As major climate reports sound the alarm on unprecedented challenges stemming from global warming, private markets see more opportunities to profit.
Venture capital funds poured $23.2 billion into climate tech firms in 2021, more than doubling the amount invested in 2020, according to PitchBook data. (Climate tech is a broad term referring to companies that are explicitly focused on mitigating, adapting to, and understanding the effects of climate change.)
“Well, I’d say the opportunities, the number of opportunities is increasing, and the number of firms, venture firms in particular, that are focusing on it are all increasing radically,” Revolution Growth Partner Todd Klein told Yahoo Finance’s Julie Hyman in an interview at South by Southwest (video above).
Although a majority of greenhouse gas emissions can be cut using existing technologies, there is a technology gap that accounts for 35% of emission reductions needed to achieve global net-zero goals. That’s where climate tech startups and the venture capitalists who back them come in.
Klein, whose VC firm has backed notable startups including DraftKings (DKNG) and Sweetgreen (SG), quoted former Apple CEO Steve Jobs to when discussing the climate tech boom: “I think more broadly, Steve Jobs is very famous for saying, ‘We want to put a dent in the universe’. And I think what people are noticing is that our universe is getting pretty banged up. And so a number of companies are now directing their attention to doing some repair work on our beautiful universe.”
‘Early stages’ of promising climate tech opportunities
Climate tech companies have promised to transform a wide range of sectors, though the motives for the investment boom have been called into question given the apparent mismatch between sectors receiving the most funding and sectors with the highest greenhouse gas emissions.
In the second half of 2020 and into 2021, two-thirds of overall climate tech funding went to mobility and transportation — backing EV startups like Lucid Motors (LCID) and Rivian (RIVN) — while other sectors that generate significant emissions received much less.
Klein pointed out that the energy sector clearly needs more attention.
“They had a terrible power outage that influenced many businesses, including the semiconductor business, which still influences us today,” he said. “So energy is one. Food and Ag tech is another [with] plant-based meats and the things like that. There’s a significant number of companies that are being formed to pursue those opportunities.”
As more companies, climate tech or otherwise, commit to net zero targets and other climate goals, there has been a sharper focus on greenwashing: the practice of misleading consumers and investors about a company or product’s sustainability.
“Greenwashing has forced investors to look beyond mere words for action,” Klein wrote in an op-ed for Tech Crunch last June. “As we move toward a more sustainable future, startups pursuing VC funding will need to prove to investors that sustainability is a priority across their entire organizations, aligning their outreach, public commitments and cultures with accountability and concrete examples of sustainable activities.”
All in all, Klein explained the investing boom in the private markets for climate solutions would be bullish for the public markets as well, citing companies reaching scale and consumer demand.
“And so I think we’re at early stages,” he said, “but the markets are big enough to absorb very big companies.”
Grace is an assistant editor for Yahoo Finance.
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