Investment in climate change technology fell by 40%, but there are bright spots

Investment in climate technology fell sharply in 2023 as economic headwinds reduced investor confidence across all sectors of the economy, according to the latest data from PwC.

The consulting giant’s recent State of Climate Tech report predicts that venture capital and private equity investment in climate technology will decline by 40% in 2023 compared to the previous year amid a challenging economic environment and geopolitical turmoil. It points out that it did.

But climate change technology has outpaced other sectors of the economy, leading to an even more dramatic 50% decline in economy-wide private investment.

As a result, the share of climate change technology in venture capital and private equity investments has increased to 10% from 7% in 2018, PwC said.

PwC says the findings show that investment in climate change technology is becoming “more mainstream,” with more investors entering the market for the first time and more deals being done “in the mid-stage rather than the early stages.” He said certain signs were clear.

The proportion of investment in the industrial sector has almost doubled.

The consulting giant also welcomed the growing diversification of climate investments, with capital flowing into decarbonization technologies focused on industries with the greatest potential to reduce emissions. For example, the report highlighted that the proportion of investments in the industrial sector increased to 14%, almost doubling from the last quarter of 2022 to the third quarter of 2023.

The report says the share of solar power in investments will also increase by 24%, green hydrogen by 64% and carbon capture, utilization and storage by 39% from 2022 onwards.

Although mobility still accounts for 45% of total investment, the proportionate share of investment in electric vehicles (EVs) has declined by 50% since 2022, and micromobility has declined by 38%, the report said.

Emma Cox, Global Climate Change Leader at PwC, said that given the imperative to develop and scale up solutions that can accelerate decarbonization efforts and strengthen climate resilience, He said the drop in investment was “concerning”. However, he stressed that the sector is increasingly attractive to investors and that the economic slowdown is a result of broader economic trends.

It is also encouraging to see a shift in the balance of investment towards technologies that can reduce emissions the most.

“The good news is that this sector is doing relatively well and has seen less investment decline than other areas,” he said. “We are also encouraged by the shift in the balance of investment towards technologies that have the greatest potential to reduce emissions. We need to see continued change in emissions. ”

Will Jackson-Moore, global sustainability leader at PwC UK, said the overall slowdown in investment meant there was an opportunity for smart investors to secure competitive deals. . “A difficult macroeconomic environment, declining stock prices, and geopolitical turmoil have led to a 40% decline in capital flows to climate technology ventures at a time when climate technology is needed most,” he said. “However, while these industry and macroeconomic trends may cloud investor confidence, the need for innovation in climate technology will only intensify, making it an important issue for investors to address the current downturn. It also provides a first-mover opportunity.”

PwC said its Climate Tech Investment Index has expanded significantly this year, with nearly double the number of startups tracked and a broader range of deal types examined compared to last year. The report analyzed more than 32,000 deals and 8,000 climate change technology startups.

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