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As the UK moves closer to its net zero targets, venture capitalists are focusing their investments on cleantech - an emerging industry in which technology is used to reduce negative environmental impact. According to KPMG analysts, they believe this sector will see significant growth in 2023.
Last year, global venture investments in cleantech saw a sharp decline of almost a third as inflation and interest rate hikes caused investors to stop pouring money into the sector. This was despite cleantech being seen as a rapidly growing industry with KPMG analysts predicting significant growth in 2023 and beyond. The cleantech industry is expected to benefit from the global move towards net zero targets, with technology being used to reduce negative environmental impact.
However, plummeting cleantech investments have left startups struggling for capital and have forced many cleantech companies to delay or halt operations. In addition, venture capitalist firms have been increasingly cautious about backing cleantech projects due to concerns about long-term returns given the lack of data on project success rates over time.
Despite these challenges, cleantech continues to be an attractive investment option for venture capitalists looking for low-risk opportunities. As environmental consciousness rises among consumers, cleantech businesses stand to gain from increased demand for sustainable products and services - something that traditional fossil fuel industries cannot offer. Moreover, recent policy developments such as the European Union's Green Deal are likely to further increase investor confidence in cleantech investments by providing long-term financial incentives at both a national and international level.
As cleantech continues its upward trajectory, it is likely that venture capital funds will increase their investments this year - ultimately creating more jobs and driving economic growth around the world.
“The growing pressure on the need to move to low carbon energy sources has really accelerated interest by investors in the alternative energy sector, which is growing in the UK,” Gavin Quantock, Head of energy M&A at KPMG, told City A.M.
Quantock said that as net zero targets move closer, investors were willing to pump cash into firms that look like they can achieve “significant, at-pace scale”.
In a report published today, KPMG predicted that cleantech and green energy firms were set to receive a boost as investors look to allocate the "dry powder" raised prior to the downturn. According to the report, cleantech investments had already seen an increase of 17.3% in 2020 compared to 2019, with cleantech venture capital deals reaching their highest ever level last year.
This trend is only set to continue in 2023, with cleantech investments seen as particularly attractive due to the increasing global focus on renewable energy sources such as wind and solar power. Investment is also expected in areas such as water treatment and waste management technology, as well as digital infrastructure solutions which support and enable low carbon transitions.
The increased interest in cleantech investments is also likely to create jobs and drive economic growth globally. This could be especially beneficial for emerging countries that are looking to transition from traditional energy sources towards clean technologies. These economies are likely to benefit from the influx of cleantech investment, allowing them to make up some of their lost income due to reduced fossil fuel revenue in recent years.
Furthermore, cleantech investments can offer long-term returns for investors due to their sustainability credentials - something that is becoming increasingly attractive for venture capitalists looking for a sound return on their investments. With net zero targets coming closer into view each year, cleantech investments are increasingly being seen as an attractive way forward by those looking for viable ways of transitioning away from traditional energy sources.
Despite the positive outlook from KPMG, cleantech investments experienced a decline in funding across Europe last year due to the wider economic downturn. This was seen as cleantech projects often require high up-front costs and long-term returns, making them a less attractive option for investors during a period of economic uncertainty.
However, the cleantech sector is still viewed by many as an essential tool in transitioning away from traditional energy sources and reaching net-zero targets. As such, cleantech investment is still seen as a key strategy in achieving sustainable development goals and long-term economic growth.
In order to drive cleantech investments forward, governments around Europe are introducing measures such as incentives, tax breaks and subsidies to promote cleantech investment. This has been seen with countries like Sweden providing cleantech companies with lucrative subsidies aimed at promoting innovation and encouraging green technologies. Similarly, the European Investment Bank (EIB) has created the EIB Green Bond Program which provides funding for green projects across the continent.
At the same time, venture capitalists have also increased their cleantech investments in recent years with many looking for an attractive return on their investments while also supporting sustainability goals. Investment firm NEA (New Enterprise Associates) has notably invested over $3 billion into cleantech companies since its founding in 1977, with notable investments in sustainable sectors such as wind power, solar energy and electric vehicles.
As cleantech investment continues to grow both from governments and venture capitalists alike it is hoped that this will allow Europe to make headway towards achieving ambitious environmental targets while also driving economic growth through innovative green technologies that support a low carbon future.
The cleantech industry in Europe saw a significant amount of investment in 2021, with a total of $15.3bn being put into the cleantech market across the continent. This represented a huge increase on the previous year, which had seen an investment of just $12.5bn.
A large proportion of cleantech investments are aimed at developing technologies around renewable energy sources such as solar and wind power, as well as electric vehicles and other low-carbon solutions. Governments have invested heavily in cleantech initiatives over the past few years, providing both direct subsidies to cleantech companies as well as incentives for businesses to invest in green projects. Private investors have also played an important role in cleantech financing, with venture capital firms such as NEA (New Enterprise Associates) investing heavily into cleantech companies since its founding in 1977.
The cleantech market is continuing to grow throughout Europe thanks largely to increased focus from governments on setting ambitious targets for climate change mitigation and improving sustainability, including reducing CO2 emissions and increasing energy efficiency throughout society. This has resulted in a wide range of cleantech initiatives being launched across Europe that aim to reduce emissions, increase energy efficiency and support sustainable growth. Investment firms are increasingly taking advantage of the cleantech opportunities presented by government policies, providing venture capital funding into innovative startups and established players alike that can help meet these goals while also supporting sustainability goals. The success of these initiatives will be key to helping European countries achieve their climate targets while driving economic growth through innovative new products and services that enable a low carbon future.
Lobby group Coadec, as well as a host of other fintech firms, wrote to ministers in December outlining a list of measures to boost investment in cleantech, including loosening restrictive pension fund rules.
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