Colter Miller, Data Team Manager at 500 Global, pulls back the curtain on the rapidly evolving world of Climate-tech. In a discussion session, Colter shares insights into the developing trends, from technologies to public sentiment, that may impact the Climate-tech landscape.

Climate change poses a variety of long-term risks that, unaddressed, will place tremendous stress on the places we live, our food systems, and the global economy. These risks are converging with other issues that vary by region to present multifaceted challenges.

Natural disasters, outdated infrastructure, and maturing economies are creating an outsized demand for electricity in a world lacking the infrastructure or economic preparedness to meet that demand. In the US, our grid is outdated and at capacity while capital for new investment is scarce. In Africa, more than 40% of the population, or 600 Million people, lack reliable electricity, which prohibits access to the global and digital economy, thus creating demand for new grid infrastructure. Innovations in distributed energy resources and grid management platforms can economically solve these problems in both mature and developing economies. 

Renewables started to gain steam during the Cleantech 1.0 bubble. Though many of today’s renewables leaders began during the first cleantech wave, many investors were burned by overextending themselves into a market with deep tech risks and narrow short-term incentive structures (Bessemer Venture Partners). Today, we see Climate-tech as a new, broader wave lifting sustainable technologies across a wider competitive landscape. To effectively drive innovation that will address climate change and produce market-leading returns, we must use our reach and experience to support founders developing technologies that improve the quality of life, both today and for tomorrow.

It may seem that climate change is progressing slowly, with real consequences decades away, but on our current trajectory, not only are the effects closer than they feel, but the inertia is immense and poses severe and lasting risks to the global economy. It is clear that the investments in Climate-tech that drive mitigation, adaptation, and resilience will pay multiples relative to the cost of damages and losses in the coming decades.

Opportunities in a Shifting Landscape
 

Opportunity Signals
As the real risks posed by our warming world become more apparent, governments, corporations, and consumers are shifting behaviors, with markets seeing the first signs of alignment for capital and regulation. 

We track these signals as we are building relationships, doing our research, and putting in the footwork to understand which climate-tech segments are investable now while tracking what might be next. As investors, we must ask: is there available capital for this? What are the market dynamics propelling change in this space? Is there technology that is uniquely enabling this market now? We are seeking strong indicators that each segment has durable support and market demand, making it a worthy focus of our attention and investment, as well as a promising arena for founders and startups. Because of the unique risks posed by climate change, and because greenhouse gases and their long-term effects are currently unpriced, regulation and consumer sentiment are important indicators for how the market will develop: 

• The European Union launched the EU Emissions Trading Scheme in 2005 to manage emissions in the EU. In 2022, the market transacted $800Bn. (Reuters)
• In 2022, the US signed the IRA and CHIPS Acts into law which allocated a combined $550Bn in incentives including carbon prices for certain industries. (RMI)
• Simon-Kucher showed 85% of consumers are seeking ‘sustainable goods’ and 50% will pay premiums for those goods. In the US, this translated to $150Bn or 25% of all goods sold. (Simon-Kucher)
• China has been criticized for deploying coal to meet growing energy demands, but invested over $540Bn in clean energy investments in 2022 alone. (Scientific American)

These examples, and many others, show the development of regulatory frameworks and the growth of consumer spending on “climate-friendly” goods. These trends serve as compelling indicators that Climate-tech is a promising sector for venture capitalists, with a trajectory of sustained investment and growth.

Trends and Technologies Shaping the Sustainability Wave
In a world facing the compounding challenges of climate change, investors play a crucial role in shaping the future. Early-stage investors, in particular, possess the power to accelerate the transition to a sustainable world by reshaping cost curves and supporting innovative solutions.

The current big wave is Climate-tech. Climate-tech, rather than a specific sector, is a unifying theme behind a variety of technological innovations. In considering what technologies fall under this umbrella, we must consider why Climate-tech is gaining momentum now and where it might be headed. A high-level evaluation leaves the impression of three loosely defined categories: 

• Sustainable alternatives: Consumer Packaged Goods, built environment, transportation, industry & manufacturing, regenerative agriculture, renewables 
• Transition and facilitation technologies: Climate fintech, grid storage & management, adaptation & resilience, Climate-tech ed-tech, emissions accounting, carbon markets, climate monitoring
• Direct climate technologies: CCUS (Carbon Capture, Utilization, and Storage), carbon Removal, geoengineering

The science is clear in its determination that human activity is the driving force behind elevated greenhouse gases and the warming they affect upon the world. However, the complexities of the earth’s ecosystems require that our understanding of the compounding effects of these impacts continue to evolve. As we collect more data, the technologies and mechanisms to manage those effects will evolve as well. 

Innovation and startups are critical to finding solutions that drive down cost, accelerate adoption, and efficiently scale technologies that will shape both sustainability and quality of life. The startup advantage is being adaptable, responsive, and capital efficient, which matches the present needs of a burgeoning global transition to sustainable technologies.

This evolution comes with its economic risks, but as the awareness of the risks grows, governments, corporations, and consumers are increasingly aligning their actions and investments with sustainability goals, presenting promising opportunities for investors and startups. As early-stage investors, it's important to recognize our potential to play a pivotal role in shaping a sustainable future through Climate-tech innovations. 

Interested in learning more about the trends shaping the Climate-tech wave? Watch the full discussion here.

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