More than one quarter of all venture capital funding is going to climate technology, with increased focus on technologies that have the most potential to cut emissions

03/11/22

LONDON, 03 November 2022 – Climate tech funding in 2022 represented more than a quarter of every venture dollar invested in 2022, in the upper half of the 20-30% range observed since the start of 2018, according to PwC’s State of Climate Tech 2022 report.
 

Investment in climate tech has been in the US$15-20 billion range per quarter, in line with the first half of 2021.

This represents aggregate funds raised for climate tech since the start of 2018 of US$260 billion, over which more than US$50 billion has come in 2022.

The report also finds improved targeting of funds on technologies that can do most to cut emissions. In 2021, start-ups targeting sectors that are responsible for 85% of emissions attracted just 39% of investment. In 2022, start-ups in those sectors attracted 52% of climate tech investment.

Will Jackson Moore, Global ESG Leader, PwC UK, said: “In the face of its first real test over the past decade, climate tech markets have shown encouraging resilience. With a background of Russia’s invasion of Ukraine, inflation, and a sharp correction in the capital markets, there was all the potential for investor confidence to crumble. The task is to build on momentum, with more attention on early stage funding and further boosting technologies with the highest potential for reducing emissions.”

The robustness of climate technology investment as a share of venture capital activity sits alongside three less positive trends. First, the number of and total value of deals under US$5 million, typically at the earliest stages of funding, have been declining since the start of 2021. The downward investment trend in early-stage funding points to a weak pipeline of high-quality start-ups progressing to later funding stages, which may prevent investors from deploying maximum levels of available capital in the coming years, regardless of high levels of dry powder.

Second, while the share of VC spending is robust, an overall decline in venture dollars being deployed is reflected in the climate space - where funding in cash terms in the first three quarters of 2022 is down by 30% over the same period in 2021, as the SPAC-driven peak of $34 billion of deployed capital in Q3 ‘21 looks to have been a cyclical anomaly.

Third, while the alignment of investment dollars and impact potential has improved, the market is still not yet efficient at meeting climate objectives. Solutions such as food waste reduction technology and new solar power technologies (which have some of the highest emissions reduction potentials of the technologies analysed) remain comparatively underfunded.

Wider macro trends from the public and private sector suggest a positive outlook and increasing demand for climate tech. Although it may take some time for this demand to drive increased investment trends, this impact is already being felt across a number of sectors and solutions. For example, carbon capture, removal, utilisation, and storage is seeing increasing investment. After modest investment and growth for many years, overall funding in the first three quarters of 2022 has already been nearly twice that of all of 2021. Although there were comparatively fewer deals in 2022 compared to 2021, these are increasingly later-stage venture deals, and with larger average deal sizes. However, it is worth noting that the market still remains small compared to its overall emissions reduction potential, and the forecasts made by scientists on the volume of carbon removal needed to meet the Paris Agreement goals.

Emma Cox, Global Climate Leader, PwC UK, concluded: “As society grapples with how to halve emissions by 2030, more investment is needed into climate tech – not just at the top level, but with better spread across sectors and solutions, across different start-up sizes, and across different technological maturity levels. This includes transition technologies, such as carbon capture, which are near or already at maturity and ready to scale up now.”

Ends.

Notes to editors

About the PwC State of Climate Tech 2022 report

Climate tech is defined as technologies that are explicitly focused on reducing GHG emissions, or addressing the impacts of global warming. Its applications can be grouped into three broad sector-agnostic groups, covering solutions that directly mitigate or remove emissions; those that help us to adapt to the impacts of climate change; and those that enhance our understanding of the climate.

Funding data is provided by Pitchbook. Our investment analysis is based on PwC’s Climate Tech Investment Index, a proprietary and continually updated database of climate tech start-ups and investors, built with machine learning models and supplemented by human verification, part of PwC’s wider Climate Tech Platform. Our analysis is focused on private markets and government funding into climate tech start-ups.  The approach taken is to highlight financial trends in innovative climate technologies looking to scale up. The analysis does not include the substantial public markets or project financing of mature climate technologies (for example large scale renewable energy projects such as wind and solar farms), nor does it cover corporate R&D funding into climate tech.

The data underpinning the analysis set out in this report includes venture capital and private equity investment into start-ups. Funding round types analysed include accelerators/incubators, angel investors, buyouts/LBOs, capitalization, corporate investment, early stage venture capital, equity crowdfunding, grants, joint ventures, later stage venture capital, mezzanine, private equity growth/expansion, platform creation, restarts (early venture capital), reverse mergers, and seed rounds.

The data sources used have stronger coverage in European and North American markets. This analysis may therefore be a conservative estimate of the relative levels of Chinese investment and of overall investment.

 

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