According to the recently published PwC 2023 State of Climate Tech report, investments in climate tech from venture capital and private equity experienced a 40% decrease compared to last year. This is due largely to eroding investor confidence in the wake of economic and geopolitical uncertainty. 

The report looked at over 8,000 climate tech startups and more than 32,000 deals. While the decline in climate tech was substantial, it was comparatively smaller than the average fall of 50% across all sectors in venture capital and private equity funding. 

This being the case, the share of total funding allocated to climate tech is actually up from last year, accounting for over 10% of private market start-up investments in 2023, up from 7% in 2018.

“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,” said Emma Cox, global climate leader at PwC UK.

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Another shift this year was the increase in first-time investors for climate tech, as well as a shift towards more mid-stage deals. Despite this, the report showed that investment into the sector is nor proportionally related to emissions reductions, but a positive shift was observed. 

In the industrial sector, which is responsible for a significant share of emissions (34%), the share of climate tech venture funding increased from just under 8% between 2013 and Q3 2022 to 14% between Q4 2022 and Q3 2023. Investors increasingly directed their capital toward startups working on technologies with higher emissions reduction potential, with sectors like green hydrogen seeing a 64% proportional increase, and carbon capture, utilization, and storage growing by 39% since 2022.

“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,” said Will Jackson-Moore, global sustainability leader, PwC UK.