Industry sectors with the greatest capacity to make progress on decarbonisation receive a smaller share of venture capital.
The rising concern over climate change and technological breakthroughs are fuelling an investment boom in climate tech. In 2021, US$87.5 billion of venture capital funding flowed into the broad suite of businesses that includes electric vehicles, food and agriculture, and carbon removal. But there’s a significant mismatch. The sectors that have the greatest potential to take the most carbon out of the air, which include solar and wind power, green hydrogen production, and agriculture, have received about 25% of funding in the past eight years—even though they represent more than 80% of the emissions reduction potential through 2050. By contrast, mobility and transport, which represent just 16% of emissions, received 61% of the total funding. As we look to the future, leaders must channel resources to the areas that can reduce emissions the most. This may require a shift in mindset: lengthening time horizons for returns, proactively creating markets through procurement strategies and developing new public–private partnerships that de-risk first movers in unproven technologies. Closing the carbon funding gap can accelerate the investment cycle for the next generation of climate-tech innovations—which would be good news for investors, businesses and the planet.