A Look at the Climate Tech Landscape

As the world sets out to decarbonize, it must do so with ambitious scale and speed. The urgency to avoid climate disaster is unquestionable, and the race to reach carbon neutrality, a necessary step to limit global warming to below 1.5 degrees Celsius, is reliant on climate tech solutions providing a pathway. Climate technologies and innovations, and how they are attracting interest from investors, are the focus of PwC’s second edition of the State of Climate Tech report. 

Companies across the globe are making net zero commitments and outlining targets that support their carbon footprint reductions, and they should continue to do so across sectors and geographies. In North America, the bi-national Great Lakes region has its role to play too, even more so when it comes to the region’s mobility cluster. According to the report, the United States has the highest investment in climate tech of all global regions, with significant investment concentrated in mobility and transport. 

In their report, PwC considers climate tech in eight challenge areas: six traditional industry verticals (Mobility and transport; Energy; Built environment; Financial services; Food, agriculture and land use; and Industry, manufacturing and resource management) and two cross-cutting horizontals (GHG capture, removal and storage; and Climate change management and reporting). The report points to a climate tech landscape that is accelerating quickly and provides insight on key findings to support increasing investment impact and decarbonization ambitions.

The below excerpt is from the Executive Summary of State of Climate Tech 2021 – Scaling breakthroughs for net zero (shared with permission). The full report can be accessed HERE.

A commercial opportunity with impact

In this second edition of the PwC State of Climate Tech report, we highlight new analysis that covers findings and trends in key climate technology areas, examining the link between technological maturity, proximity to sectoral tipping point, emissions reduction potential and investment volume. The new analysis also highlights potentially underfunded areas that present opportunities for investors.

We hone in on 15 specific climate technology areas and explore whether the solutions with the highest potential to remove carbon at speed are getting the funding they need to scale up.

Our analysis finds that there are still significant areas of untapped potential— so-called ‘carbon [US]$5 notes lying on the ground.’ Of the 15 technology areas analysed, the top five that represent over 80% of future emissions reduction potential by 2050 received just 25% of recent climate tech investment between 2013 and H1 2021.

This tells us that an opportunity is being missed, as capital is not being deployed in line with climate impact potential, with a handful of mature technology areas instead attracting the majority of investment. Though funding is needed across all challenge areas, targeting funding to nascent technology areas can enable breakthrough innovations, trigger sectoral tipping points to accelerate adoption and achieve meaningful financial returns as well as sectoral decarbonization.

Many of the climate tech investors we spoke to were driven not just by a desire to have a positive impact but also by the potential for significant financial returns. In line with science-based targets, society will need to remove carbon emissions from all stages of the value chain, and start-ups that can address unmet mitigation needs offer an untapped opportunity to create commercial and environmental value.

Achieving breakthrough innovations in these currently underfunded areas will require new action from investors and policymakers. Interviews with industry incumbents have highlighted that more patient capital from VC is still required to deliver future breakthroughs in climate technology. In addition, long-term strategic plans and targeted policy measures by governments, such as carbon pricing, are needed to kick-start investment in hard-to-abate sectors and to deliver net zero infrastructure5 —for example, low GHG concrete or green hydrogen production, as well as carbon removal technologies that will be pivotal to achieve global net zero targets.

This combined analysis and insight illustrates the need to consider climate change in its entirety, as a complex interdisciplinary issue. Private markets should be encouraged and emboldened to look beyond their traditional sector and geographical silos. They should consider climate tech more holistically to achieve deep cross-sectoral decarbonization and to uncover future ‘gigacorns,’ companies with potential to abate one gigaton of emissions per year while being commercially viable.

Climate tech as a maturing asset class

The climate tech market is a rapidly maturing asset class, offering investors not only financial returns but also the opportunity for outsized environmental and social impact. Climate technology has moved well beyond a proof of concept, attracting investors who have to date not previously invested. Though this area presents a major commercial opportunity, due to the inherent value associated with reducing emissions, which will be validated one day with a global carbon price, there is still much work to be done to channel this investment appropriately.

The need for a green recovery and just transition

Climate tech solutions can be classified in three broad categories:

• Those that help us mitigate climate change by reducing or sequestering emissions.
• Those that enable us to adapt to the impacts of climate change.
• Those that help us to understand climate change and its impacts through data.

Society’s response to climate change will involve a combination of these three areas, all of which are interlinked. For example, the IPCC have made it clear that significant emissions reductions and carbon removal will be required to stay within a 1.5°C pathway. If mitigation technologies are not accelerated, it is likely that this target will be exceeded and that large-scale adaptation will be required to deal with the impacts of climate change. In the same vein, access to high-quality data and monitoring will be crucial to enabling mitigation and adaptation efforts.