Today, Monday, 22nd April, is World Earth day. It’s a great moment in time to reflect on the stage of climate change and the industry that is fighting this challenge – namely Climate Tech. That’s the view of Matthew Jellicoe, Director at One Planet Capital, a venture capital investor into businesses tackling climate change and the world’s biggest environmental problems. In this blog, Matt shares his considerable insight not only into the challenges the world faces in the race to decarbonise and achieve net zero, but also some of the solutions.
The urgency to address climate change has never been greater. As the world grapples with extreme weather events, rising sea levels, and biodiversity loss, the need for innovative solutions is paramount.
Despite the deluge of negative information on the state of climate change, progress is being made; The European Union pumped out 8% less carbon dioxide from the fossil fuels it burned in 2023 than it did in 2022 pushing these emissions down to their lowest level in 60 years*. More than half of the drop in emissions came from the use of cleaner electricity. The EU built record levels of solar panels and wind turbines in 2023, according to industry data, and was able to make more electricity from dams and nuclear power plants*. That being said, emissions are falling far too slowly currently and investment levels need to continue ramping up.
A look into 2024……a coming of age for Climate Tech?
By all accounts 2023 was a tough year for venture capital, although off the back of record volumes in 2022, with global VC volumes were down as much as 50%. And Climate Tech, despite the existential threat in involves, was not spared.
That being said, the sector performed far better than the market in general and in many ways was the star performer of 2023. The carbon and energy sector, which encompasses climate tech, accounted for 27% of all the 45 billion USD of capital invested in European technology in 2023, tripling its share of investment since 2021. This made it the single largest sector by capital raised, overtaking both fintech and software**
It is probably worth explaining the fundamentals of Climate Tech and why it is proving so resilient as a sector;
Firstly, Climate Tech is now a vast investment area, it encompasses a diverse range of technologies and applications focused on mitigating climate change, either by reducing greenhouse gas emissions across various industries and processes or by removing previously emitted carbon dioxide from the atmosphere. Key sectors for climate tech include mobility & transport, energy generation & distribution, industrial processing & manufacturing, food & agriculture, built environment and increasingly sustainable B2C business models.
Secondly, it is underpinned very powerful market dynamics. Probably the largest driver we see on the ground so to speak is corporate momentum. In terms of corporate policy, 92% of the world’s GDP has now made net zero pledges – this creates an unprecedented surge in corporate activity across every aspect of the economy – whether its energy source, transport related, packaging, manufacturing processes or carbon management platforms.
The surge of investment in Climate Tech since 2020 has now created massive momentum in the sector. This, coupled with technology advancements in terms of areas such as battery storage, materials science, biotechnology and AI, is continuing to drive progress and reduce costs in many areas of Climate Tech which means solutions have cost parity at scale.
Government regulation is continuing to be implemented in most economies – whether general net zero targets or specific regulation across subsectors. In the maritime space for example, where OnePlanetCapital have investments in RAD Propulsion (electric drive trains) and GT Green Technologies (wind propulsion systems for cargo ships) the industry is under huge pressure to cut emissions in the short term which in turn creates very strong pipeline for solutions.
Finally, in the backdrop is growing public awareness and acceptance of climate change and its impact. Consumer patterns are putting increased pressure on the market in terms of sustainability which means companies have to adopt Climate Tech innovations. We see this play out directly in terms of the growth of sectors such as secondhand clothing at the expense of fast fashion – for example, the reselling market is predicted to outstrip fast fashion by 2029***.
Conclusions
In summary the Climate Tech sector will maintain the high activity levels seen 2023 and continue to grow as a sector. Unfortunately, the problem it is addressing is here to stay and is only getting worse. For investors this means that Climate Tech provides a large, diversified, robust sector for the long term and a real chance to create impact with commercial growth.
What I do expect to see within the sector is a greater alignment of emissions with sub sector investment. For example, built environment accounts for a massive 37% of emissions but receives a fraction of that in terms of VC investment, whereas clean mobility accounts for 7% of emissions and has historically attracted 15% of VC investment****. We expect to see a correction is some of these areas – built environment is starting to get much more attention as innovations are proven and large-scale capital is attracted. Maritime is getting much more interesting in terms of solutions coming to market and companies scaling up. I also expect to see more hydrogen solutions for transport coming of age in 2024 and 2025 and inevitably we are seeing many more AI driven solutions coming to market.
Matthew Jellicoe is a director of OnePlanetCapital (www.oneplanetcapital.com) – an early stage EIS fund specialising in climate change investing.
* https://www.theguardian.com/environment/2024/jan/24/eu-fossil-fuel-co2-emissions-hit-60-year-low
**https://tech.eu/2023/12/28/climatetech-startups-sustainability-innovation-and-startups-to-drive-global-change-in-2024/
***https://www.businesswaste.co.uk/news/in-with-the-old-and-out-with-the-new-second-hand-clothing-market-set-to-overtake-the-fast-fashion-movement/#:~:text=Consumers%20are%20increasingly%20turning%20towards,’fast%20fashion’%20by%202029.
****https://tech.eu/2023/12/28/climatetech-startups-sustainability-innovation-and-startups-to-drive-global-change-in-2024/
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