Climate tech investments now make up to 70% of the built world’s VC investment, up from just a fifth five years ago.

This is according to a new report by A/O, a European built world VC investor, which found that despite a decrease in total investment this year, reflecting the global funding slowdown, investment in building efficiency grew 73%.

Pressure to decarbonise the built world and accelerate the energy transition of the real estate and construction industry somewhat insulated decarbonisation firms from a difficult funding environment.

The built world constitutes any human-made enclosures, spaces, structures, and infrastructure created to adapt the natural environment for human use. The industry accounts for 37% of global green house gas emissions, meaning decarbonisation efforts in the sector are vital to meet climate targets.

The European energy crisis and global regulatory commitments further catalysed interests from investments, meaning the built world only saw a fall in 17% in total capital invested, compared with a 36% year on year fall in the wider VC sector.

Total venture funding fell dramatically in the first half of 2023, by nearly a third (-32.3%), with climate tech also experiencing a 40% decrease in capital investment.

Built world climate tech, however, was much less badly affected with only a 13% decrease in investment. The built world climate sector is projected to raise $11.8 (£9.36) billion in total funding this year, down from $14.3bn (£11.3) in 2022.

Road to Recovery

Despite the fall off in investment, there was an improvement in built world climate funding between Q1 and Q2 of 2023, an increase by nearly half (48%), showing climate tech for the built world may be on the way towards recovery.

A combination of the European energy crisis and the US Inflation Reduction Act is continuing to drive interest in VC investment in energy themes, particularly built world technologies focused on efficiency, electrification, and grid solutions.

Other themes, such as climate management funding for real estate companies focusing on climate risk have not fared so well.

Venture investment for indoor farming tech and carbon capture/storage for industrial real estate is expected to fall this year by more than two-thirds.

In comparison, the wider climate tech sector is struggling to recovery as quickly. In the first half of 2023, investment was down -40%. Overall, climate tech funding end the year down -26% compared to last year.

“The built world is not immune to the wider macroeconomic challenges in the tech and startup world in 2023,” Gregory Dewerpe, founder and managing partner at A/O, said.

“However, climate themes have proven more resilient relative to the wider venture market, and within the built world specifically, we have observed both a more muted downturn and faster recovery – highlighting the underlying tailwinds supporting this transformation and urgency of decarbonising construction and electrifying existing estates.”

As well, for the first time, the total investment in European and North American early-stage built world climate tech has reached parity, though a funding gap exists in the later stages.

In fact, the UK had the third most funding, after the US and Germany, for early stage built world climate tech investment, attracting $1.1bn (£872m) in 2023.

Recommended reading

• Scotland Contributes “Fair Share” at COP28
• Net Zero Technology Centre Adds Industry Veteran to Board
• CBI Scotland Urges Scots Gov to Adopt “Whole System” Net Zero Economy Approach

The UK’s level of investment in built world climate tech grew by over a quarter (27%) according to the data despite the overall landscape still in decline.

Some of the fastest growing areas for built world climate investment included retrofit installation, grid storage, infrastructure monitoring, and renewable energy procurement.

Grid storage accounted for more than 40% of the total investment in the UK, followed by climate risk, which accounted for around a fifth of funding activity.

Still, the UK lagged behind Germany, Europe’s largest market, which raised $1.4bn (£1.11bn), and the US, which raised $5.6bn (£4.44bn).

“It’s great to see Europe’s ecosystem continue to grow with early-stage investment in Europe on par with North America for the first time, showcasing that some of the most exciting innovation is coming out of the continent,” Dewerpe said.

“As we get closer to 2030, there is increased pressure on global corporations to cut emissions and make progress on their net zero targets. This new generation of built world companies will be there to help them solve this urgent problem.”

With COP28 launching to tackle the ever-pressing matter of climate change, investment in green technology is timely.

For Scotland’s part, the Net Zero Technology Centre just launched a Technology Without Borders initaitive to share technological solutions and capabilities with the global south to mitigate the disastrous effects of climate change and promote sustainable development.