Climate tech startups: on the front line against climate change

Although the pandemic still occupies the global media spotlight, the challenge posed by climate change remains urgent. Indeed, according to the UN-IPCC, the planet has less than ten years to halve global greenhouse gas emissions and prevent global warming from increasing by more than 1.5 °C. Scientists warn that exceeding this level means that the impact will start to become very dangerous. To curb this increase, all sectors of the economy must be transformed. And this is where climate-tech comes in.

The goal is to achieve net zero CO2 emissions by 2050. Some of the key technologies and solutions to enable this transformation have already been studied, tested and validated, but need rapid commercialization. Others are still in the lab. Many have not been conceptualized yet. The sector, therefore, is briming with opportunities, but needs investment for further development. A context in which startups play a leading role.

The term ‘climate tech’ defines a wide range of sectors committed to the challenge of decarbonizing the global economy. They include the application of technologies aimed at reducing carbon dioxide emissions in energy, in the construction of spaces and environments, in mobility, in heavy industry, in food production and in land use. 

Moreover, climate tech also encompasses better carbon management through clear and demonstrable procedures, for example, the use of blockchain in the emission allowances market. The list of applications is extremely long and a 2018 paper in the ‘Stanford Social Innovation Review’ classified solutions across five main categories:

– Switch to energy supply from renewable sources.

– Transition to zero-emission transportation.

– Reduce the impact of buildings and other infrastructure.

– Growing sustainable agriculture, forestry and land use.

– Decarbonization of industrial processes.

Climate investment

Venture capitalists around the world are aligning their portfolios with the climate tech trend, fully aware of the fact that the economic, political and social future necessarily involves having a ‘climate mission’. Investors are mainly looking for startups whose activities are aligned with the UN Sustainable Development Goals (SDGs). According to Pitchbook, VCs invested $30.8 billion in climate-focused startups in the first nine months of 2021, and interest in them is expected to grow as the market expands.

Then, the ‘State of the Climate Tech 2021‘ report, published by PwC, indicates that in the first half of last year alone, investment in this sector was 210% more than in the whole of 2020. In addition, the number of active investors increased from 900 to 1,600 and SPACs raised $25 billion. Finally, according to PwC, the number of unicorns in the field of climate technology grew to 78 entities.

However, PwC also notes that 75% of this capital is allocated to solutions with a 20% emission reduction potential. And only the remaining 25% goes to the top five technologies capable of reducing carbon emissions by 80%, namely, solar energy, wind energy, green hydrogen, technologies applied to reduce food waste and produce alternative foods with a low carbon footprint.

In contrast, according to this latest report, the bulk of funding is going to energy and transportation startups (electric vehicles, micro mobility and other innovative transportation models). In fact, according to data from the latest report of our Startup Observatory, the Spanish mobility sector ranked second in capitalization in 2021—out-ranked by real estate. Companies focused on the shared economy have high valuations too. This category includes, among others, resellers of second-hand products—Barcelona-based Wallapop for example, which raised €157 million in 2021. 

Europe, at the forefront of climate tech

Climate tech is growing fastest in Europe, with investment seven times greater than in 2016. On the continent, these companies raised $32 billion in 2021, according to a report by startup data provider Dealroom and London & Partners. Highlights include, for example, the Lithuanian Vinted (more than €236 million) and the French Back Market (more than €288 million) dedicated to second-hand products, or the German Volocopter (more than €207 million), manufacturing flying electric vehicles. 

In Spain, the success of Climate Trade, a Valencian start-up that offers companies an innovative way of offsetting their carbon emissions, was a big hit. On the other hand, the Sweden Foundation Norrsken has announced the creation of a new accelerator focused on climate impact and Lithuanian VC Contrarian Ventures has launched Climate 50, an annual ranking to recognize the most impactful climate investors worldwide. 

The trend, however, is global. According to the Climate Tech report published by the Israel Innovation Authority, about 10% of high-tech companies operating in Israel develop climate-related technologies. Finally, three representative examples from the Obvious Ventures portfolio, a venture capital firm based in San Francisco, USA: the electric bus company Proterra, Amply’s charging technologies and the building materials delivery company RenoRun.