The State of Venture Capital for Climate Sustainability

Furthermore, in 2024, as much as 21% of the capital invested in Tech-Venture in Europe went to support companies active in the 'Climate' or 'Sustainability' sectors; by comparison, the equivalent indicator for the US market stands at only 11%. Finally, 95 per cent of all European sustainability funding went to companies active in climate change mitigation, rather than in the areas of adaptation and climate resilience: European innovators, in short, like to set high ambitions and tackle complicated problems.

2. It must be recognised that the sector has development times that are to a large extent inherently incompressible. A 'golden rule' well known to those who work in these fields argues that in the short term we always tend to overestimate the effect of a technology (as well as the efforts to validate it and bring it to market), but underestimate its importance and effects in the long term.

In Climate-Tech, entrepreneurs and investors are therefore constantly engaged in solving technological problems that require a very broad collaborative effort (research centres, laboratories, companies, universities), and that once solved require large industrial facilities to reach the desired scale, as well as the corresponding large capital endowments to realise them: the latter is always complicated and certainly never 'fast'. The adoption of innovative solutions in these industrial sectors (plants, energy, materials, chemistry, infrastructure) is always much slower than elsewhere, because one has to deal with customers who are often risk-averse and change-averse, and who easily shield themselves from existing rules and regulations in order to postpone the decision to boldly innovate their production processes to a future time.

Nonetheless, the role of the corporate world in supporting innovation has grown significantly in recent years, and not only from the point of view of the amount of resources dedicated (over the years, many industrial groups have also backed off after not very successful attempts at direct investment in start-ups), but rather in the quality and effectiveness of their approach to external innovation, which has matured with respect to tools and awareness: 89% of corporate investors in fact plan to increase or maintain their level of investment in innovative start-ups in 2024, and CVCs are now investors in a quarter of start-ups in Europe.

3. The Climate-Tech sector is now at the centre of attention of the Union's summits, because it has been realised that what is at stake is not only the possibility of mitigating the most adverse effects of the current climate change, but also of defending the competitiveness of the entire European production system, which today has to contend with the race for supremacy on the part of South-East Asia, which has been committed to this for years, and with the resumption of investments in the USA, which, to govern the 'green-transition' and decarbonisation of the American production system, launched the largest public support programme in recent history during the outgoing administration. Moreover, the recent 'Draghi Report' leaves no doubt: the productivity gap between the EU and the US is largely explained by the technology sector; Europe is not on the frontier of the emerging technologies that will drive future growth; European companies still face electricity prices that are 2-3 times higher than those in the US; China meanwhile continues to channel huge economic resources to consolidate its leadership also in the field of new materials, energy research; etc.

In other words, it has been realised that the issue of creating a more sustainable industrial environment is of primary geopolitical interest - which means that even before working to achieve short-term economic returns, it is crucial to guard the technological and industrial aspect in defence of the independence of our production apparatus and its intrinsic efficiency in the medium term. As any investor in Climate-Tech is well aware, if they know the dynamics of their business inside out, no technological solution that allows for a significant reduction in emissions will have a real impact if it is not at the same time accompanied by an equally large reduction in consumption, time, costs, ease of integration with existing production systems, etc.

In short, at the heart of the Climate-Tech issue is the need to profoundly innovate a manufacturing fabric that has undergone only incremental improvements over the last few decades, but is now struggling to withstand the competitive impact of the great emerging industrial powers outside Europe. As we often like to say at MITO Technology, this is the right time 'to remake the world'.

Alberto Calvo. Managing Director, MITO Technology. MIT Technology Review Italy.