The climate tech landscape has reached a remarkable level of maturity, making it one of the most promising areas for investment today. Here are five compelling reasons why now is the ideal time to dive into this sector, including insights into early-stage investments and examples from Australia.
Climate tech is no longer in its infancy. Over the years, the industry has evolved by learning from the mistakes of the Cleantech era and adapting to more recent challenges. The sector’s growth is clear in its increasing specialisation, both in terms of sectors and capital stack. A prime example of this is the rise of companies like Tesla and NextEra Energy. Tesla, initially viewed as a speculative bet, has now become the world’s most valuable car company by market cap. Similarly, NextEra Energy, once a regional utility, is now a global leader in renewable energy with a market cap of $174bn.
In Australia, we see this maturing market reflected in examples such as AGL Energy Limited announcing on 14 August 2024 a binding agreement to acquire Firm Power and Terrain Solar. Firm Power is a Battery Energy Storage System (BESS) developer, while Terrain Solar is a solar project developer. This shift proves how Australian companies are evolving to meet the demands of the climate tech landscape.
For early-stage investors, this maturation means there is a more robust infrastructure and a better understanding of the risks and opportunities in climate tech. Startups like Novalith, an Australian company revolutionising lithium extraction, is thriving within this ecosystem. Novalith has shown a strong grasp of the market’s future needs, positioning itself as a key player in the global energy transition. Their innovative technology has the potential to provide strategic geopolitical and commercial game changing benefits to a critical industry. The company is particularly focused on effectively scaling up operations and leveraging strategic partnerships, with the ultimate goal to license its technology in a capital light model. They have secured significant early-stage investment, from sophisticated and well respected VC domestically and from the US which will be strategic for their growth.
Current market conditions present a unique opportunity to invest in high-quality climate tech companies at relatively attractive valuations. This is especially relevant as interest rates fluctuate and stock markets face uncertainty.
While it is difficult to obtain sufficient unbiased data, anecdotal evidence from Carta shows that Series A valuations in the US have decreased from US$48.7M in Q1 2022 to US$42.2M in Q2 2024 (-13.5%), highlighting a real market shift.
With regard to the Australian market, the report on startup fundraising by Cut Through Venture and Folklore Ventures shows a consistent trend across all stages of fundraising, pointing to a general drop down in investment valuation. One key takeaway from the report is the significant drop in Series A funding rounds, which have decreased by approximately 41%.
Source: The state of Australian startup fundraising – Cut Through Venture and Folklore Ventures
For VC investors, these conditions mean that early-stage companies with promising technologies are available at more favourable terms.
The momentum behind climate tech is undeniable. Governments around the world are implementing policies that accelerate the green transition. The European Union’s Green Deal and the U.S. Inflation Reduction Act are poised to spark substantial investment in renewable energy and carbon reduction technologies. These initiatives are set to accelerate the development of innovative solutions, creating a favourable landscape for those positioned in the climate tech space. With governments and industries prioritising the transition to a low-carbon future, the increased funding and supportive policies offer a unique opportunity for growth and impact in this rapidly evolving sector. The Carbon Border Adjustment Mechanism (CBAM), part of the European Green Deal, is a mechanism designed to combat carbon leakage and encourage a global reduction in greenhouse gas emissions. It aims to apply a carbon cost on imports of certain goods from countries outside Europe, where environmental standards and carbon-related costs are less strict. It’s a significant boost for climate tech investment, driving corporations all over the globe to ensure compliance with emerging regulations. While revenue and growth will remain their top priorities, they’ll increasingly need to adopt new technologies on a large scale to reduce emissions and meet sustainability goals.
In Australia, the government’s commitment to achieving net-zero emissions by 2050 has led to increased funding for renewable energy projects and technologies too.
A prime example of this progress is the pivotal role the Australian Renewable Energy Agency (ARENA) has played a key role in accelerating the hydrogen sector’s growth. In 2023, ARENA launched the Hydrogen Headstart Round 1 funding as part of the government’s $2 billion initiative. Collaborating closely with the Department of Climate Change, Energy, Environment, and Water, ARENA has worked to implement the program and select top candidates from the expression of interest phase, ensuring the most promising hydrogen projects receive support.
For early-stage investors, these tailwinds mean that the environment is increasingly supportive of startups working on breakthrough technologies. Companies like Sundrive, an Australian startup revolutionising the solar industry through innovative photovoltaic technology have a meaningful role to play in this context, benefiting from government support in new technologies and in local manufacturing. In particular, SunDrive welcomed the government’s $1bn commitment to solar manufacturing, reinforcing its position as a key player in the renewable energy landscape.
According to Cut through Venture, in 2023, globally, Climate Tech was the largest sector in terms of number of deal (10% of the market) and the fifth largest by $ amounts ($268m). That shows a clear need in term of investment.
In Australia, Hysata is pioneering affordable green hydrogen production with its innovative electrolyser technology. As the global demand for clean energy solutions grows, Hysata’s potential to scale quickly and impact key industries makes it a compelling target for VC investment. Strategic funding can accelerate their growth, support further R&D, and unlock new market opportunities, while aligning with the increasing focus on decarbonisation and sustainability across sectors.
According to a Morgan Stanley article “Sustainability is on the rise“, more than half of investors plan to increase their allocations to sustainable investments in the next year and a Harvard study found that 59% of all leaders surveyed said “employee activism” caused them to increase their sustainability efforts.
In addition, there is a growing demand from investors, consumers, and employees for sustainable practices and products. This shift is driving fundamental bottom-up momentum in the climate tech sector. Consider the rise of companies like Patagonia, which has built a brand entirely around sustainability. These examples prove how consumer and employee demand is pushing even the largest companies to innovate and adopt climate-friendly practices, creating fertile ground for climate tech startups.
For venture capitalists, this means there is an increasing number of startups that are not only addressing environmental challenges but are also meeting this growing consumer demand. Investing in companies like Sicona Battery Technologies, which is advancing high-performance, sustainable battery materials, taps into strong customer demand for better batteries in electric vehicles. With the push for cleaner energy solutions, both customers and employees are drawn to Sicona’s mission, driving the company’s growth and innovation.
Corporations are making increasingly ambitious sustainability commitments, driving the need for new technologies and innovations. For instance, Unilever has committed to zero emissions from its products by 2039, pushing the company to invest heavily in sustainable technologies. Additionally, Apple has announced plans to become entirely carbon neutral across its supply chain by 2030. Australia’s premier airline, Qantas, was one of the first airlines in the world to commit to net zero emissions by 2050 including increasing to use Sustainable Aviation Fuels (SAF) by 10% by 2030, and co-investing with Airbus in a $400m fund to find the best pathway to reach that target.
In Australia, Fortescue, a global leader in the iron ore industry, has committed to achieving net-zero operational emissions by 2030. This has driven Fortescue to invest in a variety of climate tech solutions, from electric mining trucks to renewable energy integration.
Qantas and Fortescue’s commitment reflect the broader trend of large corporations in “hard to abate sectors” increasingly seeking partnerships with innovative startups to meet their sustainability goals. These commitments are not just statements, they are driving real investment into the climate tech space, fostering collaboration between corporations and startups.
For early-stage investors, these corporate commitments open up significant opportunities. Startups that can provide the technologies needed to help corporations meet their sustainability targets are likely to see strong demand and rapid growth.
In Australia, Renewable Metals, a company specialising in the sustainable recycling and recovery of critical metals, offers a similar opportunity. Their focus is on reclaiming essential materials such as lithium, cobalt, and nickel, from electric vehicles and energy storage systems. Renewable Metals is well-positioned to provide a sustainable supply chain solution. Despite facing challenges in scaling its operations, the company’s innovative recycling technology, which supports the growing battery industry, presents a unique investment opportunity. Additionally, corporates are showing strong interest in their innovative approach. A prime example is AGL, the energy player, partnering with Renewable Metals to undertake a pre-feasibility study for the development of a lithium battery recycling facility at AGL’s future Hunter Energy Hub in NSW in December 2023.
Investing in climate tech today is not just a wise financial decision; it’s an opportunity to be part of a critical global movement. Whether through established companies offering attractive valuations or early-stage startups poised to help industries transition, the climate tech sector offers a diverse range of investment opportunities. The future is green, and the time to invest in that future is now. By backing the right technologies and companies, investors can not only achieve significant returns but also contribute to the global fight against climate change.
At Climate Tech Partners, we are deeply committed to driving corporate transformation in climate related strategies. We recognise the pivotal role that corporations play in addressing climate change, and believe that innovative technologies are the key to enabling this transition. Our venture capital fund specialises in identifying and investing in groundbreaking solutions across critical sectors, including Energy and Power, Transport and Logistics as well as Industrials and Mining, with a particular focus on Series A funding rounds. With decades of experience in infrastructure and climate tech investments, our team believes that acting as a bridge between startups, technologies, innovation, and corporates is crucial to help derisk investments in the space and accelerate corporate adoption.