This audio features a conversation generated by AI. The content is for informational purposes only and should not be relied upon as financial or investment advice.
Key takeaways:
- Impact and financial returns go hand in hand. Climate tech proves that making an impact and making money aren’t opposites—they can actually go hand in hand. The strongest impact cases often align with financial performance, solving big problems and delivering returns. So yes, you can feel good about your money doing something meaningful while still seeing it grow.
- The timing is right. The climate tech sector benefits from key economic drivers like declining technology costs, increased energy security focus, and strong consumer and corporate demand for sustainable solutions. It’s a sector that’s growing fast and that already went from niche to mainstream in past recent years.
- Climate tech investing presents unique risks you should know. Climate tech investing has its own set of challenges: it’s capital-heavy, sensitive to regulations, and full of unknowns since many companies are first-of-their-kind. Diversifying investments within climate tech is key to navigating its complexities and maximizing potential.
- With climate tech investing, your capital supports true value creation. Climate tech startups have the potential to turn into industry leaders. By funding innovative solutions, investors help these companies scale, replace outdated systems, and build a sustainable economy—where profits and impact reinforce each other.
You’ve probably heard the old saying, "There is no free lunch in investing”. It’s a simple reminder that any successful investing involves balancing risk and reward. Higher returns usually mean taking on higher risks. Climate tech has its fair share of unique challenges and risks but one thing is clear—impact and returns don’t have to be opposites.
You can make good money
We are convinced that in the rapidly evolving climate tech space impact and return aren’t mutually exclusive—in fact, they’re increasingly intertwined. You can make good money while investing in climate solutions. In fact, we believe the strongest impact cases are the ones where impact and financial returns go hand in hand.
For practical evidence, let’s examine the economic drivers that have contributed to climate tech's robust growth and how investments have performed.
The economic drivers of climate investing
The world agrees: we need meaningful change. This has created demand for climate tech solutions in every economic sector, opening up opportunities for climate investors. Profitable investments in companies facilitating positive change will play a key role in achieving climate goals.
In addition to the necessity for innovation, climate investments have several favorable drivers that are increasing the amount of investment opportunities, including:
- declining cost curves of climate technologies, (source)
- geopolitical competition for energy security,
- clear corporate demand signals for climate solutions, (source)
- Consumers are also signaling a strong preference for sustainability and show a willingness to pay a premium for sustainable products. (source)
However, this demand does not mean that every climate investment will be successful or generate above-market returns. Successful climate investing requires (among other things):
- Understanding the economic drivers of climate tech
- Identifying the companies that are well-positioned to benefit from these tailwinds while increasing their market share and generating profits in their sector and industry.
Or, getting access to and carefully selecting the right fund managers who have this understanding to do the investing for you.
Turning climate tech from a niche segment to the mainstream
Climate tech venture investment is now 40x larger than it was a decade ago*. And by 2030, the market size of climate tech is expected to reach US$12 trillion (from US$5 trillion in 2020)* , and global renewable energy market revenue is expected to grow at a CAGR of 17.3% to 2032. This increase in market size has also been boosted by government policies aimed at accelerating the energy transition such as the EU Green Deal Industrial Plan, Net Zero Industry Act, and the US Inflation Reduction Act. They approved unprecedented funding levels for climate technology and infrastructure solutions tech. Global climate action financing, including public finance and investments from corporations and household names, surpassed US$1.2 trillion in 2023.
At the same time, private market investments in climate tech have also surged in the last ten years, reaching around US$200 billion in 2023. However, to achieve net-zero emissions, investment in the energy transition (from early-stage all the way to infrastructure) will need to grow from just over $2 trillion per year in the past five years to nearly $5 trillion by 2030 and $4.5 trillion by 2050 (source).
Meaning more growth to come.
The resilience of climate tech investing
The climate tech sector continues to show resilience, even in challenging economic conditions. In 2023, rising interest rates significantly reduced funding across private equity, with a 31.5% year-over-year decline in overall investment. However, the number of transactions in climate tech dropped by only 3%, signaling strong investor confidence and sustained activity in the sector despite broader market hesitations (source). New data from MSCI also shows that private investments in renewable energy, electric vehicles, and energy storage generated 123% cumulative returns over the past five years, far outpacing the 57% returns from similar publicly traded companies (source)
So unlike the challenges faced by green stocks—such as the 40% decline in the S&P Global Clean Energy Index since early 2023—private markets for low-carbon investments continue to grow, with a 17% compound annual growth rate (CAGR) over the past five years, compared to 11.9% CAGR for public markets (source, source).
“Climate tech investments can outperform due to large economic moats, including technological advantage and access to favorable non-dilutive financing. They also tend to proactively address ESG risks, providing a more resilient foundation for the future.”
Wiebe Visser, Managing Director of Carbon Equity
Every asset class experiences periods of underperformance, and climate investments are no exception. However, the performance of sustainable investments compared to the broader market suggests that investors can be pragmatic and idealistic at the same time.
The unique risks of climate tech investing
While climate tech shows resilience and growth, investors should also understand its unique risks. These challenges highlight the importance of a diversified and informed approach.
Climate tech is exciting, but it’s not without its challenges. Unlike software, many climate solutions—like green steel or carbon removal—are asset-heavy, needing significant capital upfront to scale.
Innovative companies are often the first of their kind, which comes with unique risks: untested tech, new business models, and engineering hurdles. Add to that the sector’s sensitivity to regulatory changes—favorable policies today could shift tomorrow.
Lastly, the emerging nature of the market means uncertainty. No one can perfectly predict which companies will succeed, so diversification is key to navigating these risks and maximizing potential.
Investing in climate tech requires smart strategy, but the rewards—both impact and financial—can be worth it.
Your value creation turns climate startups into evergreen unicorns
Solving climate change requires transforming our entire economy. This presents numerous opportunities for both impact and profit. And we believe the biggest challenges are also the biggest investment opportunities.
To successfully combat climate change, we need many large businesses with impact baked into their business models. A new generation of founders is building superior products and cost-competitive solutions to our climate challenges. But the next generation of climate unicorns needs capital to get there. With astute investors providing adequate funding, these innovations can hit tipping points and replace our fossil-based economy faster than any of us expect—where achieving tangible climate impact and superior financial returns reinforce each other.
For investors, climate tech demonstrates that you don’t need to choose between doing good and doing well. Impact and returns reinforce each other, especially when private markets play a pivotal role in scaling innovative solutions. With climate investing, your capital creates both value and meaningful change—a win-win for investors and the planet.
