Is the climate tech opportunity real this time around?

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Climate tech is increasingly being seen as an exciting opportunity in the world of technology startups and venture capital, globally and in India. But it is not the first time that startups focused on climate and the environment are getting this attention. Over a decade ago, between 2006 and 2011, venture capitalists and PE investors poured in billions into ‘clean tech’ startups. But they never really saw the returns they were expecting. Hence, the question being asked today, and rightly so, is: is the climate tech opportunity real this time around?

Yes, the fundamentals and macro trends clearly suggest that the climate tech story will be significantly different this time. We are now seeing a unique confluence of trends in favour of climate tech. What are those key factors and macro trends?

One, the massive rise in climate-related disasters has had a significant economic and political impact. Droughts, floods, pollution, disrupted crop patterns, rise in ocean levels, destruction of bio-diversity, among other things, have been clearly destroying livelihoods, and imposing significant economic costs on nations. Two, national and international commitments to achieve net zero emissions are broadly starting to align, even if significant differences still remain. India notably also committed to achieving net zero by 2070.

Admittedly, both these factors were true earlier as well: climate-related disasters have been occurring for a long time now, and governments have claimed to be re-committed to sustainability. Yet, it is also clear that on both fronts, the ante has been upped — by nature on one hand, and by governments and non-state actors globally on the other.

Three, significant technological breakthroughs in recent years offer the biggest hope that climate tech could actually change the game this time around. Renewable energy production — especially of solar energy — has become cost effective and in many cases cheaper than fossil fuel-driven energy production. This hard economic reality is most likely to push up renewable energy production.

But other technological breakthroughs are also extremely important. Advancements in bio-tech and ag-tech are enabling the production of bio-fuels, efficient and more sustainable crop production, and development of alternatives to plastic and other such harmful materials. Similarly, the IoT, data, and AI revolutions promise to find massive applications in the climate tech space, in the form of precision agriculture, smarter cities, greener buildings, power grids, and transportation systems, to mention a few.

Carbon capture technology is also improving more rapidly than before. Furthermore, satellite and space tech offer potential applications that could help us transform our energy systems. Remote sensing technology, for example, is making wind turbines more efficient while weather satellites are making solar cells more productive. According to the World Economic Forum, more than 160 satellites are currently measuring different Climate Change-related indicators, with more than half of the essential climate metrics only measurable from space.

The convergence of many of these technological breakthroughs in different fields is likely to create fertile conditions for a climate tech revolution, which wasn’t possible before. Even the Internet tech revolution of the last two-three decades required technological breakthroughs in various fields to become truly widespread. A similar convergence is brewing on the climate tech front.

Four, consumer demand for sustainability and climate-consciousness is starting to make a difference in how the world’s major companies are re-orienting for the future. This is reflecting not just in the fact that regulators such as SEBI in India and SEC in the US are starting to make disclosure of relevant sustainability metrics mandatory but also in the rise of sustainable brands in all consumer sectors. Ultimately, the response to Climate Change has to be as much about changes in our consumer behaviour and consumption preferences, as it has to be about technological breakthroughs.

Five, the climate tech sector is becoming well-defined and comprehensive in scope. In earlier decades, ‘clean tech’ largely referred to clean energy production. However, ‘climate tech’ now includes a diverse range of sub-sectors such as clean energy, mobility and transport, carbon capture, smart infrastructure and green buildings, sustainable food and agriculture, circular economy, bio-technology, and data tracking and intelligence. This suggests that a cross-sectoral movement is underway to transform our economic modes of production globally.

The confluence of these factors will make the climate tech opportunity real – and substantial - this time around. Of course, not all is hunky dory, as the recent Russia-Ukraine crisis has shown. Short-term economic pain and geopolitical imperatives can threaten to derail the momentum that has been building in favour of change. It is critical, however, that we see these geopolitical developments as yet another reason to make the transition away from fossil fuels. We must capitalise on the once-in-an-era climate tech opportunity.

Anirudh Suri is a technology venture capitalist, and author of The Great Tech Game. Views are personal, and do not represent the stand of this publication.