Climate technology investments are down 40% in 2023, according to the PwC 2023 State of Climate Tech. The findings reflect the impact of economic uncertainty and the current geopolitical climate.
According to the report, the decline in investments reveals “a deliberate move away from climate tech,” though investments in other categories fell even more, down around 50%. That underscores that the overall share of venture capital and private equity funding has risen, accounting for more than 10% of private market start-up investments in 2023, compared to 7% in 2018.
The report is based on an analysis of 8,000 climate tech start-ups and more than 32,000 deals worth upwards of $490 million. That’s nearly double the number of start-ups tracked in its analysis as well as a broader range of deals.
In addition, the report notes that climate tech, despite fewer investments in 2023, has become more mainstream.
The share of first-time investors in the space has increased, while seasoned climate investors with five or more climate deals have become smaller. In addition, more deals are happening at the mid-stage rather than the early stage for the first time ever -- early-stage deals have fallen to around 47% in 2023, compared to more than two-thirds of all climate tech deals in 2018 and 2019.
“The development and scale-up of climate technology is an essential part of meeting the climate challenge,” Emma Cox, global climate leader, PwC U.K., said in a statement. “So, while it is not surprising that absolute levels of investment in climate tech have fallen along with the market, it is concerning. The good news is that the sector has performed well in relative terms, with investment falling less than in other areas. It is also encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most. Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions.”
Within climate tech, more of the investments are also currently geared towards technology with lower potential with respect to emissions reductions potential.
That trend has been ongoing, though the report noted a more encouraging shift as of late. For example, the share of investments directed towards the industrial sector, which accounts for 34% of emissions and more than any other sector, was less than 8% of climate tech venture funding between 2013 and the third quarter of 2022. Between the fourth quarter of 2022 and the third quarter of 2023, the share of investment in the industrial sector jumped to nearly 14%.
“A challenging macroeconomic environment, sinking valuations, and geopolitical turmoil has seen capital flows to climate tech ventures drop 40% at a time when climate tech needs it most," Will Jackson-Moore, global sustainability leader, PwC U.K., said in a statement. "But while such industry and macroeconomic dynamics may cloud investor confidence, they also present significant first-mover opportunities for investors to engage in the current dip, as the need for climate tech innovations will only grow stronger.”
Plus, investors are putting more money behind start-ups working on higher emissions reduction potential technologies.
According to the report, the share of solar power investment is proportionally up 24% and green hydrogen is up 64%. In addition, carbon capture and storage is up, though still a small portion of overall investment shares within the space. Comparatively, light-duty battery electric vehicles’ proportional share of investment is down 50% since 2022, and micromobility is down 38%.
