Climate tech is a hot investment trend, powering startups in everything from batteries to aviation and carbon capture, but is it a burgeoning big business?
Boyden's perspectives on the news and trends that are transforming industries
In its 2020 climate tech report, PwC estimated that investments in climate tech grew more than 3750% in the seven years since 2013. This dwarfs investments in AI by about 300%. Venture capital is playing a dominant role, with VC investments in climate tech growing at five times the rate of startup funding overall. Innovation is charged up, with new patents in climate technology greatly outnumbering those in other technologies, according to the International Energy Agency.
Investors are energized by success stories like Tesla, whose market cap has grown from about $1.7 billion in 2010 to $700 billion. Another is Beyond Meat, a maker of sustainable alternative protein, which went public with a valuation of $1.5 billion in 2019 and is now worth nearly $8 billion. The broader picture is equally bright: Annualised total returns of more than 40% were generated by the S&P Global Clean Energy Index over the past three years, more than double those of the S&P 500.
VC titan Sequoia Capital is all in, with about a tenth of its new investments going to climate tech. So is venture capitalist Chris Sacca of Lowercase Capital. In August he announced plans to launch four climate tech funds worth $800 million in total. Nancy Pfund, Founder of DBL Partners, which has invested in sustainable technology since 2004, owes the boom to the economics of renewable energy. “There’s been a stunning cost reduction over the past decade,” she said. “This brings in mainstream investors who are just making dollars and cents. They’re not even necessarily waving the climate banner.”
Climate tech is not only attracting more investors; it is attracting different kinds. Along with venture capital, this includes states, philanthropists, Wall Street and big business, according to The Economist. In August the U.S. Department of Energy announced a $1.5 billion partnership with Bill Gates’s Breakthrough Energy, whose Catalyst programme aims to accelerate technologies in aviation fuel, green hydrogen, direct air capture and energy storage. The EU Commission is also participating, specifically on a $1 billion initiative to build demonstration projects for clean tech.
Firms are also receiving funding from charities and family investment firms. The latter account for about 10% of total climate tech VC deals, by one estimate. Non-profit Elemental Excelerator’s early-stage investments of $43 million have secured $3.8 billion in follow-on funding, says CEO Dawn Lippert. One of its portfolio firms, Ampaire, a developer of hybrid-electric aircraft, was acquired for $100 million. Another, energy storage firm Stem, went public via a $1.3 billion SPAC deal.
Corporate giants are going beyond rhetoric and investing directly in climate tech. According to Energy Monitor, corporate venture investment surpassed $58 billion between 2017 and 2020. Big tech is especially active. Microsoft has established a $1 billion climate tech fund, and Amazon has launched one worth $2 billion. “The focus is on decarbonisation, which is a strategic need for Amazon”, says Matt Peterson, a Business Intelligence Engineer at Amazon.
In the Wall Street corner, JPMorgan Chase said it will commit $2.5 trillion to sustainable investing, including $1 trillion for clean technologies. Private equity firms are increasing their share, committing over $16 billion in July alone. Amongst American PE firms, TPG said it has raised $5.4 billion for its Rise Climate fund. General Atlantic plans to raise $4 billion for its BeyondNetZero (BNZ) fund. Lord John Browne, the former BP chief appointed to head BNZ, says he is looking for firms that could be “the Amazon of electricity”, and believes “some are going to grow to that size”.