Climate tech: 4 big reasons to consider investing in it

There’s a real buzz around climate tech in the market today as it’s very different to other more traditional investment sectors. Unlike other sectors that are more unpredictable or more volatile, the climate tech sector is vast and offers loads of diversity. 

Start-ups continue to enter the market with exciting and innovative new ways to help tackle climate change and most economies around the world have increasing regulations to include climate tech changes in their future. 

From every angle, the space is exciting and as more people invest, it’s only going to gain more of a buzz. We’ve got a load more reasons why investing in climate tech is a great idea but here are the four big ones we at OnePlanetCapital think climate tech is the one to watch.

What is climate tech 

First, let’s explore what we mean by climate tech; companies specifically in the energy, transport, built environment, supply chain, consumer-facing sustainability, carbon removal and agricultural technology. These companies typically have products and services that fundamentally lower CO2 or methane emissions at scale. 

A typical climate tech fund portfolio can include B2B Saas, construction companies and even transport solutions focusing on electrification or battery technology. They all have something in common as businesses that focus on carbon solutions and carbon accounting.

So, why should investors look to invest in climate tech over other industries in 2023?

Investors are protected from experiencing a shock to any one industry

As we’ve covered, climate tech companies are businesses that are actively looking to make significant changes to the climate for the better. For investors, this means there is a huge range of investment opportunities as there are lots of different growth sectors.

By investing in an area with so many different growth sectors, investors should be protected from large shocks to any one industry. This is a big reason to invest in climate tech if you’re unsure where to invest money or want to help fund a significantly growing market.

Their growth is backed by regulation

Climate change doesn’t care about inflation or market turmoil, and the drivers are increasing every year. If we translate this into human action; net zero targets are in place, corporations and governments are rushing to meet them, and the move to a low-carbon economy has a regulatory infrastructure in place. In some ways, the climate tech locomotive is gathering momentum all the time; it’s unlikely to change course and we’re only at the beginning of this journey. 

One of the reasons this sector is so different from others is that the long-term parameters are fixed in terms of where this market is going. Unfortunately, as the world continues to heat up towards 1.5c in the short term, possibly 3c in the long term, we’re all seeing the impact of climate change. From global wildfires, unseasonal flooding and insufferable dry spells, we’re all witnessing the overarching crisis get worse.

What we experience in the UK now will be much worse by 2050.

Climate Tech is a ‘Megatrend’

Climate change represents a megatrend; an economic and geostrategic force that shapes our world. It’s one of the defining events of our time, as Mark Carney famously said ‘’Addressing climate change is an amazing commercial opportunity. It is about turning an existential risk into the greatest opportunity in our time. The opportunity is unprecedented’’.

BP’s latest global energy report 2023 shows that renewables have grown rapidly over the last two decades. The report highlights the global share of renewables increased from around 10% in 2019 to between 35-65% by 2050, driven by better cost competitiveness of renewables together with increasing policies encouraging a shift to low-carbon energy.

Solar and wind now represent 10% of the total global energy supply with photovoltaic solar experiencing a growth rate of 34.5%. That means it’s doubling every two years – growing much faster than most economists have predicted. The fact that renewables are now cheaper than almost every other form of energy drives massive change from the bottom up.

Elsewhere in the battery storage industry, Goldman Sachs has forecast a 10-fold increase in battery demand up to 2030. According to Bloomberg, the compound annual growth rate  (CAGR) for battery storage is 27% every year, with a forecast of $15.1bn in 2027. On top of this, car companies are also planning $515 billion to be invested in the next 10 years to transition away from engines and into electric vehicles.

The market trends are very powerful and show no sign of slowing down - they’re backed by regulation, consumer demand and the fundamental building blocks of cheap renewable energy.

Climate Tech in a time of geopolitical risk

There’s no escaping that the current war in Ukraine and the associated gas crisis has brought renewable energy into the spotlight as a security issue. Before the war, countries across Europe were moving sluggishly away from oil and gas but the war accelerated countries like Germany to make quicker changes. 

The acceleration towards solar and wind power boosts the whole ecosystem of supply companies and SaaS businesses that supply the climate tech space. We’re likely to see the annual growth of solar and wind power in Europe increase over the next decade.

It’s important to note that climate tech isn’t completely safe from market turmoil. Supply chain issues are driving up costs as a recent report highlighted the cost of building wind farms has increased 7% YoY with similar increases across battery storage and solar. However, the price gap between wind, solar and conventional systems continues to widen.

The fundamental drivers of the climate tech space are powerful, existential and largely predetermined. The sector's growth is surrounded by law which strengthens all the time, making it very hard to pull back on investment. At OnePlanetCapital, we believe that climate tech is a long-term, high-growth sector as so many of the drivers are backed by increasing levels of government policy and regulation.

Unfortunately, the key driver - the climate crisis - gets more serious and trickier to manage every year we get into it. 

From an investment perspective, the space presents a rare opportunity to get access to real long-term growth and genuine diversity of risk. There is a real chance to create an impact in the biggest existential threat of our lifetime and for many investors, that’s the main reason to invest. For our sakes, and for generations to come, we can’t afford not to!

If you’d like more information on how to invest in climate tech read more here. Want to get in touch? Email our team at info@oneplanet.capital.