10 Climate Tech Trends to Keep an Eye According to Venture Capital
From Carbon Capture to Renewable Energy: What's Next Big Bet?
Climate change has become a major concern for global leaders in recent years, as it severely impacts people, animals, and the environment worldwide, forcing countries to take various measures. As a result, investments in climate tech have surged as governments urge companies to adopt favorable climate policies and transition to green.
In a nutshell: the world will need dozens of breakthrough climate technologies in the next decade to achieve our long-term goal of near-zero emissions by 2050.
However, experts estimate that up to 50% of the emissions reductions we need will come from technologies that are not yet ready for the market.
The growing awareness of the potential of climate technology is not just about the altruism and nobility of saving the planet but also rooted in the fact that urgency fuels unprecedented opportunity.
This is why our focus today is on mapping the Climate Tech ecosystem trends.
Here are a few numbers and facts:
The number of climate tech companies has grown significantly in the past decade, with approximately 35,000 established between 2010 and 2022.
The U.S. leads with 14,300 startups, followed by the U.K. with 5,200.
Funding for climate tech is expected to reach $20 billion a year in the U.K. alone by the end of the decade.
Major companies like Amazon and Microsoft are investing heavily in climate tech, reflecting the industry's momentum and resilience during economic and energy crises.
Finally, here is a quick snapshot of the "opportunities" of the last years:
Why are climate change tech investments heating up?
Let’s start with a quote to put everything into the right perspective:
“Larry Fink, CEO of BlackRock, the world’s largest asset manager with $10 trillion under management, has called decarbonizing the economy the “greatest investment opportunity of our lifetime” and predicted that the next thousand “unicorns” will be “startups that help the world decarbonize and make the energy transition affordable for all consumers." - MIT Technology Review
So, basically, aside from saving the planet, there are serious rewards that await climate innovators.
Moreover, according to Climate Tech VC, investments made last year amounted to roughly $40 billion and were distributed among an impressive 1,000 transactions.
The latter metric witnessed an increase of over 40% in 2022 as compared to the preceding year, indicating the widespread proliferation of innovations in the climate technology space.
Here's a global picture of that:
Not so bad, right?
And now let’s try to dive into the 10 most promising Climate Tech trends in 2023 according to the literature.
1. Carbon Capture and Storage (CCS)
Large-scale combustion of fossil fuels for various industrial processes leads to the emission of greenhouse gases such as carbon dioxide, which accumulates in the atmosphere and contributes to climate change.
To face this challenge, startups are working on technologies that capture and store carbon emissions from industrial processes and power plants, such as direct air capture and carbon capture utilization and storage.
Basically, carbon capture and storage technology is a key innovation in achieving net-zero carbon emissions. In fact, it can capture about 90% of CO2 emissions and prevent them from entering the atmosphere.
Then, the captured CO2 is either used to create valuable products or permanently stored underground in geological formations, typically transported through pipelines or ships from the capture and storage plants to their destination.
The increasing adoption of CCS technologies in all major sectors such as oil and gas production and energy is a significant force driving the global capture and storage market.
The benefits of these activities include not only supporting the transition to a low-carbon economy but also receiving government incentives and increasing demand for carbon offset credits.
According to Future Market Insights, the adoption of carbon capture and storage technologies worldwide is expected to grow, with the overall demand increasing by over 14% CAGR from 2022 to 2032, and a total valuation of approximately $9 billion by 2032.
In summary, factors such as rapid industrialization, the need to reduce carbon emissions, the implementation of rigorous environmental regulations, and the increasing popularity of sustainable technologies are driving the growth of the carbon capture and storage market.
2. Sustainable Food Production
Meeting the increased demand for food production by 2050, to feed a projected global population of 9 billion, requires significant improvements in agricultural productivity while maintaining environmental sustainability.
In particular, the production of food, including animal rearing, is responsible for a substantial amount of carbon emissions. These emissions are projected to increase as the world population grows and food demand rises.
Nonetheless, there is also a growing interest from consumers and food companies to support environmentally friendly farming practices that produce fewer greenhouse gas emissions.
So, how can this problem be solved?
Firstly, through smart farming. Some startups are promoting automated farming systems that require less land and water than conventional farming methods, while still ensuring profitability. Essentially, they are developing precision agriculture solutions, including sensor-based systems for soil and plant monitoring, automated irrigation systems, and AI-powered crop management software.
Other startups are focused on developing plant-based meat alternatives that can easily replace animal products and be integrated into existing production systems. Additionally, urban farming systems like vertical farms, aquaponics, and greenhouses are gaining traction.
Moreover, governments worldwide are encouraging sustainable agricultural practices by providing farmers with financial incentives and technical assistance.
In terms of market sizing, SkyQuest's global research forecasts that the sustainable agriculture market will surpass $28.53 billion by 2030, with a compound annual growth rate of 9.9% from 2022 to 2030.
To recap: these technologies can help farmers increase crop yields, reduce water usage, and minimize the use of harmful chemicals, while also contributing to food security and reducing the environmental impact of agriculture.
3. Sustainable Buildings
Buildings are responsible for consuming a substantial amount of energy produced and contributing to more than 35% of global CO2 emissions, with a large portion coming from cooling and heating systems in residential and commercial buildings.
However, there is a growing interest in reducing the carbon footprint of buildings, and climate tech startups are focused on developing solutions to monitor and reduce energy consumption in built environments.
In simple terms: making zero-energy buildings a crucial solution to sustain costs and the planet.
So, the innovations here are focused on improving the energy efficiency of buildings, such as smart HVAC systems, energy-efficient lighting, building management systems (BMSs), or insulation materials.
These technologies can help reduce energy consumption, lower operating costs, and improve occupant comfort, making them an attractive investment opportunity for builders, citizens, and investors.
Furthermore, startups are developing clean energy generation systems that are independent of the grid, reducing reliance on energy from the grid.
The probable end point of these innovations will be so-called "net-zero energy buildings", also recognized as zero energy buildings.
They are buildings designed to be extremely energy efficient. These buildings usually rely on their own renewable energy systems, like wind and solar power, for their energy and electricity needs. In addition, these buildings harness solar energy for lighting and heating purposes within the interior spaces.
According to Allied Market Research, the market size of net-zero energy buildings on a global scale was valued at $71.7 billion in the year 2021 and is estimated to achieve a CAGR of 18.7% from 2022 to 2031, reaching a projected market value of $403 billion by 2031.
4. Water Management & Treatment
Currently, over 40% of the global population resides in regions marked under critical water stress.
With only about 1% of the water available on earth being freshwater, countries facing sharp water poverty have been compelled to carry out treatment to convert seawater to freshwater via the desalination process.
This makes water scarcity a growing challenge, and technologies that improve water quality and reduce waste in the water treatment process have become crucial. In particular, the growing demand for water resources is not only due to municipal, and agricultural purposes but also critical industrial processes.
It is here that Deeptech startups are developing innovative solutions for water management, from desalination to wastewater treatment.
Technologies such as advanced filtration systems, smart irrigation systems, and water-saving devices can help reduce water usage, lower costs, and ensure the sustainable use of this precious resource.
For instance, in March 2022, Saudi Arabia revealed more than sixty water treatment projects at the third MENA Desalination Projects Forum 2022. These projects will triple the desalination capacity of the country by the end of 2027.
5. Sustainable Mobility
Today, the transportation of people and goods heavily relies on fossil fuels, leading to high levels of carbon emissions.
To address this issue, car manufacturers are developing electric vehicles that run on batteries or fuel cells. Moreover, governments are incentivizing the adoption of these EVs by subsidizing them and promoting the electrification of mobility.
In terms of startups, there are very heterogeneous promising approaches including the development of electric vehicles, hydrogen fuel cells, sustainable aviation fuels, or other technologies that reduce emissions and improve fuel efficiency in transportation.
Furthermore, many startups are providing shared mobility models, and micro-mobility solutions like e-bikes, electric scooters, and bicycles for cities, corporate campuses, and universities.
These technologies can contribute not only to reducing greenhouse gas emissions but also offer attractive investment opportunities in a growing market with increasing demand for sustainable transportation solutions.
However, obvious or not, broad hardware sustainment of these solutions is also needed, including energy production and distribution, materials, and batteries to achieve net-zero emissions.
6. Renewable Energy Production
The ecosystem of climate innovation mainly focuses on investing in the energy sector to decrease reliance on fossil fuels and move towards achieving net-zero objectives.
More broadly, there has been a rise in the generation of solar and wind power. Renewable energy developers are also incorporating other resources, such as geothermal energy and biofuels, to facilitate the switch to clean energy.
So, several clean energy startups are designing off-grid energy solutions that allow individual households and remote communities to produce electricity. Concurrently, energy distribution companies are increasing their renewable energy portfolios to decarbonize the grid.
Moreover, progress in nuclear and hydrogen power is also promoting the shift towards a carbon-free energy economy. Both established corporations and startups are striving to make these technologies more cost-effective and adaptable.
In terms of energy demand, the residential sector is the largest end-user of renewable energy, with geothermal heat pumps and rooftop solar energy systems being popular choices for household purposes.
So, the renewable energy market is expected to experience significant growth in the coming years, driven by the increasing demand for clean energy and government initiatives to reduce carbon emissions.
According to Allied Market Research, the global renewable energy market was valued at $881.7 billion in 2020 and is projected to reach $1,977.6 billion by 2030, with a CAGR of 8.4% from 2021 to 2030.
However, developing new resources requires large initial investments to build infrastructure and find publicly acceptable sites with good resources.
7. Sustainable Plastics & Packaging
Reducing the environmental impact of materials extraction, processing, and disposal is critical to achieving a circular economy.
In this field, startups are developing sustainable and biodegradable materials, such as bio-based plastics, compostable packaging, and sustainable textiles.
These technologies can help reduce waste and pollution, conserve resources, and offer more environmentally friendly alternatives to conventional materials.
In particular, bioplastics fit into a broader drive to improve environmental sustainability and address climate change by achieving several goals, such as renewability, elimination of toxins, optimized design and manufacturing, as well as recyclability, and use of post-consumer content.
According to Visiongain Research, the 2020-2030 sustainable plastics market will reach a market value of $828.8 billion by 2030, and it is divided into different segments based on packaging, process, and application.
Additionally, the sustainable development of plastics has been driven by the disadvantages of conventional plastics, such as the use of fossil resources, recycling, abandonment, and pollution.
With the introduction of national bans and regulations, companies will come under increasing pressure to put robust plans in place to meet their plastics commitments and invest the necessary resources to implement those plans.
8. Low-Carbon Manufacturing
The operations of manufacturing facilities are typically resource-intensive and therefore contribute significantly to greenhouse gas emissions.
Fortunately, recent advances in low-carbon manufacturing methods, such as sustainable materials and energy-efficient processes, are enabling manufacturers to reduce their climate impact.
For instance, climate tech startups are developing innovative heat recovery systems that can convert waste heat from industrial plants into electricity.
Furthermore, manufacturing companies are employing decarbonization measures in supply chains and waste management to reduce their emissions.
Many manufacturing firms are partnering with electric vehicle fleet providers to outsource their logistics operations, including last-mile delivery.
Collectively, these efforts are reducing the carbon footprint of the industrial sector and accelerating progress toward achieving net-zero emissions targets.
The topic is huge, and we will dive into it in the future, however recently we deep-dived into a key industrial sector accounting for about 8% of global CO2 emissions today: steel production.
9. Waste Management & Circular Economy
The traditional economy operates by continually processing new materials, leading to a continuously growing demand for raw materials, energy, and mining.
This cycle contributes to a compounding effect that accelerates greenhouse gas emissions and climate change.
On the other hand, the circular economy aims to reuse low-value and end-of-life products and materials, reducing waste and preventing pollution.
In this way, companies can turn waste materials into assets. Climate technology startups innovate waste management and technologies to make this happen.
In detail, these companies employ effective waste management strategies that maximize material recovery, recycling, and upcycling to minimize the carbon footprint.
So, by creating a market for recovered materials, waste management facilities can generate additional revenue. And waste, commonly, never ends.
Basically, the key drivers for the growth of recycling and waste services are:
Growing world population
The industrialization of developing economies
Increased awareness of the need for recycling and waste management services
Shift the waste hierarchy from landfill and energy from waste to recycling and circular economy models such as reuse and reduction.
To put some numbers on the table, according to Statista, by 2028 the value of the global waste recycling services market will reach almost 90 billion U.S. dollars.
Quite impressive, right?
10. Carbon Data Analytics
Improving something requires first measuring it accurately, and this holds true for tackling climate change.
Climate technology startups are utilizing IoT sensors and satellites to collect and analyze climate and earth data.
This leads to the development of more precise climate models, which in turn helps in better planning of climate actions.
Startups also provide carbon accounting and reporting platforms to businesses, enabling them to assess carbon projects' effectiveness.
This, in turn, helps companies avoid low-performing projects and improve their impact investments.
As consumers increasingly prefer eco-friendly products, this positively impacts a company's brand value and sales.
According to Future Business Insights, only the global carbon accounting software market size is projected to grow from $15.31 billion in 2023 to $64.39 billion by 2030, at a CAGR of 22.8%.
Disclaimer
Please be aware: this is not investment advice! The information provided in this publication is for educational purposes only and should not be construed as financial advice or a solicitation to buy or sell any assets or to make any financial decisions. Furthermore, the author assumes no responsibility or liability for any errors or omissions in the presentation. While the author makes every effort to provide accurate and complete information, they make no representations or warranties, express or implied, about the completeness, accuracy, or reliability of the information contained herein for any purpose. The technologies and companies mentioned are not part of our investments, nor do they pay us for promotional purposes. References, when listed, are listed in alphabetical order.
Main References
35 innovators under 35: Climate change | MIT Technology Review
Carbon Capture and Storage (CCS) Market Analysis - 2032 | FMI (futuremarketinsights.com)
Energy-Efficient Building Market Size, Industry Share | Forecast, 2030 (fortunebusinessinsights.com)
Renewable Energy Market Size, Share Analysis | Growth Forecast - 2030 (alliedmarketresearch.com)
Sustainable Agriculture Market is Anticipated to Surpass (globenewswire.com)
Sustainable Plastics Market Report 2020-2030 is projected (globenewswire.com)
Trends in climate change technology investment (itechart.com)
Water and Wastewater Treatment Market Size | Report [2029] (fortunebusinessinsights.com)
Why The Future Of Corporate Sustainability Starts With Transportation (forbes.com)
Zero Energy Buildings Market Size, Share, Growth Outlook 2031 (alliedmarketresearch.com)