Investing in the Future

What to expect from the industry seeking to save the world.

By Angel Miao, Co-Executive Director (McGill)

All figures are given in USD, unless stated otherwise.

On a blustery, unassuming Thursday in mid-January, the newly anointed richest person in the world took to Twitter to do what he does best — wreak havoc and foster innovation. This time, Elon Musk shocked the world with a supposed promise of $100 million for development of the “best” technology to capture CO2 emissions. Shortly, he followed the tweet (see below) with a second message that promised “Details next week.”

Though Musk’s Twitter has proven volatile, attention-seeking, and borderline unhinged in the past (see: “69 days after 4/20 again haha”), this recent message resonates differently. According to the International Energy Agency, capturing GHG emissions is a critical component in meeting net-zero emissions targets and one that has made little progress to date — thanks to Musk, this may be changing soon.

Thankfully, Elon Musk is far from the only person rewarding climate innovation. Firms all around the world are beginning to turn their eyes to “climate tech”, the hottest new venture for investors. Climate tech is an umbrella term for a broad set of sectors that are addressing the challenge of global decarbonization. This includes low-carbon methods of curbing emissions across industries such as energy, built environment, transportation, and agriculture or carbon capture and storage technologies (as Musk promises to reward).

According to a 2020 PwC report, funding for climate-related technologies has risen more than 3,750% since 2013 as a growing number of climate-focused venture capital firms vie for dominance in the field. Entrepreneurs and startups are tackling scalable businesses to combat the growing threat of climate change, bolstered by the supportive venture capitalists of the world. Notably, the Bill Gates-led Breakthrough Energy Ventures recently raised its second $1 billion round of funding and will seek to fund between 40–50 startups in the next few years, focusing on green technologies. Like all VC firms, Breakthrough Energy Ventures’ goal is profit, but it is also focused on generating meaningful environmental benefits: eligible startups need to prove that they can scale to a size that cuts “at least 500 million metric tons of annual CO2 emissions”, which is about 1% of global emissions.

The resurgence in interest in clean technologies is eerily reminiscent of the late 2000s boom (and bust) in ‘clean tech’ investment. From 2005–2011, venture capitalists funnelled over $25 billion of capital into clean tech startups and subsequently lost over half of it; more than 90% of startups funded after 2007 were unable to pay back to capital that was initially invested. A mix of factors, including the global recession, reliance on natural gas, and the poor performance of research-and-development staged startups led to the first clean tech bust.

But this time, the boom is poised to be different. For starters, clean technologies have been refined over the past fifteen years, becoming both cheaper and better; the availability of lithium-ion batteries for electric vehicles and the improved performance of renewables are just two examples of how this space has revolutionized and been rendered more accessible since the first clean tech bubble. Moreover, over one hundred countries all around the world have pledged to achieve net zero emissions before/by 2050, and over 300 multinational corporations of all industries have also committed to decarbonization by mid-century. Consumer demand for sustainable business practices and products has skyrocketed since the early 2010s. Market conditions are such that climate-tech is much less risky than it was during the first boom.

This has set the stage for rapid growth and development of climate-focused technology. From 2013 to 2019, early-stage investments in climate-related tech soared from a mere $420 million per annum to more than $16 billion (PwC).

One of the biggest differences between the current climate tech trend and the failed clean tech investments is that many VCs are avoiding long-term investments and early-stage funding this time around to limit their risks. This means that there will also be an increasing need in public funding over the next few years to help drive this industry forward, filling in some of the critical technological gaps in clean energy.

A president who has promised bold action against climate change now sits in the Oval Office. How does a Biden administration accelerate the climate tech startup space in North America and beyond? Joe Biden’s plan for economic recovery is deeply interwoven with climate investment — investing in new jobs, new infrastructure, and new funding in the climate space. Congress is expected to pass stimulus bills that would deposit massive amounts of capital into clean tech. To achieve the Biden administration’s goal of net zero GHG emissions by 2050, a recent Princeton study has concluded that in the next decade alone, $2.5 trillion dollars will need to be invested, 50 million electric vehicles put onto roads, and renewable energy resources quadrupled among others. For companies that are focused on developing and funding climate technology, they are ready to answer the call. A promising era now dawns upon them, a chance to breathe deeply again after an administration that had revoked 70 environmental rules and regulations over their entire four-year reign.

Over the next few crucial years, demand for climate tech will only accelerate. Governments, corporations, investors, and eccentric billionaires alike are all betting high stakes on the breakthrough of scalable, impactful climate technologies. It remains to be seen whether these bets will pay off, both in terms of realized profits and in terms of actual environmental impact. One thing is certain, however — the world is in a race to limit climate change. The outcome of these ventures will be paramount in determining the future of our planet.

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