OpinionEmbracing the climate tech revolution: A path to profitable sustainability
Embracing the climate tech revolution: A path to profitable sustainability
The climate tech market is expected to reach $1.4 trillion by 2027. Why do general VCs hesitate to invest in climate technology? How can governments assist them?
There are currently more than 800 startups and high-tech companies operating in the field of climate technology in Israel, according to Start-Up Nation Central. Climate Tech refers to technologies that are capable of solving global environmental problems such as air pollution, water scarcity, energy access, food solutions, waste management, and more.
According to ClimateTech VC data, despite the slowdown in high-tech last year, more than 60 venture capital funds were dedicated to climate-related projects in 2022. In 2021, 14% of all new startups in Israel were classified as climate-tech companies, according to a PLANETech report from last year.
Last week, I attended the "Make it in the Emirates" conference in Abu Dhabi as part of the delegation from the platform “UAE-IL tech zone”, which was organized by the Ministry of Industry and Advanced Technology (MoIAT). This year's focus was sustainability. The conference was a great opportunity to gain insights into sustainability initiatives in the region.
The financial opportunities in this market are significant. There is no doubt that this is a very large market with many problems to solve. According to PitchBook, the climate tech market will reach nearly $1.4 trillion by 2027, representing an 8.8% compound annual growth rate. There is a growing demand for sustainable services driven by consumer preferences and regulatory requirements. Moreover, in recent years, we have seen interesting and innovative technologies that address climate change, and they have the potential for significant growth and attractive returns. Technologies such as solar power, wind energy, energy storage, and electric vehicles have become more cost-effective and efficient.
The purpose is good, and the market is large, so what challenges can general VCs face when investing in climate technology? Climate tech solutions require substantial upfront investments and have longer payback periods. They often involve research and development, scaling up production, and implementing complex infrastructure, which means a long development process. As a result, the return on investment (ROI) is typically realized over an extended period. General VCs usually seek shorter-term returns and are not accustomed to this longer return on investment time period. Furthermore, climate tech projects, such as renewable energy or carbon capture technologies, require significant upfront capital investments. The capital-intensive nature of these projects requires substantial funding and long-term financing. Additionally, as a market influenced by government policies, regulations, and incentives, VCs are exposed to the risk of changing political landscapes and shifting priorities.
The question is, how can investors and entrepreneurs strike a balance between impact and profit in climate technology? We need to approach it from a few perspectives. Governments should drive this transition by providing tax rebates, loans, and grants for green investments and reducing regulations and barriers to adopting new technology worldwide. Germany, China, and Vietnam have implemented massive programs in these areas, and Israel and other countries should follow suit. Significant progress has been made in healthcare in recent years, and we can expect to see similar advancements in the climate tech sector.
Public funding is insufficient to accomplish the substantial investments required. Since this is a global problem, international and cross-sector partnerships and investments by multilateral organizations, financial institutions, and corporations will help close this funding gap and contribute to the growth and development of companies. Collaboration allows for pooling resources - financial, human, and technological - leading to cost savings and increased access to expertise, as well as expanded networks that boost creativity.
Last but most importantly, we place our bet on the entrepreneurs, who are pioneers in changing the world. With visionary thinking, risk-taking mindset, determination, and ability to create transformative impact, we know they will likely be the ones to make a difference. By breaking down barriers and driving economic growth, we will be there to support them.
In conclusion, tech bubbles come and go, but climate tech is not one of them. This might be the biggest project humanity has ever taken on.
Danielle Avidor is Director of Business Development & Communications at IBI Tech
First published: 09:15, 08.06.23