As the world grapples with crazy weather patterns, wildfires, scorching heat, and other climate-related problems, it’s becoming super important to develop technologies that can fight climate change. There’s a big race to create new tech that can capture and store carbon, generate renewable energy, improve energy efficiency, and revolutionize energy storage.
The Biden administration has set some ambitious goals to combat climate change. They want to reduce greenhouse gas emissions in the U.S. by 50-52% below 2005 levels by 2030, achieve 100% carbon pollution-free electricity by 2035, and create a net-zero emissions economy by 2050. These goals are no joke and will require some seriously impressive technological innovations. And with companies stepping up to help, investors are taking notice.
Investors in both public and private markets are also looking for more information about climate risks that could affect the companies they invest in. The U.S. Securities and Exchange Commission (SEC) has proposed some controversial rules that would require companies to disclose certain climate-related information in their financial statements. This includes risks that could impact their businesses and certain financial metrics related to climate. Similar disclosures are being proposed for mutual funds and exchange-traded funds that focus on environmental, social, and governance (ESG) principles.
While these rules are still being finalized, the current SEC Chair, Gary Gensler, has directed the agency’s staff to encourage market participation in ESG investing. They want to make sure that companies’ disclosures, marketing claims, and public statements are accurate and align with their internal practices. The SEC’s Enforcement Division is also cracking down on misconduct related to ESG investments as more investors rely on climate and ESG-related information. The SEC takes action when firms fail to follow ESG investment policies or misrepresent ESG considerations.
The bottom line is that these new regulations and enforcement initiatives will create new reporting requirements and drive investment in climate-related areas.
According to a McKinsey article, investment in climate-related ventures increased significantly in 2022, despite the economic challenges faced last year. Climate-related private-market investment outpaced the broader market in terms of deal activity, capital deployed, and capital flows into dedicated funds.
However, the climate sector is not immune to rising interest rates and borrowing difficulties that have affected investment overall. While the sector held steady in 2022, there has been a decline in investment this year. Venture capital and private equity investment in the climate sector dropped by 12.8% in the first quarter of this year. Additionally, CTVC reports a 40% decrease in investment in the sector in the first half of 2023 compared to the same period in 2022, and a 35% decrease compared to the second half of last year.
But don’t lose hope! Initiatives like the Inflation Reduction Act, which allocates $347 million to mitigate climate change, are sparking even more interest in emerging technologies. There has been a surge in the number of climate tech startups addressing various aspects of climate change, from sustainable agriculture to carbon offsetting. Venture capital and private equity firms are actively supporting these early-stage companies, and there are strong indications that this support will continue.
One area that has garnered great interest is carbon utilization and sequestration (CCUS). This technology allows manufacturing facilities to significantly reduce their greenhouse gas emissions. It involves capturing and converting CO2 emissions into valuable products or capturing and storing CO2 to prevent its release into the atmosphere. Both strategies are critical for mitigating climate change.
Renewable energy, especially wind and solar power, is another area attracting funding. This technology has been extensively researched and proven to be effective in combating climate change. It is also scalable, ranging from large wind farms to residential solar panels, offering tremendous possibilities. In fact, the U.S. Bureau of Labor Statistics identifies wind turbine service technicians as the fastest-growing job category in the U.S., and solar photovoltaic installers are not far behind.
Energy storage and batteries have also caught the attention of investors. Recently, KKR & Co. announced a $750 million investment in UK energy storage company Zenobe Energy, Ltd., as part of their global climate strategy. Energy storage, or grid-scale storage, is considered crucial in the fight against climate change. These technologies, particularly batteries, can supply power back to the grid during times of overload, making it more stable and reliable. Batteries are also widely used in electric cars, and as charging stations multiply worldwide, their popularity continues to grow.
While there has been increasing interest and investment in this field, there is still significant opportunity for growth. With pending regulatory initiatives and social movements pushing for more action on climate change, investor interest is expected to continue rising. We have only scratched the surface of what these technological advances can achieve, and as more research and development takes place and new technologies emerge, we can expect even more funding to support these crucial efforts.
—
Louis Lehot is a partner at Foley & Lardner, a law firm with offices in Palo Alto and San Francisco, California. He has worked on some of the most high-profile cases in the tech, healthcare, and clean energy sectors. You can reach him at [email protected].
+ There are no comments
Add yours