Dec. 2, 2021
The year 2020 signaled a reshift in the way investors and venture capitalists regarded startups developing technological solutions to climate change.
Prior to this time, between 2006 and 2011, the cleantech sector witnessed a flood of venture capital money in what has been described as the “green bubble”.
Sadly, investments didn’t bring expected turnovers. According to research by MIT Energy Initiative, VCs spent over $25bn funding cleantech and lost more than half of what they put in. This practically saw private financing in the sector dry up.
Fast forward to ten years later, investment potential into clean technology- now broadly termed climate tech- is definitely looking greener and brighter than ever.
Going by PitchBook data more than $40bn of venture capital funds have gone into climate tech companies from January 2020 to August 2021. A figure that exceeds the total for the previous two years by 37 percent.
What’s different about the climate tech landscape this time? A big clue points to the signing of the Paris Climate Agreement in 2015 as a catalyst driving global climate tech investment.
Other major factors responsible for the current wave of climate-related deals include the unprecedented rise in extreme weather and climate-related disasters, the global race to attain net-zero as well as emerging technologies that may prove effective in fighting climate change.
As such, finding solutions to the climate crisis is a huge economic opportunity not only for innovators but also for investors.
Climate tech includes solutions aimed at keeping global temperature below critical levels while reducing the earth’s greenhouse gas emissions (GHG) in the process. It cuts across various sectors including energy, transport, real estate, and agriculture.
The industry encompasses startups focused on renewable energy, electric vehicles, forestry management, cellular and climate-smart agriculture among other areas.
A PwC climate tech investment report shows that mobility & transport, heavy industry, and GHG capture and storage are the rapidly growing segments, followed by food, agriculture, land use, built environment, energy, and climate and Earth data generation. This represents limitless economic opportunities for players in the space.
So far, the U.S still remains the country with the most mature climate tech ecosystem than anywhere else in the world, according to joint research by London & Partners and Dealroom while Europe emerges as the fastest-growing region for climate tech.
In terms of climate tech startup investment, London, Berlin, Labege (France), and Bengaluru, India were amongst the top ten cities for climate tech startup investment, attracting US$1.3 billion mainly across energy, agriculture, and food and land use. It is telling that no mention is made of Africa whatsoever.
It is no news that the tech industry is playing a fundamentally important role in the fight against climate change. And with Africa being the most vulnerable to climate change, players in the continent’s tech ecosystem cannot afford to fold their hands and wait for salvation from developed countries that do not want to take responsibility.
Why is Africa slow to catch up on climate tech?
Instead, the fintech sector appears to be the new oil as startups operating in the space are becoming a dime a dozen. Perhaps its lure is in the knowledge that fintech startups are venture capitalist darlings; in other words, the most-funded sector.
According to Partech’s 2020 report, fintech alone captured a quarter of funding leaving other sectors to share what is left. The few cleantech startups that get investments mostly owe their thanks to European investors and international organizations.
While fintech innovations should not be understated, after all, deepening financial inclusion and security are some of the biggest impacts the sector has brought in its wake; there are issues that even require more attention namely; climate change.
Taking their cue from their counterparts in Silicon Valley, African corporate investors and venture capitalists do not have to invest heavily in capital-intensive renewable energy projects with high upfront costs and wait for years to recoup their gains.
They can instead turn to smaller companies with niche products such as renewable energy solutions, battery storage technologies, electric vehicles, agriculture solutions that can drastically reduce agricultural land use to low-carbon concrete and sustainable aviation fuel.
The International Energy Agency (IEA) has said that half the technologies we’ll need to achieve net-zero emissions have not yet been invented. The good news is that there are a handful of tools that can help tackle climate change.
African startups will need more runway- finance, commercial know-how, and industry knowledge- to create, deploy and scale innovations around sustainable energy, manufacturing, and agriculture practices.
At the end of the day, the involvement of Africa’s VC will be vital to the continued success of climate tech in the continent in terms of their climate adaptation commitments and investments into commercializing innovation- both of which will have positive impacts on the continent.
Courtesy: climateaction.africa
