Global Surge in Climate-Tech Investments: Regional Trends and Funding Disparities
he notion that climate technology is merely a passing trend is outdated. Investment in climate-tech has surged across various regions, often surpassing other sectors in terms of financing. In 2023, climate-tech start-ups in Africa raised over a third of all funds, positioning the sector just behind fintech, a more mature industry (AP). Globally, climate-tech ranked as the third most funded industry in 2023 and exhibited a lesser decline compared to the average drop of 38% (Dealroom).
Beyond venture capital and equity-based investments, climate-tech companies are also securing substantial funding from private equity and debt financing, totaling $116 billion in 2023 (Dealroom).
Despite this growth, a significant gap remains between actual investments and the funding needed for climate-tech initiatives.
Europe: A Leader in Climate-Tech Funding
Europe is making significant strides in transitioning to a low-carbon economy, driven by the European Union's ambitious climate targets and stringent regulations. This has spurred investments in renewable energy, energy efficiency, and electric mobility, with Germany, Sweden, the UK, and France leading the way. In 2023, EU-based start-ups secured $18 billion in funding across various sectors (Sifted). Sweden stands out with innovative companies like H2 Green Steel and NorthVolt, which collectively raised $3.6 billion across three significant deals (BNEF).
United States and China: Front-Runners in Climate-Tech
The United States maintained its position as the largest market for climate-tech globally in 2023, with start-ups receiving $14.6 billion in funding. China followed closely, particularly active in clean energy equipment and electric vehicle manufacturing. Despite a 23% decrease compared to 2022, Chinese climate-tech start-ups secured $11.7 billion in funding in 2023 (BNEF).
Southeast Asia: Potential Climate-Tech Hub
Southeast Asia, despite covering less than 1% of the world’s total area, has the potential to supply approximately 30% of the global carbon-offset by 2030 (BCG & Fairatmos). The region saw US$5.2 billion invested in green energy in 2022, despite a 7% decrease from the previous year. Key players like Singapore, PTT Group in Thailand, and CATL in Indonesia have made significant commitments to climate-tech infrastructure and projects, indicating a critical juncture for Nature-based Solutions (NbS) in the region.
Africa: Rising Climate-Tech Investments
African climate-tech start-ups have seen a surge in private sector funding, amassing over $3.4 billion since 2019 (AP). In 2023, one in every three dollars invested in African start-ups went into climate-tech.
Despite this, the continent faces a considerable gap, requiring an estimated $277 billion annually to achieve its climate objectives by 2030 (AP). Energy, water, agriculture, and food sectors have captured nearly 75% of all funding from 2019 to 2023, leaving other sectors like carbon removal, logistics, transport, EV, land restoration, and waste management as attractive opportunities for investment.
Sector Focus: Funding Disparities
The climate-tech sector's focus remains less diverse than needed. Low-carbon energy and transport companies received the majority of funding, with low-carbon energy start-ups alone accounting for 50% of funding in 2023. This marks the first year the sector was overfunded relative to its 38% contribution to emissions (BNEF). Conversely, low-carbon industry, buildings, and agriculture are consistently underfunded despite their significant contributions to emissions. Industrial decarbonization funding saw slight increases, but agriculture and low-carbon buildings remain underfunded due to a lack of economically competitive low-carbon solutions (BNEF).
PwC data from 2013 to 2023 shows that climate technologies with high potential often attract little funding. Technologies with significant emissions reduction potential, such as food-waste management and green hydrogen, receive relatively small shares of startup investment. Additionally, environmental aspects beyond carbon removal, such as biodiversity, air and water quality, soil preservation, and reforestation, suffer from insufficient attention and investment.
Conclusion
Despite the decline in funding in 2023 compared to 2022, the future of climate-tech remains promising. Governments worldwide are increasingly committed to sustainable investments, reflected in their public policies. Investors are showing growing interest in climate-focused companies, indicating a positive outlook for the sector. The global climate-tech sector is experiencing significant growth and investment, with the United States, China, Europe, and Southeast Asia emerging as key players. While challenges remain, including funding disparities across sectors and the need for greater investment diversification, increasing awareness of environmental degradation and a commitment to sustainability offer optimism for continued innovation and investment in climate technologies worldwide.