The ESG Update:

The Need for More Diversified Climate Tech Investment

Climate tech has become a common term throughout the investment world, and though there is plenty of evidence pointing to its efficacy, there are still concerns about reaching the levels of change required to make headway against global warming.

According to Dealroom.co's 2023 Climate Tech Guide, global climate tech investment increased by 625% from 2016 to 2023. Though 2022 and 2023 saw a decline in total climate tech investment in line with the larger macroeconomic slowdown seen across industries, the proportion of global VC investment going into climate tech continued to increase, rising from 10% of all VC investment in 2021 to 16% in 2023. Despite continued interest in climate technologies, the amount and distribution of funding is still a concern.

While investors have focused on 'glossier' software solutions and cutting-edge technologies, investment into brownfield projects – the updating of existing sites and infrastructure – is still often left behind.

It has been known for some time that the existing infrastructure, like the grid, will need significant investment to adapt to the changing renewable energy environment. In 2023, however, only 2.6% of climate tech VC funding was into smart grid and grid technologies according to the Dealroom.co report. We see grid strengthening (like grid connections and transmission infrastructure), data centres, and other industries of this nature being left behind in favour of more exciting technologies. In particular, brownfield projects are often ignored and in need of funding. Updating grid connections, energy infrastructure in buildings, and similar projects are all important to making a more efficient and cleaner world possible.

A lack of investment into more traditional sectors of the energy industry and brownfield projects could result in a bottleneck in bringing ‘more exciting,’ revolutionary products to market.