Destination net zero: Forecasting the future of climate tech
Climate tech is topping the European investment agenda — despite market turmoil. The sector raked in a record $15bn in funding last year. Where are investors looking to unload their dry powder? What innovations are emerging? How are policymakers driving change? Sifted Talks explores predictions for climate tech's future and shares practical advice for growing a gigacorn.
We joined the Sifted climate tech panel with experts from across the sector. Here’s what insights stuck out.
1. A Net Zero world requires society to rewire how we live, work, play, and invest
“Net Zero isn’t enough. We need to be net-negative.”
There are no silver bullets. Achieving Net Zero is a paradigm shift, and any societal reset needs to happen in stages.
VCs are looking at a 30-year horizon, investing in radical areas like hydrogen, sustainable aero fuels, carbon removal, sustainable air conditioning, and precision agriculture.
Promising innovation in the energy sector is grid connectivity like the Morroco-UK cable initiative - where they chase the sun - which can achieve scale and improve trans-Atlantic relationships.
From a country perspective, Singapore's goal is to hit net zero by 2050 — challenging when insufficient land exists for solar panels— and the city has identified four ways to achieve that:
Increase deployment of renewables.
Identify other pathways to decarbonise and low-security access to carbon.
It’s importing 4 gigawatts of energy by connecting with the rest of the region. Low-carbon hydrogen will be used in innovation in the power and maritime sectors.Carbon removal.
The challenge is removing the carbon produced at scale.Carbon offsets.
Necessary to achieve its goals.
Why this matters: Extreme weather conditions are already disproportionately affecting the planet. We need social innovation immediately, and deploying this is critical. The challenge is doing it at speed, as everything needs to work together. Energy innovation means a greater interplay between storage and systems. Yet, it can be a real game-changer.
2. Oil and gas sector modernisation could accelerate Net Zero by years
“100 companies are the source of over 70% of emissions”
Michal Nachmany argues it’s a policy versus a tech question. The oil and gas sector has the bulk of the work because they have the sites and infrastructure to trap CO2 emissions.
These companies don’t pay taxes, and new exploration is allowed. The result: incumbent players can do as they want and green-wash the situation. A transition is needed, but incumbents must be held accountable. When you remove subsidies and economies, it creates space for other players.
Yoann Berno believes pragmatism is needed. It’s a double-edged sword. The sector needs investment, but the oil and gas sector has a big chunk of the capital. Lobbying will be blocked if the pathway to new profits isn’t clear.
Why this matters: We need a new market ecosystem. High-polluting organisations need to change or no longer exist. Climate tech can provide alternatives to a profitable model but it requires real policies (remove subsidies, taxes, ban new exploration) and new incentives.
2. Reforms and policies achieve change faster than investment
“There are ten gigatons of carbon to remove from the world’s atmosphere. If you price that, it’s enormous. We are a million-tenths to delivering that today. ”
The 2022 Inflation Reduction Act (IRA) bill created a climate investment fund in the US, resulting in new companies and business models. Europe has also championed climate change, with the EU Green deal out tomorrow.
These initiatives accelerate technology and innovation, creating excitement in countries like Singapore. Whilst it can’t invest on those scales, Singapore has introduced a no. of initiatives. A carbon tax system (companies can offset up to 5% as part of their tax liability with criteria to assess projects). A centre of nature-based solutions exploring projects that instil confidence in carbon offsetting. Transporting hydrogen more efficiently.
Shilpika Gautam argues climate tech and carbon renewables need enabling policies and cooperation. Identifying equitable energy sources has been advanced by recent geopolitics, but what will happen in the future? There's been tension protecting natural ecosystems with an annual budget of $8 billion. Whilst conversely, needing to invest in today’s frontier technology to achieve net negative.
Why this matters: Reform can achieve things at speed, e.g. if you ban single plastic use, it’s gone. Tax breaks create incentives to relocate and remove barriers. We must find ways to accelerate capital deployment, policy, and cooperation among entrepreneurs
3. 2022 was an inflexion point for the climate tech sector with a 150X increase in investment
Despite last year's downturn, European funding and new funds broke records. Whilst there’s a catch-up effect, Yoann Berno argues Joe Biden's election signalled confidence and security to invest.
Investment and data are the connective tissue, yet the people who need it most can least access it. Data is the water that flows through the system. Yet, much is locked and proprietary. Making it open source is critical to unlocking innovation and investment. Government and philanthropy will likely have to pick up the bill.
VCs are focused on series A (viable tech, contracts signed). Direct Air Capture (DAC) has received 50% of VC funding. BIO-carbon also looks promising. The recent Silicon Valley Bank disaster, whilst avoided, poses a systemic risk. The system is a capital stack. This can make investors nervous and move their funds — especially when it banks 80% of the climate tech ecosystem.
Not-for-profits and investor coalitions understand there's no profit without a healthy planet. They're thinking strategically about climate, how to finance, and be involved in policy change
Why this matters: There are large gaps in knowledge and funding types. Better infrastructure, operating environment and new capital mixes are needed to derisk innovation and encourage initiatives such as Northvolt and HS2.
4. Hardware is more potent than software in combatting climate change
Hardware is the core. Software enables scale
Insects are a prime example of radical transformation. They are a biotechnology turning food waste into protein that’s created a gold rush in Africa, which no longer wants to deforest for Soya.
The challenge is climate hardware doesn’t always fit into the VC model after several investment rounds. How do we get players comfortable with a company or technology without a 10-year history who needs help scaling? Overcoming challenges such as funding and backstops requires new capital types from philanthropy, banks, infrastructure investors, and pension funds.
Why this matters: Today, the conversation often starts with software as the answer when it should start with hardware. Software focuses on the demand side, but it’s not moving the needle and risks sacrificing hardware investment because it’s ‘easier’.
5. Measuring impact is in its infancy
“Reporting is only worth the decisions it informs. It means nothing if the government and investors don’t care.”
Individuals can easily Google carbon footprint solutions. Reporting for business is less mature.
No consensus exists amongst VCs on a single measurement solution. Lifecycle assessments act as a guardrail and gathering data to ensure a start-up is not corrupted as it scales and finds its business model.
At Salt, they’re using tools such as EST and LSA software to ensure projects that mitigate carbon emissions are financed.
Why this matters: Accessible measurement solutions for firms will speed up the transition.
⚡️ To see how these insights affect your business
Host
Freya Pratty, Senior reporter, Sifted
Panellists
Michal Nachmany, CEO and founder, Climate policy radar
Yoann Berno, General partner, Climentum capital
Shilpika Gautam, CEO and founder, SALT climate tech
Wey-Len Lim, Senior VP and Head, Energy Resources and Environmental Sustainability, Singapore Economic Development Board
