What will it take to halve global greenhouse gas emissions over the next decade to stay on track for a net zero world by 2050? Climate technology solutions are key to enabling this transformation, and they are attracting growing investor interest. Investors guarantee both the climate impact and trading returns of this emerging asset class, which helps maintain the Paris Agreement goal of limiting global warming to below 1.5 degrees Celsius.
A stronger focus on ESG in private markets, emerging regulations such as the European Union’s Sustainable Financial Disclosure Regulation (SFDR), and US announcements to achieve a 50-52% reduction from 2005 levels net greenhouse gas pollution economy-wide in 2030, among others, combine to drive the growth of climate technologies. Thousands of companies have made public commitments to net zero, set science-based goals, or sought to demonstrate their broader commitments to society through B Corp status.
Clean technology companies are working towards a zero-emissions world by focusing on ways to improve production performance and efficiency. These are businesses like clean energy, clean air, water treatment, transportation, waste recycling and reduction, supply chain improvement, energy efficient built environments, or manufacturing sustainable, for example.
Climate technology is slightly different — it is explicitly focused on reducing GHG emissions or the impacts of global warming. These applications directly mitigate or remove emissions, help adapt to the impacts of climate change, or improve our understanding of the climate. Climate technology investing continues to show strong growth as an emerging asset class, with 14 cents of every venture capital dollar now invested in climate technology. By 2023, total investment in the climate and clean technology sectors is expected to reach $6.4 trillion.
Interest in climate technology has increased for several reasons, according to Wired. Investors have started to see returns from past successes, which is whetting the appetite for more investment. EU and US leaders have taken steps to reduce greenhouse gas (GHG) emissions, such as identifying and deploying tools to measure and verify emissions, enacting rules to reduce heavy-duty vehicle emissions or create comprehensive global GHG accounting. These focus areas create market opportunities for startups that want to develop climate technologies.
Additionally, many climate tech founders come from software companies like Amazon, Google, and Airbnb. Such antecedents translate into careers such as emissions analysis and management, climate change prediction models, water conservation engineering, renewable energy network design, energy efficient freight movement, bottom mapping oceans for climate impact, and many more.
Focus on Climate Tech Startups at the Y Combinator
Last week, 31 founders who create products and services to save the planet had the chance to pitch their ideas to angel investors and venture capitalists. Y Combinator (YC) provides seed funding to startups and has funded 90 companies fighting climate change since 2010. They say the most important thing they do is work with startups on their ideas, with the secondary goal to help founders deal with investors and acquirers. YC invites the most promising groups to meet them, works intensively with companies for 3 months to give them the best possible shape and guides newbies in refining their pitch to investors.
Each cycle ends with a demonstration day. Y Combinator Demo Day 2022 was an opportunity for the latest batch of startups to pitch to an invited audience of around 1,500 investors and media. Held live, the event offered every company a forum to present for one minute with the dream of getting a chance at YC investment of $500,000 per company twice a year. Again, YC’s influence doesn’t stop at Demo Day, as their alumni network continues to help founders throughout the life of their company.
Algae Biosciences is an example of YC’s promising climate technology entrepreneurs. Alga Biosciences is studying a process to reduce agricultural methane emissions using one of the most evolving resources on our planet: algae. Ruminants, primarily cattle, account for 27% of annual methane emissions in the United States. In ruminants, methane is produced mainly by enteric fermentation, where microbes break down and ferment plant materials, such as celluloses, fibers, starches and sugars in the digestive tract or rumen of ruminants. Enteric methane is a by-product of this digestive process and is expelled by the animal through burping.
And cows burp of course: they burp all day, every day, and release tons of methane gas into the atmosphere. And there is another positive effect: with less energy allocated to methane production, each cow would need significantly less feed to maintain the same weight. Alga Biosciences is working on a particular type of seaweed, Asparagopsis taxiformis, which when grown on a large scale can help cows retain more nutrients. This algae-based feed additive is considered inexpensive, scalable and safe for livestock, with the potential to reduce methane emissions from cows by 90%.
Other Interesting Climate Tech Startups
Another climate tech startup making the news is Glanriswho developed a process to turn rice husks into water filtration media. Forbes calls it “an incredibly simple yet effective rice husk treatment” that sequesters billions of pounds of carbon that would typically be released into the atmosphere through combustion. By reusing rice hulls, the process replaces harmful microplastics in traditional water filters and reduces energy consumption to filter water. From production to landfill, Glanris’ biocarbon™ offers a green alternative to typical filtration media for metal removal without meeting high standards.
Another interesting climate tech startup, Unified, is building 27 5 megawatt (MW) solar parks across Australia and a 120 MW park with co-located grid-scale batteries in regional hubs across the country. The solar farms will show how small-scale solar farms can operate within existing and aging grid infrastructure to provide renewable energy without the need for costly grid upgrades, which many countries currently require. They say their electron tracking provides proof of origin, while granular panel-level data is captured in real-time, under real-world conditions. Data is source-verified, secured with tamper-proof crypto-anchors, and is searchable 24/7 on the cloud. Their encryption and blockchain technologies protect their data and unlock the potential of APIs for entire ecosystems. By 2026-2028, Sunified projects a total exit valuation of $2.6 billion, providing investors with a 3,000% return on investment.
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