Green Finance, Member Exclusive

Green Finance Briefing: Investment growing in climate tech, and a century of carbon emissions

  • Companies are being pressured by investors, customers, and governments to start addressing climate change.
  • This pressure is generating a growing demand for a relatively new service – climate change management and reporting.

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Green Finance Briefing: Investment growing in climate tech, and a century of carbon emissions

Investment is growing in the climate tech sector

A new generation of climate techs is emerging, creating innovative ways for businesses of all sizes to manage carbon emissions monitoring and reporting, and ultimately drive emissions down.

Companies are being pressured from all sides to start addressing climate change – investors want sustainable businesses, customers want more accountability, and governments are stepping in to start enforcing regulations to mitigate climate risks. 

This triple whammy is sending businesses out to seek help, generating a growing demand for a relatively new service – climate change management and reporting.

This market brings software solutions using data from climate and earth observations to establish baselines and help with setting and meeting emission reduction targets. PwC describes this sector in its new report, the State of Climate Tech 2021.

Investment in this sector has been growing, driven by increased funding in climate data generation, which tripled to nearly $300 million in H1 2021 compared to the second half of 2020. 

Climavision, a company that provides proprietary weather data and machine learning modeling, raised $100 million last year. The investment came from the The Rise Fund, which has $5 billion in assets under management.

Another noteworthy startup is Cervest – a climate risk management software company that specializes in earth science AI to help adapt to climate volatility – which raised $43 million last year. 

And innovation is also getting specialized in financial services: Doconomy offers banks, fintech firms and other companies tools to calculate the climate impact of their digital financial transactions, in an effort to inform consumers and institutions of their environmental impact. 

“Everyone will be required to report on not only their users’ footprint but also the effect of their credit portfolio. We’re also looking to further that service development to corporations in its own entity,” Doconomy CEO Mathias Wikstrom told Tearsheet. 

But overall, the climate risk and resilience management sector remains a small portion of climate tech. 

The mobility and transport challenge area continues to receive the largest amount of funding, as electric vehicles are the main stars of the show, attracting 80% of total climate tech investment.

Here, for example, developments in green hydrogen could be a key driver of the future of synthetic fuels for transport, which remains a vital part of the net zero transition. 

In any case, investment is growing fast in climate technology, nearly quadrupling year-on-year to over $60 billion in H1 2021.

The climate tech market is maturing rapidly, offering significant financial returns and the opportunity for outsized environmental and social impact, and new investors are entering the market each year, PwC said. 

And the rise isn’t just because of a surge in the number of deals, but also because deals have been getting much bigger. The average deal size nearly quadrupled in H1 2021 from one year prior to $96 million – over ten times the size of the average deal in H1 2013.

The number of early-stage rounds bigger than $1 million has been stagnating over the past couple of years, suggesting that more needs to be done to maintain momentum.

The fundraising success of larger startups does reflect the growing maturity of climate tech as an asset class, but the sector needs to keep attracting capital to enable the next generation of climate startups to come onto the stage with new solutions.

Climate tech companies have also demonstrated a solid performance on public markets – an index tracking tech companies that are focused on sustainability, energy efficiency and reducing greenhouse gas emissions generated triple the returns than the S&P 500 in 2020 and most of 2021. 

It's an exciting time – I think we’re just about to witness the start of the climate unicorn race given upcoming regulation in the US and the situation in Europe. 

Chart of the week

In 1950, the world emitted 6 billion tonnes of CO2, and the US and Europe accounted for over 85% of CO2 emissions each year around that time.

Today, they account for just under one-third of global emissions, which are over 34 billion tonnes. This comes as the rest of the world – especially China and the rest of Asia – has seen emissions rise significantly.

Quote of the week 

Equity in climate finance is not resolved in a linear fashion — where developed countries only need to pay for historical and future emissions to developing countries, without taking into account the quantified costs of missed opportunities and time lost when developing countries and communities have to adjust their lives, livelihoods and assets as their living environment undergoes an unprecedented change due to a warming climate.

  • Anoop Poonia, Senior Advisor, Financial Futures Center

What we’re writing

The SEC steps in to regulate ESG

US regulators are starting to hone in on greenwashing, proposing a new set of disclosure requirements on ESG funds. And truth be told, there’s a lot of cleaning up to do.

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Sustainability has started to enter the corporate agenda, rising towards the top of the priority list for an increasing proportion of banking and finance chief executives.

The ESG mirage: More about the hype than values

ESG is growing increasingly popular, but the unregulated world of sustainable investments is not always what it's cracked up to be.

What we’re reading 

World's first green fintech taxonomy launched (Finextra)

How to push wall street to ditch fossil fuels for clean energy (Bloomberg)

Sustainable investing failed its first big test (Barron’s)

Expert perspectives: enhancing equity in climate finance (ODI)

G7 countries commit to working towards coal phase-out (Reuters)

Dimensional’s ESG boss voices doubts over industry promises (Bloomberg)

DWS CEO resigns in wake of greenwashing raid (Banking Dive)

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