According to the PwC’s 2023 State of Climate Tech report, the venture capital and private equity investment in climate tech have reduced by 40% due to economic uncertainty and geopolitical conflict making investors less attracted to the industry.
The report has analyzed over 8,000 tech start-ups and over 32,000 deals worth more than US$490 billion.
The underlying dataset known as PwC’s Climate Tech Investment Index has been expanded this year. It showed that the lower investment in climate tech was smaller than the VC and PE average fall of 50% across sectors.
Therefore, the share of VC and PE funding continues to rise. This accounts for over 10% of private market start-up investments in 2023, up from 7% in 2018.
The investment has observed seasoned investors (who have invested in five or more deals) participating in fewer investments out of the total number participating in investment.
Also, an increase in the number of beginner investors has obtained an increase in total. At the same time, more investment deals are taking place at the mid-stage than at the early stage.
Emma Cox,Global Climate Leader, PwC UK, says, “The development and scale-up of climate technology is an essential part of meeting the climate challenge.”
“So, while it is not surprising that absolute levels of investment in climate tech have fallen along with the market, it is concerning. The good news is that the sector has performed well in relative terms, with investment falling less than in other areas.”
“It is also encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most.”
“Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions.”
The investment in efficient tech –
The report points out that investment in emissions reduction technologies is not in proportion with the maximum potential of emissions reduction. Instead, investments are in the technology with lower potential.
The industrial sector’s emission is 34%. In 2013 and Q3 2022, less than eight percent of climate tech venture funding was given to the industrials. In Q4 2022 and Q3 2023, the share of investment in the industrial sector has approx doubled to 14%.
The report stated, “Although overall investment numbers are down, we have seen a rise in the share of climate tech PE/venture capital and grants that investors are putting into startups working on higher emissions reduction potential technologies.”
According to it –
- solar power investment is up 24%
- Green hydrogen is up 64%
- Carbon capture, utilization, and storage are up 39% since 2022
Also, the investment in the technology with lower emissions reduction potential has been reduced. Since 2022, light-duty battery electric vehicles’ investment is down 50%, and micro-mobility is down 38%.
Different stages attract different investors –
As the first-time investors in increase, the previous investors shift from early-stage deals to mid-stage.
The shift is brought by challenges around scaling or implementing capital-intensive climate tech, as well as a challenging macroeconomic environment, said the report.
The early-stage investments made 2/3rd of all the climate tech deals in 2018 and 2019, dropping to around 47% in 2023. This year has been an increase in first-time investors.
Will Jackson-Moore, Global Sustainability Leader, PwC UK, said, “A challenging macroeconomic environment, sinking valuations, and geopolitical turmoil has seen capital flows to climate tech ventures drop 40% at a time when climate tech needs it most.”
“But while such industry and macroeconomic dynamics may cloud investor confidence, they also present significant first-mover opportunities for investors to engage in the current dip, as the need for climate tech innovations will only grow stronger.”
Source: https://www.pwc.com/gx/en/news-room/press-releases/2023/pwc-2023-state-of-climate-tech.html
