Climate solutions can change the world – if people buy them
At NY Climate Week, climate tech is urged to embrace the art of the sale
By Jonathan Shieber, Senior Strategist at LaunchSquad
If there was one thread knitting all of the conversations happening in conference halls, corporate lounges, hotel lobbies, bars and restaurants, and even art house movie theaters across New York during the city’s Climate Week extravaganza, it was this – climate solutions need buyers, and climate tech developers need new types of investors.
Supercharged carbon-sucking trees exist. Batteries that can store energy for days instead of hours exist. New nuclear reactors exist. Geothermal energy drawing power from the heat beneath our feet exists. Green steel exists. Clean-burning ammonia-powered engines exist. Systems capturing and converting carbon pollution into fuels, chemicals, and fibers exist. Alternative proteins exist. Pollution-reducing capture and removal systems exist. Fleet-sized electric vehicle charging stations exist. And that’s all in one investment firm’s portfolio.
The solutions are out there for many of the most pressing problems that stem from global warming. But a solution isn’t a solution if no one buys it. And right now, finding a way to entice buyers and project developers is the biggest obstacle to continued climate innovation.
That was the message from the Third Sphere Climate Week discussion at the Angelika Film Center. And it was the message repeated in nearly all of the public and private conversations the LaunchSquad team had over the week-long marathon that was NYUNClimateGeneralWeekAssembly.
Basically, companies need customers, investors need exits, and the world is running out of time.
For some sectors, financing is abundant, and buyers plentiful. The pace of solar energy deployment (and energy storage to support it) exceeds any and all predictions. And if the transition away from fossil fuels required only solar power, the world could break out the champagne now.
However, restoring the planet to a more balanced climatological state requires much more than the development of renewable energy. Companies need to find new ways to produce the literal building blocks of modern society – the steel, cement, concrete, glass, plastics and chemicals that comprise much of our world. New resources for carbon-free power and energy storage that are firm and reliable need to be developed to supplement the terawatts of renewable energy coming onto the grid.
All of this requires money, which, like buyers, have been in short supply for novel solutions these days.
The solutions are out there for many of the most pressing problems that stem from global warming. But a solution isn’t a solution if no one buys it.
Back to the future
If this all sounds familiar, that’s probably because it is. From 2006 to 2011 venture capital firms and other investors poured $25 billion into cleantech startups. The United Arab Emirates broke ground on Masdar City, a zero-carbon development in the middle of the desert. In 2005, governments made their first commitments to emissions reductions under the Kyoto Protocol with the goal of reducing emissions by an average of 5% below 1990 levels.
By 2011, most of the advances for climate solutions began unraveling. The U.S. signed the Kyoto Protocol, never ratified it, and ultimately withdrew its signature. Masdar City failed to attract enough investors and embody its lofty expectations. And climate investments returned under one-half of their original investments.
The culprits? A lack of buyers, missing corporate acquirers, shifting government priorities, the rapid acceleration of a competitive renewable energy industry in China. And… of course… a global financial crisis.
It’s Different Now?
In the fifteen years since the last cleantech bust, investors have placed more money behind climate solutions as the consequences of climate change have emerged in more stark terms. Both the human toll of increasingly frequent and increasingly devastating natural disasters exacerbated by climate change and the financial consequences they bring are pushing governments and private investors to more action.
As Tim McDonnell noted in Semafor last week it may be the financial toll that creates action. In a panel discussion the outlet hosted last week, none other than the head of sustainability for JPMorgan Chase said, “At the end of the day, it is in our commercial interest to avoid the worst consequences of climate change.”
Over the past decade, the worst consequences of climate change have produced a staggering bill for the global financial system – particularly insurers. A report from Bloomberg earlier this month indicated the cost of natural disasters could rise to $151 billion annually, up from $106 billion over the past five years.
New government programs in the United States are bringing renewable energy industry jobs into the country in unprecedented numbers while rising tariffs are intended to protect the domestic market from foreign competition. Financial incentives for clean energy and advanced manufacturing have spurred a $284 billion investment into clean energy, clean vehicles, building electrification, and carbon management technology thanks to the Inflation Reduction Act and the Bipartisan Infrastructure Law, according to Clean Investment Monitor.
In a basement theater at the Angelika, the numbers weren’t lost on investors or startups in the room. The pace, size, and scope of capital investment into now-proven technologies like lithium batteries, solar energy, wind energy, and electric vehicles is staggering. It’s just that the pace, size and scope of investment into anything else seems to be stumbling.
Show Me The Money
In the case of new climate solutions, the song remains the same.
The window for public offerings has been shuttered for some time, meaning investors aren’t returning capital to their backers and are having a harder time raising new funds. Corporations have evolved into much better partners for the companies doing deep technology development, but haven’t emerged as the acquirers that can make the climate industry look a bit more like other deeptech sectors (pharmaceuticals and healthcare come to mind).
The government funding spigot is open for a lot of breakthrough first-of-a-kind projects, but those projects still need time to prove themselves before a next wave of financiers will come in.
And these startups still need to battle the perception of a green premium that makes the technology desirable but unaffordable.
“A lot of investors aren’t going to get their money back,” one investor said.
In some senses, that’s capitalism. Not every new startup is guaranteed a successful outcome and not every investor becomes Sequoia Capital. But all startups need to get better at focusing on the financials, investors said. There needs to be a way to tell the story and frame the narrative that privileges the bottom line these days. In the end, it’s about the money.
As Tom Steyer told Semafor’s McConnell, “We have an absolute responsibility to get market or better-than-market returns. You can tell me how great your product is, but if no one’s buying it, I don’t care.”
Show Me the Power
Fortunately, for developers of new technologies in the clean energy sector, a white knight seems to be riding across the finance and energy sector, looking to save climate tech even as it puts climate goals at greater risk.
That savior is artificial intelligence – more specifically, the huge and growing need for power alongside the rapid rise of artificial intelligence applications and the development of data centers around the world to power them.
In this case, the economics are on the side of the IT companies, because compute is more expensive than energy.
AI is driving companies to restart nuclear power plants, convincing government, regulators, and banks to ride shotgun with additional financing, and kickstarting revolutions in geothermal energy development.
All of these projects are in the money because there’s so much money to be made by selling AI to the world (at least, that’s the gamble tech companies are making).
There’s hope among the broader market that AI won’t hoover up all of the power these new projects will produce and that the excess can go a long way to cleaning up the grid or obviating the need for new fossil fuel power plants.
Other big demand drivers are also boosting clean firm power projects. The steel manufacturer Nucor has joined with tech giants to try and bring more clean power to the grid. And even oil and gas and chemical companies are looking to nuclear power as a way to energize their operations.
Perhaps this is a contributing factor to what Andy Lubershane, a partner at Energy Impact Partners, calls “The End of the Beginning for ‘Climate Tech’”?
Beyond the Energy Equation
Other drivers are encouraging the adoption of new tech in the industries which also need to end their reliance on fossil fuels. The UN is currently negotiating a plastics ban treaty, with an agreement set to be finalized by 2024. If the measure has real teeth, then it could encourage the adoption of bioplastics or other alternatives to fossil fuel-derived materials.
Carbon regulations from the European Union will impose tariffs on products made in countries with high levels of fossil pollution.
Carbon capture, storage, and utilization technologies are coming to market that promise to make carbon a circular resource rather than a finite source of warming pollution. New regulations around embodied carbon in the built environment are accelerating the adoption of more sustainable alternatives.
And new financing mechanisms are being developed to bring on first-of-a-kind projects in ways that can support both technology development and project finance.
The focus on project financing alongside venture investment pioneered by firms like Spring Lane Capital is finding new adherents with innovative approaches. Take the newly launched Mark1, a brainchild of Third Derivative, Deep Science Ventures, and the Rocky Mountain Institute. Other firms are also working on a blended finance or project plus equity model to accelerate proof of concept and try to make new climate science bankable.
Did we mention that it all comes down to sales?
“Nobody really appreciates that the energy transition is customer-driven and has always been,” Scott Jacobs, the co-founder and CEO of Generate Capital told Semafor. “No investor makes it happen; no technologist makes it happen. Some policy makes it happen. It’s almost entirely because some customer has a problem to solve, and they’re willing to pay to get it solved.”
(Water) Cooler Talk
🚫 Shelving ‘Net Zero’
The message of climate action is moving beyond “net zero.” Companies and their communicators are looking for ways to highlight the broader transition from fossil fuels rather than just reaching a balanced carbon budget.
At New York Climate Week, several agencies responsible for telling the story of corporate efforts to combat climate change and global warming are asking for more stringent reporting and metrics – for themselves and their clients. The Change Climate Project is one example of an organization that is changing its labeling (with help from the EDF) to emphasize internal carbon pricing at companies.
The businesses telling these stories are also taking a hard look at their approaches. Both Creatives for Climate and Clean Creatives took the opportunity in New York to call for more action.
As Lucy Von Sturmer, the co-founder of Creatives for Climate told AdWeek, “It’s the perfect time for adland to be reminded about the UN Secretary-General’s call for a fossil ad ban.” Ultimately, communication is climate action, and creatives can lead the conversation in a rapidly evolving climate movement.
🎥 Climate narratives
Have you ever wondered why you don’t see more scripted shows and movies about climate change? It’s not for a lack of trying. Heatmap News covered research from USC Annenberg’s Norman Lear Center that analyzed how often the topic of climate change was featured in scripted and unscripted entertainment. They found that from 2016 to 2020, just 0.6% of 37,453 scripts used the words “climate change.” However, over half of audience members want climate change stories, and there are efforts, like the Climate Film Festival, to showcase these stories. There is clearly a demand for these stories, and people ready to tell them — they just need to be told.
🌪️ Why of the storm
Climate tragedy struck yet again this week in the form of Hurricane Helene, which devastated communities in a six hundred mile strip of the southeastern United States. With the death toll rising above 160, relief efforts are still underway. Find ways to help here.
In the world of climate comms, the storm spurred discussion over the ways climate change is omitted from coverage of natural disasters. But the catastrophic damage caused by Helene, coupled with the affected region’s former reputation as a so-called ‘climate haven,’ underscored the need to confront our climate problems head-on. More troubling still, new research reveals that hurricanes create an astronomically higher death toll than previously believed. “You can’t hide from climate change,” one climate adaptation researcher told the New York Times.
Having higher-quality, more productive communication about climate change means getting everyone involved in the conversation. We hope you’ll share this piece to help us increase its impact and drive real change.