Climate tech investments from venture-capital and private equity fell 40 percent in 2023, according to a report by PwC.
Economic uncertainty and geopolitical conflict dent investor confidence, according to PwC’s 2023 State of Climate Tech report. This year’s report analysed over 8,000 climate tech start-ups and over 32,000 deals worth more than $490 billion.
However, this reduction appears less severe compared to the broader trend seen in the global venture capital industry. The report, released on Tuesday, sheds light on the state of climate tech investments and the changing dynamics in the industry.
It found that the fall in climate tech investment was significantly smaller than the VC and PE average fall of 50 percent across sectors. As a result, the share of VC and PE funding going into climate tech continued to rise, accounting for more than 10 percent of private market start-up investments in 2023, up from 7 percent in 2018.
It is encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most, Emma Cox, Global Climate Leader, PwC UK, said.
The report highlighted that investors are now narrowing their focus to critical areas, particularly heavy industries, aligning their support where it is needed the most. Climate tech, despite experiencing a dip in investments, maintains a “growing share of a muted market,” significantly impacted by global economic and political conditions.
Investors directed just less than eight percent of climate tech venture funding to industrials between 2013 and Q3 2022. The share of investment into the industrial sector has almost doubled to 14 percent between Q4 2022 and Q3 2023.
“While the demand for climate technology continues to escalate, equity investment in startups has seen a decline for a second consecutive year due to challenging conditions in private markets,” stated the report.
The analysis by PwC revealed that total venture and private equity investments witnessed a substantial drop of 50.2 percent, amounting to $638 billion in the 12 months leading up to September, compared to the corresponding period the previous year. Remarkably, investment in climate tech constitutes roughly 10 percent of this total.
There is 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.
For example, solar power’s share of investment is proportionally up 24 percent; while green hydrogen is up 64 percent. Carbon capture, utilisation, and storage is up 39 percent since 2022 although it still represents less than two percent of total climate tech funding.
The proportion of capital going to technologies with relatively lower potential to reduce emissions has fallen, with light-duty battery electric vehicles’ proportional share of investment down 50 percent since 2022, and micromobility down 38 percent; though mobility in its different forms still accounts for 45 percent of investment.