• The fall in investment reflects market conditions more than a deliberate move away from climate tech. Investment in other categories fell even more sharply – down 50%
• The result: despite falling in absolute terms, climate tech investments as a proportion of start-up investments continued to rise
• While there is still a way to go, investors are increasingly putting capital into technologies with higher potential to reduce emissions, with a shift towards technologies such as green hydrogen and carbon capture, usage and storage.
• Despite challenging market fundamentals, 2023 saw a steady influx of first-time climate tech investors, highlighting the industry remains attractive as a whole.

Climate tech investments from venture-capital and private equity fell 40% in 2023 as economic uncertainty and geopolitical conflict dent investor confidence, according to PwC’s 2023 State of Climate Tech report, published today.

This year’s report analysed over 8,000 climate tech start-ups and over 32,000 deals worth more than US$490 billion. Our underlying dataset, PwC’s Climate Tech Investment Index, has been significantly expanded this year, with nearly double the number of start-ups tracked and a broader range of deal types examined compared to last year. It found that the fall in climate tech investment was significantly smaller than the VC and PE average fall of 50% across sectors. As a result, the share of VC and PE funding going into climate tech continued to rise, accounting for more than 10% of private market start-up investments in 2023, up from 7% in 2018.

There are also signs that climate tech investment is becoming more mainstream, with seasoned climate investors (who have invested in five or more climate tech deals) taking up a smaller share of the total number engaging in climate tech, as the share of first timers increases. Meanwhile, for the first time, more deals are happening at the mid-stage than at the early stage.

“The development and scale-up of climate technology is an essential part of meeting the climate challenge. So, while it is not surprising that absolute levels of investment in climate tech have fallen along with the market, it is concerning. The good news is that the sector has performed well in relative terms, with investment falling less than in other areas. It is also encouraging to see a shift in the balance of investments towards technologies that can cut emissions the most. Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions.” – Emma Cox, Global Climate Leader, PwC UK

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Other key findings and themes from the report include:

A shift towards greater efficiency in spending for emissions reduction

Previous reports have noted that investment is not being allocated in proportion to emissions reduction potential of technologies – with a disproportionate share of investment going to technology with lower potential. While that pattern is still true, there is an encouraging shift in the right direction.

A notable change has occurred in the industrial sector, which accounts for more emissions than any other sector of the economy (34%). Investors directed just less than eight percent of climate tech venture funding to industrials between 2013 and Q3 2022. The share of investment into the industrial sector has almost doubled to 14% between Q4 2022 and Q3 2023.

Although overall investment numbers are down, we have seen a rise in the share of climate tech PE/venture capital and grants that investors are putting into startups working on higher emissions reduction potential technologies. For example, solar power’s share of investment is proportionally up 24%; while green hydrogen is up 64%. Carbon capture, utilisation, and storage is up 39% since 2022 although it still represents less than two percent of total climate tech funding. The proportion of capital going to technologies with relatively lower potential to reduce emissions has fallen, with light-duty battery electric vehicles’ proportional share of investment down 50% since 2022, and micromobility down 38%; though mobility in its different forms still accounts for 45% of investment.

Investors shift from early-stage deals, whereas first-time climate tech investors are on the rise

Our analysis has shown that in recent years investors have steadily shifted away from early-stage deals to mid-stage deals, for reasons including challenges around scaling or implementing capital intensive climate tech, as well as a challenging macroeconomic environment. Early-stage deals made up over two-thirds of all climate tech deals in 2018 and 2019, dropping to around 47% in 2023. Irrespective of challenging market fundamentals, 2023 also saw a steady influx of first-time climate tech investors, highlighting the industry remains attractive as a whole.

“A challenging macroeconomic environment, sinking valuations, and geopolitical turmoil has seen capital flows to climate tech ventures drop 40% at a time when climate tech needs it most. But while such industry and macroeconomic dynamics may cloud investor confidence, they also present significant first-mover opportunities for investors to engage in the current dip, as the need for climate tech innovations will only grow stronger.” – Will Jackson-Moore, Global Sustainability Leader, PwC UK