raising an impressive USD24 billion in capital. Moreover, the sector also experienced a remarkable surge in the number of unicorns, with a record-breaking 83 startups attaining the coveted unicorn status. These firms were collectively valued at over USD180 billion, indicating a new unicorn was created approximately every two weeks on average. 

The pronounced uptick in investment inflows in these sectors may be attributed to the heightened global focus on renewable energy and the increasing adoption of sustainable transportation systems. This robust growth trajectory in climate tech is also indicative of the surging investor appetite for sustainable solutions and a growing recognition of the critical role that these technologies will play in combatting climate change.

In a recent report published by the International Renewable Energy Agency (IRENA) which underscored the pressing need for a significant increase in annual investment spending on climate tech. The report calls for a more than four-fold increase in annual investment, with a target of USD5 trillion per year, in order to attain a cumulative total of USD150 trillion by 2050. 

Given the immense scale of the investment challenge ahead, investors must remain vigilant in identifying potential market opportunities and high-yield investments, particularly in the VC market. With the rapid growth of the climate tech industry and the crucial role it will play in the global transition to a sustainable future, investors who are able to effectively navigate this dynamic market are poised to reap significant rewards in the years ahead.