Investment in climate technologies fell dramatically 2023 as economic headwinds dented investor confidence in all sectors of the economy, the latest data from PwC has shown.
The consultancy giant’s State of Climate Tech report, published this morning, notes that venture capital and private equity investment in climate technology has fallen 40 per cent year-on-year in 2023 amid a challenging economic environment and geopolitical turmoil.
However, climate technology outperformed other sectors of the economy, with private investment across the economy plummeting by a more dramatic 50 per cent.
As such, climate technology saw its share of venture capital and private equity investment grow to 10 per cent, up from seven per cent in 2018, PwC said.
PwC said the findings revealed signs that climate technology investment was becoming “more mainstream” as more first time investors were dipping their toes into the market and more deals occurred at the “mid stage rather than the early stage”.
The consultancy giant also welcomed the growing diversification of climate investments, with more funding flowing into decarbonisation technologies focused on industries where emissions reduction potential was greatest. For example, the report highlighted how the share of investment going to the industrial sector had almost doubled to 14 per cent between the final quarter of 2022 and the third quarter of 2023.
Solar power’s share of investment was also up 24 per cent, it said, while green hydrogen was up 64 cent, and carbon capture, utilisation and storage is up 39 per cent since 2022.
While mobility still accounts for 45 per cent per cent of all investment, electric vehicles (EVs) proportional share of investment was down 50 per cent since 2022 and micromobilty down 38 per cent, it said.
Emma Cox, global climate leader at PwC, said the fall in climate technology investment was “concerning” given the critical need to develop and scale up the solutions that can accelerate decarbonisation efforts and bolster climate resilience. But she stressed that the sector was increasingly attractive to investors and the slowdown was the result of wider economic trends.
“The good news is that the sector has performed well in relative terms, with investment falling less than in other areas,” she said. “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.”
Will Jackson-Moore, global sustainability leader at PwC UK, said the overall slowdown in investment meant there was an opportunity for savvy investors to secure competitive deals. “A challenging macroeconomic environment, sinking valuations, and geopolitical turmoil has seen capital flows to climate tech ventures drop 40 per cent at a time when climate tech needs it most,” he said. “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.”
PwC said its Climate Tech Investment Index had been significantly expanded this year, with nearly double the number of start-ups tracked and a broader range of deal types examined compared to last year. The report analysed over 32,000 deals and more than 8,000 climate tech start-ups, it said.
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