Investment into climate tech is booming globally, as venture capital and private equity firms poured $87.5bn into the sector over the twelve months to 30 June 2021 – more than triple the $28.4bn global total reached a year before.
Buoyed by dry powder accumulated during the first few months of Covid lockdowns, investment firms focusing on private markets poured an excess of $60bn capital into climate tech startups in the first half of 2021 alone, according to a new report by PwC.
Climate tech startups are classified as tech companies directly working towards reducing green house gas emissions; addressing the impacts of climate change; and enhancing our understanding of the climate.
Yet this first mission – addressing the largest contributors to global emissions -is relatively overlooked by investors, the consultancy found.
Technology companies in the top five sectors for reducing global emissions – solar power, wind power, food waste technology, green hydrogen production, and alternative foods/low GHG proteins – which represent more than 80 per cent of emissions reduction potential by 2050, received just 25 per cent of the capital invested into climate tech between 2013 and the end of the first half of 2021.
Instead, mobility and transport received the lion’s share of climate tech funding, as the like of electric vehicles (EVs) and micro-mobility captured investors’ attention, raising $58bn globally – two-thirds of the total climate tech investment in the twelve month period.
“Our research has found there is potential to better channel and incentivise investment in technology areas that have the greatest future emissions reduction potential,” said Emma Cox, global climate leader at PwC UK.
“This raises the question of why these sectors are missing out – are investors missing a value opportunity or is there an incentive problem that needs the attention of policy makers?”
According to the report, the United States takes the global lead in climate tech investing, attracting $56.6bn, or nearly 65 per cent of VC investment into the sector in the twelve month period.
Europe drew in $18.3bn in the period, driven by a nearly 500 per cent increase in investment into green mobility and transport, compared to the year before.
And it’s clear that climate tech as an asset class is gaining popularity: around 1600 investors were active in the first half of 2021, compared to under 900 in the same period a year earlier, the analysis found.
PwC’s global analysis follows separate data from Dealroom that shows London is second only to Silicon Valley in terms of the size of its ecosystem of climate tech companies, which is brimming with 416 such startups.
Dealroom data shows climate tech investment has been pouring into London, where the combined value of startups in the sector has almost tripled in the last year to $28bn – ahead of rival tech hubs in Europe and beyond.
After the agreement shifted a new investor focus onto green solutions, VC investment into the capital’s climate tech startups grew more than sixfold (x 6.3) to $3.3bn since 2016 – faster than the (x4.9) global average.
And VCs are evidently prioritising the sector when it comes to their portfolios: London-based VCs have raised over half of all European dedicated climate tech funds in the last two years, and the city is home to 18 dedicated climate tech VC firms, more than anywhere else in Europe.