‘Cleantech’ and the more recently coined ‘climatetech’ have emerged as the global growth trend in private and public markets. In public markets, interest in environmental, social and governance (ESG) oriented investing has soared. In private markets, the appetite appears to be back after a long layoff. Investors are looking to utilise their capital to not only produce returns, but to create a real impact.
What has changed, and why now? We’ve known the potential repercussions of climate change for decades now. Today, it is apparent across all corners of the globe.
The US and Australia frequently suffer serious and devasting bushfires for months on end, resulting in economic, wildlife and human loss. Greenland is losing ice seven times faster than it was in the 1990s, meaning an additional 7cm of ocean rise could now be expected by the end of the century threatening to put many millions more people in low-lying coastal regions at risk of flooding. In many regions, water scarcity is a real threat, and by 2025, two-thirds of the world’s population may face water shortages.
This is now making mainstream news on a daily basis. And the pressure is mounting on governments, corporates and investors to make an impact.
Governments are trying to step up to the plate, and ambitious targets are being set across the globe. COP26 kept the 1.5-degree centigrade target alive for now. The goal setting and public announcements must now be over, and the time for action is upon us, as we already face an uphill and unlikely battle to achieve our targets. The public pressure for change will remain as we move into COP 27 & 28 which will both be held in the MENA region.
Corporate action
In addition to governments, the clean energy transition is now on the corporate agenda. Companies ranging from industrial, to oil and gas, to technology firms are pledging to become net-zero – or to large carbon emissions reduction. Apple’s global facilities are powered by 100 per cent renewable energy, and have committed to run their production on 100 per cent clean energy. In the Oil and Gas sector, BP plans to increase investment in low-carbon energy 10-fold to $5 billion a year by 2030, taking its renewable-energy capacity to 50 gigawatts, from 2.5 GW in 2019.
We are witnessing a huge shift in expectations, and public patience towards those who are doing little or not enough to positively impact the climate has worn out. Society is demanding corporates and governments to own the responsibility of decarbonization. Investors are now trying to tie societal goals to their investment strategy to differentiate but also to create sustainable value.
According to PwC, the trend is encouraging. Investment in companies developing technology to try to combat the climate crisis grew to $87.5 billion, up 210 per cent from the previous year. This equated to 14 per cent of venture capital investment was dedicated to climatetech.
Slower progress on climate
We are starting to realize, we don’t need another social media platform; we need an energy transition. Still, challenges face the climatetech sector. Long commercialization cycles prove challenging for investment firms that have short-term views.
As the ideation to commercialization stages traditionally take longer in hardware, so does the timeline for scaling, and investors patience can run thin. Some may need significant ongoing capex requirements. These pitfalls can be avoided by timing an investment right, ensuring the business model is accurate, confirming the market sector is ready for disruption, and fundamentally tackling real problems.
As sustainable development and climate change agendas are slower to progress than anticipated, now is the time to make a conscious decision across governments, corporates and investors to commit capital to a sustainable future and ensure the growth of investment in tackling the climate crisis continues.
