According to the United Nations, avoiding the worst impacts of climate change could cost $4.3 trillion a year by 2030. A large percentage of this funding will come from public sources; however, private capital also has an important part to play in financing the energy transition.
Venture capital, and specifically corporate venture capital, has already contributed significantly to financing climate technology companies. In 2022, venture contributed $40 billioon in funding to climate technology startups, with a large percentage of that funding coming from corporate venture arms, according to the research group Bloomberg NEF. While data from Pitchbook and GCV show venture firm investment in climate tech dropped 25% from 2021-2022 as the overall venture space constricted, corporate venture arm investment only dropped 2%.
While the verdict is still out for 2023, with the first half of the year showing a slow start compared to 2022, the opportunity for and value of corporate venture investment in climate technology is clear. According to data from Dealroom.co, energy has been the most invested in and fastest growing segment in climate technology in 2023, according to a recent report by law firm Norton Rose.
So, who better to invest in energy startups than the existing energy giants who have the technical know-how, infrastructure, and vested long-term commercial interest? According to McKinsey, energy companies should look for investments that help them break into new markets, new segments of the value chain, or help to future-proof existing assets so that the risk-profile and shareholders’ tolerance for returns do not have to be the same as their core businesses. McKinsey suggests that “the upside for some leading firms starts to materialize when more than 40 percent of total portfolios are low carbon, while leading oil and gas majors typically allocate less than 25 percent of their new investments into new energies.”
If oil and gas companies were to bump investments in low carbon solutions by 15 percentage points, this would substantially contribute to the $1.1 trillion already being invested globally in low carbon technologies.
Capital is not the only metric we should use to measure energy companies’ investment in climate technology. According to Climate Tech VC, venture capital investment in climate technology startups was down 40% in H1 2023, compared to the previous year. Some investors suggest this may be a result of the investment mix changing. As more capital-intensive markets like EVs mature, investments in climate technology may not always take the form of a lump sum. Where some companies require dollars to scale, others require access to existing infrastructure, partnerships, and commercial platforms. This is exactly why we shouldn’t measure the oil and gas sector’s contribution to climate technology in equity dollars alone.
Proven diversified investments
One notable example is Canadian pipeline operator Enbridge’s $1bn infrastructure development agreement with biogas producer Divert, Inc. Given Enbridge’s expertise in infrastructure and future potential to transport renewable natural gas (RNG) produced by Divert through its existing pipeline networks, this logical partnership provides Divert with far more than dollars – it provides an immediate and established midstream partner once they reach sufficient scale.
Another example is Shell’s venture arm investment in early-stage direct air capture (DAC) companies – joining Equinor and Repsol in financing RepAir’s $10M series A last year, and investing in a “multiyear strategic and investment partnership” worth over $80M with DAC startup Avnos this year. Shell has the potential to be a huge consumer of Avnos’s DAC technology as a carbon removal solution. Additionally, Avnos’s technology can be used to create synthetic fuels – making Shell a strategic partner for distribution. In both scenarios, Shell’s contribution is clearly far more than equity dollars – it involves a strategic global platform to scale (and potentially, a future acquirer).
This is not to say that energy companies do not have a role to play in equity investment in climate technology companies. However, clearly, dollars are not the only fuel energy companies can provide to propel the growth of climate technology.
Freddie Sarhan is CEO of Sapphire Technologies.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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