Climate investing: how to get started and get it right
Do you want to invest in line with your values while meeting your financial goals?
This guide will show you how to optimize your impact as an investor in public and private markets and drive significant progress in tackling climate change.
Climate tech: hardware and software are critical to achieving net-zero
Climate tech refers to all technologies designed to mitigate greenhouse gas (GHG) emissions, either by avoiding GHG emissions or by capturing GHG already in the atmosphere.
We have five major sectors of focus (electricity, mobility, transportation, buildings and industry) where climate technology, including both hardware and software, is critical to obtaining a net-zero economy.
What is climate tech hardware and how will it get us to net-zero?
To reach net-zero, we must create low-carbon alternatives for almost everything we do in each sector. Sounds easy right? 😅
This is what hardware is all about: building alternatives for carbon-intensive products and industries to transform them away from greenhouse gas emissions.
Here are some hardware companies shaking up their sector:
- Semtive: produces sideways wind turbines that can operate at extremely low wind speed and can be assembled in under an hour with minimal servicing requirements
- Zap Energy: builds compact, scalable nuclear fusion (which is quite unique compared to current nuclear fission) reactors with potentially the shortest path to commercially viable nuclear fusion
- Monarch: makes the world’s first fully electric, driver-optional and data-driven tractor
- Mi Terro: turns agricultural waste (including beer waste🍻) into proteins that can be used as a plastic replacement
- Leko Labs: creates large buildings of cross-laminated wood, replacing the concrete and steel (and its associated CO₂ emissions) as well as requiring less heating and cooling
- Climeworks: uses direct air capture technology to capture carbon dioxide from the air and store it underground storage for permanent removal of CO₂ emissions
How does climate tech software fit in?
Next to transforming products and production processes, we need climate solutions to become as efficient and accessible as possible. The more efficient we are, the less we have to transform.
This is where software can help, enabling efficiency in ways like:
- Optimizing the performance of hardware climate tech
Atos: using machine learning and AI to improve performance and predict maintenance of windmills
- Making climate tech hardware more accessible and affordable (fintech and marketplaces)
Greenlight Solar: solar lamps which customers in Africa can get under a ‘pay as you go’ payment plan
Zolar: provides a comparison tool for solar panels and installers to help customers find their best solar energy options
- Matching supply and demand
Roadrunner: accurately predicts volumes of materials generated by different industries to optimize waste and recycling streams
Trove: a second-hand shopping platform that helps commerce brands optimize their end-to-end operating systems for sustainability
- Enabling decision making and behavioral changes
Watershed: a platform that calculates companies’ carbon footprint, analyzes sources of GHG emissions and helps identify meaningful GHG reduction opportunities
Investing into climate tech hardware and software
The opportunity set within climate tech is diverse, so let’s discuss (in the simplest terms possible) how to look at investing in hardware and software.
Groundbreaking, early-stage hardware called deep tech is going to have long investment periods — its tech has often only been proven at a lab level (e.g. nuclear fusion). To go from one to a million, a lot has to happen: design a scalable production process, build factories and set up commercial channels.
This requires time, but if the technology takes off, it can become a big winner with big returns.
There’s also a lot of hardware that requires smaller investments and shorter time horizons when it's closer to scale, production capacity can be rented versus bought, and/or the tech is a component that will be added to existing products (e.g. a new top layer for solar panels).
These investments are more predictable and face less opposition from incumbents, but they can’t solve everything, which is why we push for deep tech innovation wherever possible.
For climate tech software, it tends to have the same characteristics as ‘regular’ software: quick go-to-market, massively scalable, capital-efficient, low marginal costs, and recurring revenues.
Because of these characteristics, it’s also a very popular investment category, with lots of competition. Currently, there are hundreds of carbon accounting startups and only a few will win big.
To round up... climate tech is no longer a niche. We need it across sectors, geographies, hardware and software, which is why we need to increase investments to 4 trillion annually by 2030.*
Carbon Equity allows you to start investing in transformative climate tech companies so you can build the future you wish to see.
📚 Interesting reads
In short: A deep dive on each of the 82 solutions which together can get us to net-zero GHG emissions and halt climate change, consisting of both technological innovations and behavioral changes, organized by sector.
Span raises $90M to make smart panels the gateway to home electrification
In short: A new technology that ensures all electric appliances in a house (solar panels, backup batteries, electric vehicle chargers and electric heaters) work together smoothly, so we can optimize our electricity grid usage.
Why Microsoft and Shopify are betting Biochar
In short: Interest in Biochar is booming. It's a charcoal-like substance made by burning biomass (land/sewage) in a controlled process called pyrolysis. It can be buried or used to enrich soil while keeping carbon captured for hundreds of years.
In short: Research done at the University of Zurich found that investors can have an impact by enabling impactful companies to grow, encouraging improvement and influencing the public discourse.
Joint European Action for more affordable, secure and sustainable energy
In short: Following the invasion of Ukraine by Russia, the EU upped its green hydrogen goals. The aim is to reach 20 million tons through increased domestic production and by importing 10 million additional tons by 2030.
🔬 Show me the data
Okay, this chart from the IPCC report published yesterday is a lot. Let’s simplify it.
The chart shows an overview of key climate technologies, their GHG reduction potential and the cost of implementation.
It shows that many of the technologies needed to keep us below 2 degrees Celsius are already cheaper than the carbon options today, like wind energy, solar energy and other energy efficiency measures.
Plus, the adoption of these climate technologies has accelerated exponentially (see here).
The chart also shows other climate technologies (e.g. sustainable fuels for industry and energy performance in buildings) that are still more expensive than their carbon alternatives.
However, this data has not been corrected for a carbon price. Factor in the carbon price at 78 euros in Europe today, and most of the chart would turn blue (the climate tech would cost less than the carbon alternative). So, we need a carbon price across the world to make technology blue globally.
With continued innovation funding in universities and private markets, and with demand increasing, the cost of climate technologies will come down further, making decarbonization even easier and cheaper.
The bad news: there’s almost no chance we stay below 1.5 degrees Celsius average global warming. To stay below 2 degrees, we must take swift actions as our current trajectory is headed for 3.2 degrees average warming, which means an even larger increase in extreme weather events, more areas becoming uninhabitable and higher sea levels.
The time to act is now!