The Rise of Climate Tech Investments


The Rise of Climate Tech Investments

Business from all over the globe are doing their best to enhance economic growth, without further aggravating the destructive effects of climate change. For this reason, the number of sustainability initiatives are growing. But are they targeting the right sectors to rightfully reduce environmental impact?

In 2021, a lot of extreme weather conditions has been reported all over the world. The devastating hurricanes in the Philippines, the destructive tornadoes in the Czech Republic, and the huge floods in Germany were only a few examples but has cause terrible loss of life, infrastructures, and other important resources to the regions concerned.

If there is anything that these calamities show, it is that climate change is real. Global leaders, innovators, and corporations know this very well, which is why they are racing to achieve net-zero emissions by 2050 to prevent the further destruction of the environment.

But this race proves to be an expensive one, since trillions of dollars are needed for climate change solutions. So, to equip corporations with enough resources to meet their respective net-zero targets and potentially lower emissions, businesses turn to climate technology investments.  

What Is Climate Technology Investment?

As defined in the PwC’s State of Climate Tech 2021 report, climate technology refers to any technology that focuses on reducing greenhouse gasses (GHG) emissions or other effects of climate change. Climate technologies are grouped into three groups:

  1. Technologies that directly decrease or remove emissions
  2. Technologies that help the society adapt to climate change
  3. Technologies that help us learn or understand more about the climate

To ensure proper funding and continuous deployment of climate technology, it would need investments in the end of corporations. This is where climate technology investments, or investments that are particularly involved in selecting technologies or strategies to mitigate climate risks, play a vital part.

These climate tech investments fall under the environmental, social, and governance (ESG) corporate investments, which helps business leaders and stakeholders to grow their portfolios while ensuring that all company products, services, or operations contribute to maintaining a low carbon society.

The Best Climate Technology Investments Right Now

According to McKinsey’s research, it is estimated that next-generation innovations like climate technologies could attract $1.5 trillion to $2 trillion of capital investment per year by 2025. The said year is the United Nations’ global challenge for all industries to commit to net-zero emissions, so that the society enjoys clean and affordable energy in the future generations to come.

Now, for corporations to maximize investments in climate technologies, organizations must have an idea of which climate innovations show considerable promise in the midst of evolving technological advancements, changing environmental regulations, and consumer demands.

Take note of these five climate technologies that are expected to garner considerable amounts of capital and ensure sustainability for the years to come:

  • Electrical Technologies

To achieve net-zero emissions, the usual culprits for emitting GHG must be lessened or eliminated altogether. Coal, oil, and gas are these culprits that had been used to for powering infrastructures, machines, and transportation for a very long time. For this reason, experts have turned to electrification to lessen GHG caused by these resources.

Making energy-efficient structures, creating different forms of electrical transportation options like scooters and cars, and making accessible EV batteries to power up industrial machines are seen as electrical technologies that can help in the net-zero cause.

  • Hydrogen Technologies

Aside from electrification, using hydrogen power as a source of energy for structures, industrial machines, and transportation systems is another viable option. Research even showed that hydrogen can power up 15-20 percent of the energy resource demands, and help alleviate about 30 percent of the global GHG emissions.

Some examples of hydrogen technologies that can contribute in establishing a sustainable economy are aviation fuel alternatives, hydrogen-powered steel productions, and hydrogen fuel cells.

  • Agricultural Technologies

Agriculture is a vital part of society, and still, it is accountable for about 20.1 percent of the GHG emissions. Methane is one of the by-products of agriculture, a GHG that has more warming power than carbon dioxide. To reduce methane emissions, agricultural technologies must have a major overhaul in its production processes, particularly in managing the supply chain and waste.

Some of the agricultural technologies that could help in decarbonizing agricultural operations are bioengineering, methane inhibitor production, cultivated and plant-based meats, and zero-emissions farming equipment.

  • Resource Management Technologies

Waste also contributes to GHG emissions, particularly food waste, which amounts to 6% of harmful emissions. Food waste can happen at the consumer end of the business supply chain, but it can also happen more on the earlier stages of the supply chain such as in harvesting and processing.

To target this problem, corporations must invest on technological developments that tackle resource management for food and other materials waste. Technologies that focuses on the circular economy models, such as reusing, reducing, recycling, regenerating, and recovering materials and other resources can help in the decarbonization efforts.

  • GHG Capture and Removal Technologies

Based on the IPCC Sixth Assessment report, the world cannot reduce climate change impacts without using carbon capture technologies. Fossil fuels, according to the report, are likely to contribute to energy production, unless other resources like electricity and hydrogen can fully be available, reliable, and affordable.

There are different carbon capture, use, and storage technologies that can further be invested in the future. Some of these innovations are bio-energy with carbon capture and storage, CO2-enriched concrete, direct air capture, and pre- and post-combustion capture. 

Key Actions to Enhance Climate Tech Investments

Statistics show that corporations are aware of the benefits of climate tech investments, which results to 210% growth of climate-related investment in 2021. But while climate tech funding looks promising, corporations have to deal with another dilemma: reports indicate that organizations’ climate investments may not be tackling the right areas for a net-zero society. 

For this reason, companies must ensure that their climate tech investments are actually making a difference in the global fight against climate change. Here are some actions that organizations can implement to truly maximize their climate technology investments.

  1. Incorporate specific sustainability targets in the investments.

A company may have a climate technology investment funds in the works, but what exactly are the targets of using the said climate technology? Corporations must directly integrate GHG emissions targets in their climate investments. These targets should also result to long-term benefits that significantly reduces GHG emissions, but are also commercially viable and can help develop innovations for the said organization.

  1. Adopt anti-greenwashing tactics for reporting and tracking impact.

Since most of the industries are investing heavily on ESG projects, other corporations might be pressured into adopting their own sustainability initiatives quickly. At worst, this pressure may cause organizations to adopt greenwashing tactics, where corporations might make baseless or false claims about true sustainability impacts. For business leaders to avoid this practice, using emission reduction tools and climate assessment frameworks can truthfully measure tracking and reporting reduction impacts.

  1. Reduce risks through blended climate finance.

Climate tech investments are expensive, and aiming for the necessary long-term reduction impact means more room for financing risks. Experts even say that to achieve effective climate investments, a high-risk profile must be ready. In addition to this, a blended climate finance framework also mitigates this risk. Using blended climate finance, investment capital will be provided by private and public investors, and with donors placed in subordinate positions—which, therefore, fill the capital gap and reduces risk for risky project investments like new climate technologies.

  1. Provide policies for research and development projects on sustainability.

Clear plans and policies are important in climate tech investments. If the organization decides to venture into emerging climate technologies, these plans and policies can be used to estimate the right financing and technical assistance in all stages of creating and adopting climate technologies, and also evaluate if the project is commercially viable in the first place to reduce finance risk. In addition, climate investment policies should identify key persons in the investment such as project leaders, entrepreneurs, and financial experts that could review and arrange the appropriate finances.

  1. Identify and remediate innovation gaps.

Studies show that 97 percent of climate tech investments are truly intended to mitigate the effects of climate change. Unfortunately, only 1% of invested climate technology projects have been adapted. To solve this issue, corporations must identify which technologies are most viable to invest in, and plan accordingly to how long the commercialization process for such technologies will take. Deciding which projects has long-term and short-term reduction impacts must also be considered, so as to quickly mobilize sustainability projects.

The growing number of climate tech investments are proof that the world is aware of the destructive effects of climate change. But for these investments to materialize, corporations must make the necessary steps to ensure that their investments can achieve business growth, and at the same time, protect the environment. We only have one planet to live, and every climate investment made, can certainly make a difference in helping us live in a safe and green society.

 

Reference Links

https://www.investopedia.com/articles/investing/051514/preparing-your-portfolio-climate-change.asp

https://www.mckinsey.com/business-functions/sustainability/our-insights/innovating-to-net-zero-an-executives-guide-to-climate-technology

https://www.pwc.com/gx/en/services/sustainability/publications/state-of-climate-tech.html

https://www.visualcapitalist.com/climate-investing-what-it-is-whats-propelling-it-and-where-to-start/

https://unfccc.int/ttclear/misc_/StaticFiles/gnwoerk_static/TEC_documents/204f400573e647299c1a7971feec7ace/ea65db0ca9264cdbaefeb272dd30b34c.pdf

https://www.weforum.org/agenda/2021/05/investing-to-curb-climate-change-rising-what-you-need-to-know/

Patricia Mae M. Estenoso, Creative Copywriter, CXO Connect ME