VC Sustainability Investments Prove The Financial Might Of Going Green
One of the surest signs that a market is poised for growth is when venture capital (VC) money starts pouring into it. That’s been the case with the market for sustainable investments, as VC firms have raised tens of billions of dollars for climate technologies in recent years.
Between 2013 and 2019, VC and corporate investment into clean energy and green technologies (“clean tech”) grew at a faster rate than overall VC investment, according to a report from PricewaterhouseCoopers cited by the TechCrunch website. VC investment into climate tech hit $16.3 billion in 2019, up from less than $420 million six years earlier. The rate of growth was about three times faster than the rate of VC investment into artificial intelligence over the same time period, and five times the average growth in VC overall.
Those numbers have shown no signs of slowing down. Last year, venture capitalists invested more than $17 billion in climate tech startups, Bloomberg NEF reported.
There’s no mystery behind the rise in all this VC money going toward sustainable technologies. Much of it comes down to market economics. As TechCrunch noted, it’s becoming easier to scale climate technologies and carbon-neutral or even carbon-negative solutions carry fewer costs than carbon-producing solutions.
Climate technology typically covers six key areas: energy transition; transportation and new mobility; agriculture and land use; climate and forests; decarbonizing industry and buildings; and the circular economy and new materials.
One area that has drawn a large share of VC money in recent months is property technology, or PropTech, which aims to make buildings and real estate more eco-friendly and sustainable. As Bisnow reported in April, VC firms have raised hundreds of millions of dollars already this year for investment into property technology startups.
The surge of new money is mainly flowing into the United States, Canada and Europe, as a combination of forces is pushing both developers and landlords to adopt green building technologies. One of those forces is the government. In the U.S., the new administration has pushed for hundreds of billions of dollars to be spent on sustainable buildings as part of their sustainability program.
“If we’re going to hit any of the dates out there like 2030 or 2050 to be carbon neutral, you need to be investing between $2 and $5 trillion every year in retrofitting buildings with climate tech stuff,” Fifth Wall Ventures partner Greg Smithies told Bisnow. “This might be the largest venture capital opportunity in history.”
At least three new PropTech-focused VC funds were launched in early 2021, with plans to raise hundreds of millions of dollars. Fifth Wall, the largest PropTech-focused VC firm, launched a $200M climate tech fund in February. A month later, it received its first investment from Ivanhoé Cambridge, a Canadian real estate firm.
Across the Atlantic, the UK government recently unveiled plans to inject 166.5 million pounds (about $235 million) into green technologies. The infusion of cash is expected to create more than 60,000 jobs and align with the government’s 10 Point Plan for a “green industrial revolution,” as the Pitchbook website termed it. Under that plan, the UK government will spend 12 billion pounds on green sectors with the aim of reaching a net-zero carbon economy by 2050.
The UK is already fertile ground for VC investments in climate technology. In 2020, more than $480 million was invested across 39 deals, according to PitchBook data. One of the recipients was Carbon Clean, a provider of carbon capturing and storage technology, which raised $22 million. Another recipient–First Light Fusion, a startup that focuses on decarbonizing energy systems–secured a $25 million VC investment in December.
