Even if 2021 was far from a banner year for taking meaningful action on climate change, it did illustrate that the issue will be closer to the centre of all kinds of political and economic decisions in the future.

Hardly great succour to the citizen of a small island state and there is no doubt that policy-makers must do better on global and sectoral levels if the world is to avoid the long term impact.

If one tends towards optimism, and reading this blog suggests you do, then the ray of hope is that investors reckon the tech needed to fight climate change is the next arms race.

The Financial Times noted that PwC’s State of Climate Tech report found that some 6,000 investors, ranging from venture capital and private equity firms to government funds and philanthropists, have backed more than 3,000 climate tech start-ups since 2013.

In total, investors have sunk about $222bn into these start-ups, with funding increasing 210% over the past year alone.

By itself, the FT continued, technology will never solve the problem of climate change, but it remains an indispensable part of the solution. This level of investor interest is a positive sign that executives, entrepreneurs and investors now appreciate not just the scale of the challenge but the potential rewards from getting in on the ground floor.

Most of the investees are small – start-ups, concepts and ideas – many of which will fail. The cut-throat business of the venture capital market – which provides the most efficient form of Darwinian selection – will see to that.

The old heads at the FT also note that some investors will rightly think that they have heard this song before. In the late 2000s a surge of money flowed into clean tech companies in anticipation of significant policy changes, on which governments never delivered. The resulting market crash deterred many investors from getting in on the game again.

But this time, there are better reasons for believing the new investment surge will prove more durable. First, the need is demonstrably more urgent, second, policymakers are at last creating a more permissive investment environment even if they have not yet adopted wholesale carbon taxes. Finally, many green technologies have significantly evolved and some genuinely exciting innovations are beginning to bear fruit.

There have been some meaningful advances in the operational and cost efficiency of the major energy groups – solar, wind and batteries. Beyond this the promise of the hydrogen economy, next-generation nuclear and carbon capture present significant opportunities for scale to meet consumer and industrial demand.

As a result the PwC report notes that the size of climate tech deals nearly quadrupled, reaching $96m in the first half of 2021 compared with the year before. However for any of the above technologies to make a meaningful contribution to reversing global warming trillions of dollars will have to be invested across dozens of sectors.

Hence big institutional investors – rather than small funds with aggressive payback schedules – now need to mobilise their resources to scale the deployment of the most impactful technologies.

Citing technology as the cure for climate change does not of course go down well with those who believe local action coupled with bigger societal shifts will be necessary. It is certainly true that the technology won’t by itself save the planet, at least not until we can have an honest conversation about how emissions are measured and accounted for.

Predictably, the FT suggests that an investment-led technology approach – combined with simple short term measures, is likely to add the most value to the process. This approach, combining ‘the now with the new’ will see more investors place bets behind clean technology even if policymakers fail to act more decisively.

Is this because the investors concerned want to save the planet? Quite possibly, but as the paper concludes, the biggest driver of the wave of climate tech investment is self-interest, which it counts as an unambiguously good thing.

Tackling climate change is not just a responsibility, it is opportunity – perhaps the biggest of our lifetimes. Whether it results in outsized returns is harder to judge, but there can be few serious investors willing to pass up the chance.

Photo by Magnus Engø on Unsplash