Shaping a Greener, Cleaner Planet with Venture Capital

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If we want to achieve global climate goals, a profound change in energy production and consumption is necessary. Here, the role of venture capital is key. By investing in innovative cleantech start-ups that seek to digitize, decarbonize and make the global energy transition affordable, venture capitalists have an important role to play in helping to limit global warming to a maximum of 1.5C.

Where we are now vs. where we need to be

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The COP26 summit in late 2021 firmly put the private sector in the front line when it comes to battling against catastrophic climate change. Corporates lined up to make commitments and a number of new initiatives were launched, focusing on the private sector. These included, among many others: The Alliance for Clean Air, the first global private sector initiative to tackle air pollution; The Glasgow Financial Alliance for Net Zero with over $130 trillion of private finance committed to science-based net-zero targets; and the Glasgow Breakthroughs – global goals that aim to make clean technologies and sustainable solutions the most affordable, accessible and attractive option in each emitting sector globally before 2030. These went hand in hand with governmental initiatives such as The Glasgow Climate Pact under which almost 200 countries agreed to revisit and strengthen their current 2030 emissions targets by the end of this year.

However, months have now passed since the conference and there are concerns that momentum is beginning to fade. A number of countries under The Glasgow Climate Pact, such as Australia and New Zealand, have already made it clear that they have no intention of updating their plans. According to climate modellers, the pledges that have been tabled, committed to and put in action are lagging far behind the pathway that science tells us is required to reach the target global warming limit, set out in the Paris Agreement, of 1.5°C above pre-industrial levels.

“Despite the promises made at COP26 so far, the planet is still heading for 2.4°C of warming above pre-industrial levels”, according to a report by Climate Action Tracker.

A net-zero economy

Shaping a new energy future requires fresh, out-of-the-box thinking with new players that aim to transform the traditional energy value chain. Another ingredient for the success of the energy transition is large-scale collaboration between people and companies from many different industries. Together, we can enable the rapid development, deployment and widespread use of innovative technologies and business models, and build a net-zero economy. Public finance and regulatory developments such as the new International Sustainability Standards Board are crucial, but they can only do so much.

To build the future of energy, we need to scale up private green finance opportunities to help the pioneers behind frontier and emerging technologies – from the next generation of batteries to low-cost clean- and climate tech solutions – build their businesses and thrive.

Investors poured $222 billion into climate tech between 2013 and the first half of 2021, according to PwC’s recent State of Climate Tech report. With the potential for significant financial returns as well as the opportunity to help build a greener and more sustainable world, climate tech now accounts for 14 cents of every venture capital dollar, according to the report.

According to PwC projections, ESG assets in private markets are set to rise to €1.2 trillion by 2025, with European private market ESG assets expected to account for between €775.7 billion and €1.2 trillion, representing between 27.2% and 42.4% of the entire private market asset base.

As investors increasingly future-proof their portfolios with an ESG lens, there is a growing appreciation for the sheer market opportunity represented by the entrepreneurs and disruptors in the climate and cleantech space. Larry Fink, CEO of BlackRock, wrote in his annual letter that the next 1,000 billion-dollar start-ups – or ‘unicorns’ – will be those “that help the world decarbonize and make the energy transition affordable for all consumers”.

Of course, the VC sector is by nature risky and to some extent, speculative. With the growing breadth of start-ups in the space, investors must bring more than just capital if they and their chosen start-ups are to succeed. Those that can bring – in addition to extensive investment experience – market and technological expertise, as well as mentoring and connections, will be well positioned to not only find and attract the best start-ups, but also refine the proposition for the end-market need and provide tailored growth support.

Strength in numbers

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At Future Energy Ventures, we follow a disciplined sourcing funnel through our unique partnership network of over 18,000 organizations across the globe. Our multi-dimensional role as a collaboration platform, mentor and investor in the future of energy has been – and continues to be – fundamental to the strength and success of our portfolio of 50 Series A, B and growth-stage investments.

The realization of our ambition very much relies on collaboration, while our unique network and domain expertise help us to consistently find the sweet spot for active value creation and impact.

Written by: Ines Bergmann-Nolting and Jan Lozek, Founding & Managing Partners, Future Energy Ventures.