Climate tech investments witnessed a 40% decline in 2023 due to factors like economic uncertainty and geopolitical conflicts.
This is due to findings from PwC’s 2023 State of Climate Tech report. This report provided a comprehensive analysis of over 8,000 climate tech start-ups and more than 32,000 deals, amounting to over $490bn.
It was noted that PwC’s Climate Tech Investment Index underwent significant expansion this year, covering nearly double the start-ups from the previous year, while also evaluating a wider range of deal types.
Even with the noted decline, the drop in climate tech investment was less severe compared to the average venture-capital (VC) and private equity (PE) fall of 50% across various sectors. Encouragingly, climate tech’s share of VC and PE funding has been on an uptrend. In 2023, it represented over 10% of private market start-up investments, showing an increase from the 7% recorded in 2018.
Moreover, the investment landscape is seeing shifts, with established investors in the space, those who have invested in five or more tech deals, having a reduced stake. Concurrently, first-time investors are making their presence felt, signalling that tech investment is inching towards mainstream acceptance. For the first time, mid-stage deals outnumbered early-stage ones.
PwC UK’s Global Climate Leader, Emma Cox said, “The development and scale-up of climate technology is an essential part of meeting the climate challenge. 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.”
Global Sustainability Leader at PwC UK, Will Jackson-Moore stated, “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. 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.”
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