Hot Themes for 2023
by Sonam VelaniJanuary is often about going out with the old and in with the new. In climate tech, however, I think it’s more about building on the old and supercharging the new!
2022 closed off with a bang - investors plowed in a record $70.1 billion into climate tech solutions, an 89% increase from the previous year. Over 30% of all VC deals are in climate tech these days – we’re finally the hot kids on the block (no pun intended!). The largest share of funding went to energy storage and distribution, mobility, and ag/food companies - with megadeals for everything from Northvolt’s battery manufacturing innovations to TeraWatt’s charging centers for EV fleets. As our friends at ClimateTech VC reported recently, we’ve got nearly $37.4 billion of dry powder in the banks just in dedicated climate tech funds, as well as $300 billion across the VC industry – all of this is ready to be deployed!
Climate tech is on fire – in a good way! Source: HolonIQ Global Climate Tech Report 2022
So, where should all this money go in 2023? We’ve got some ideas.
1. Invest in Climate Adaptation - Today, Not in All the Way in 2049: First and foremost, climate change has two sides of the same coin - but as a society we’ve only focused on one. Over 93% of all climate finance goes into mitigation - or attempts to reduce the amount of GHG emissions we collectively spew into the atmosphere. Less than 7% of funds go to adaptation - also known as dealing with the impacts of climate change today and saving lives while we’re at it. Things are going to get a lot worse before they get better - so let’s do something about that now, and not all the way in 2049.
Adaptation and mitigation work together to save lives over the short and long term – if you’re interested in learning more, check out Parachute - our creative storytelling platform focused on climate solutions in cities across the globe! Art skillz by the fabulous Lyn Stoler!
2. Build Back Better - And Redefine Better While You’re At It: Climate change is here and now - you don’t need us to tell you that it was 66 degrees on January 4 in New York and Atmospheric Rivers are literally drowning the California coast as we speak. We should be using these freak weather events as an opportunity to rebuild for resilience. We now have data from tools like FloodMapp and CloudToStreet helping us predict the impacts of severe weather; we have innovative materials like porous concrete from Aquipor to absorb water on our streets and in our neighborhoods; and we even have financial instruments like disaster risk insurance to protect against public sector balance sheets. For every $1 that we spend on pre-disaster mitigation, we save $6 in post-disaster losses. That’s VC level returns right there!
Arverne by the Sea is the only community on the oceanfront Rockaway Peninsula in New York City that survived Hurricane Sandy. The 120-acre development was raised 5 ft, and includes underground utilities, submersible transformers, underground drainage chambers, and concrete slab foundations. The beach grass near the boardwalk is meticulously maintained and serves as a beautiful, natural buffer to oncoming storm surges.
3. Put your Money Where your Mouth Is, Literally: As stated above, climate tech vc is on fire (in a good way!). 65+ new climate focused VC funds have launched over the past year, all making great claims that they are out to decarbonize the planet. Yet, there’s a severe mismatch between capital needs and capital deployed. Industries with the greatest capacity to reduce GHG emissions receive the smallest share of venture dollars. One of the greatest discrepancies: 17% of emissions come from the built environment, yet only 4% of all VC dollars are invested in this sector. Perhaps here’s something that will convince you to do better: 140 million homes across America need new furnaces, gas burners, induction cooktops, and more - a total of a billion machines that need to be switched out. That’s a lot of alpha!
My hope for 2023: matching blocks on the left and right. Source: PwC State of Climate Tech Report 2022
Meeting our climate challenges means we must embark on a full transformation of the economy. With the wins of 2022 - from the record VC funding to the passage of the IRA to the rollout of the infrastructure bill - we’ve got the taps flowing and we’re primed for success! In 2023, we will see the full impact of Climate Industrialism in action - the trifecta of talent, innovation, and industrial policy that will enable communities across the globe to develop + deploy climate solutions in partnership with entrepreneurs, foster local economic development, and keep our planet nice and cool 😎
by Sonam Velani