There is nothing novel in the suggestion that technology has a central role to play in tackling the climate crisis. However, after various iterations of this revolution, the dialogue and momentum around ClimateTech appears to have reached something of an inflection point – and with a more developed investment stack, increasingly scalable technologies, an influx of talent and heightened public imperative, the world has certainly changed since the disappointment of CleanTech 1.0.
In early 2023, we hosted a roundtable event (part of our 'TechTank' emerging tech series) with clients ranging from start-ups to large corporates, industry experts and other sustainability advisors to share thoughts on the current ClimateTech landscape, its opportunities and its challenges. Here are the six key themes arising out of the thought-provoking discussion:
1 - The need for ‘patient’ capital
ClimateTech growth companies are increasingly seeking patient, risk-tolerant forms of funding and the investment horizons of traditional venture capital have not always been a perfect match for that need. Now, aided by intensifying climate awareness, their call is being answered through the participation of a wider set of actors, including governments and impact-first investors as well as some of the more traditional long-only institutions who are seeking an alternative home for some of their capital. The net result is that, even against a backdrop of recessionary headwinds, ClimateTech continues to buck the trend of the wider downturn, provided that participants can plot a course through the “valley of death” between initial funding rounds and the point of profitability.
2 - Governments and businesses both have a role to play
Attendees at our roundtable held a range of opinions on the adequacy, and role, of government in this space, with some satisfied by the extent of state intervention in their part of the market and others calling for more.
Whilst acknowledging this divergence in experience, it’s clear ClimateTech depends on government support to thrive – from creating a clear long-term policy framework, to implementing common rules and standards, to funding and underwriting some of the risk associated with blazing the ClimateTech trail. Without this central support and stability, there is a risk of the market stalling and companies in the space struggling to gain traction with investors and other market participants.
3 - The opportunities and challenges of regulation (or the lack of it)
Regulation has a multi-faceted role to play in the world of ClimateTech. In many respects, regulation is “good for business” - from imposing mandatory carbon disclosure obligations on businesses, thereby increasing impetus and demand for ClimateTech solutions, to injecting greater certainty into the ClimateTech landscape through the (eventual) implementation of initiatives such as the UK Green Taxonomy. On the flipside, however, the evolving tech regulatory landscape may pose challenges for those seeking to exploit ClimateTech solutions built on emerging technologies. With ongoing debate around the regulation of AI, for example, the risk is that such uncertainty has a chilling effect on innovation.
4 - Collaboration is key
Many organisations are collaborating on the development and deployment of ClimateTech solutions to a degree seldom seen before. Rolls-Royce, for example, has joined forces with the Qatar Foundation to create a centre for climate-tech innovations. Companies that typically carefully guard their IP are allying with competitors, driven by a common purpose – as is the case for the Low Carbon Patent Pledge, which provides open access to key patented technologies that have applications in low carbon innovations, and whose participants include Meta, Microsoft and Micro Focus. These arrangements allow organisations to explore novel solutions by sharing knowledge on complex problems, as well as sharing the associated financial and regulatory risks (as discussed above).
Collaborations do, however, pose their own risks that need to be carefully considered at the outset of any joint project – and the uniquely collective nature of the climate challenge does not avoid the need to answer those age-old questions. For example: will you or your collaborator(s) own/have the right to exploit any newly developed IP? What will be the commercial basis for that exploitation? Does the position change when the collaboration ends? What are the competition law consequences of collaborating with a competitor?
5 - Leadership challenges
Although climate and other sustainability issues have become increasingly prominent on board agendas over the last couple of years, several of the attendees at the roundtable shared common frustrations at the difficulty in keeping those issues at the front and centre of board thinking, particularly when there are so many other matters that would traditionally take priority. Whilst not a universal issue, it is undoubtedly the case that sustainability rhetoric is not always matched by action. This, in turn, permeates into a company’s appetite for ClimateTech adoption and investment.
Often, what appears to be a technological or financial challenge is in fact a leadership challenge (please see our publication on sustainability as a leadership challenge, here). One way of encouraging board engagement is by highlighting the enormous potential found at the intersection of sustainability and technology – as with other rapidly maturing sectors, competitive advantage is often inextricably linked with first mover advantage.
6 - ClimateTech - or Climate Innovation?
Finally – a word on language. By focusing on technology solutions, do we risk drawing the net too narrowly when considering how innovation might accelerate our journey to net zero?
There can be little doubt that technologies, both traditional and emerging, are critical components in meeting the climate crisis challenge but other innovative solutions such as organisational rethinks, policy changes and business model shifts that reprioritise resources and objectives have an important role to play. As a result, perhaps the right terminology is “climate innovation” – acknowledging that innovation comes in many guises, not all of which require investment in breakthrough technology. Adopting this “innovation” mindset can also enable companies to embed sustainability “by design” throughout their businesses, from small-scale tweaks to large technology roll-outs.
Food for thought for the firm’s ClimateTech branding!