Reasons why Climate Tech is thriving despite general market slowdown

ClimateAngels | April 03, 2023

According to HolonIQ’s analysis in 2022 Climate Tech startups raised over $70 Billion from investors recording a sharp increase of 89% over 2021 levels.

The publication even indicated that if last year’s trends were to continue this year, Climate Tech companies in the US alone would end up amassing over $100 Billion in funding.

Source: HolonIQ

Here are five reasons cited by McKinsey on why Climate Tech is exhibiting remarkable resilience:

1. Clear demand signals

The ongoing energy crisis has highlighted the need to diversify the energy supply base and has accelerated the deployment of climate solutions, particularly in the power sector. This has resulted in sustained demand for climate and decarbonization technologies in the future, as evidenced by the increase in the number of companies pledging to set science-based targets and the growth of corporate power purchase agreements.

2. Policy support and regulation

Governments around the world have taken significant legislative and regulatory action to support their climate and energy transition priorities. The Inflation Reduction Act (IRA) in the United States, the European Union’s Green Deal, and China’s emissions-trading system are just a few examples of this. .

3. Decline in green premiums

Some mature climate solutions, such as utility-scale solar or wind, have already achieved cost parity compared with fossil-based alternatives. Solutions in earlier stages of development, such as grid-scale storage, still command green premiums, but these have declined over the past several years, and cost reductions are expected to continue with accelerating deployment.

4. Alignment in the capital markets and the financial system

Despite market upheavals, the financial system remains aligned around financing the energy transition. Asset managers and sophisticated investors are all turning their attention to investment opportunities across a range of climate technologies.

5. Coalition building and the emergence of ecosystems

The deployment of climate technologies at scale often requires systemic change across entire value chains. Initiatives such as the World Economic Forum’s Clean Skies of Tomorrow and the Voluntary Carbon Markets Integrity Initiative create transparency and promote the pooling of risk and investments, thereby promoting innovative development across multiple climate verticals.