Climate Tech Investments Rise To $16.6 Billion In Third Quarter

(Bloomberg) -- Climate tech companies just had their best quarter for fundraising in almost two years, drawing $16.6 billion in investment for a wide range of decarbonization and low-carbon startups, according to a new analysis by BloombergNEF.

The report covering the third quarter of 2023, published on Thursday, takes a broad view of climate tech across energy, transport, buildings, industry and agriculture sectors. It also tracks investment in the so-called climate and carbon segment covering technologies designed to help polluters track or tackle their emissions, including sucking carbon pollution from factories' smokestacks and storing the gas underground permanently. 

Funding from venture capitalists and private equity firms increased by nearly 63% in the third quarter from $10.2 billion raised in the previous quarter, despite a widespread fear of an investment downturn. But the past three months also saw record-low deal volume, with a total of 241 investments. That indicates climate-tech investors have grown increasingly cautious about their bets since BNEF launched the quarterly tracking in late 2021.

“This quarter's funding total was really bolstered by a small number of deals in the high hundreds of millions and even billions,” said Mark Daly, the report's co-author and head of technology and innovation at BNEF. The high total “obscured the relatively low number of deals that actually happened.”

The most funded of the six sectors tracked by BNEF was energy, with a total of $7.4 billion in venture funding from August to October, followed by transport ($4.6 billion) and industry ($2.9 billion). The strongest growth in terms of investments took place in companies focused on decarbonizing heavy industry, with an increase of 84% in deal value compared to a rolling four-quarter average. The report attributed the increase largely to the fact that investors doubled down on greener steel.

Low-carbon agriculture, on the other hand, has become less appealing to climate tech investors. While a total of $482 million in investment flowed into startups in this field during the third quarter, that represented a 23% decrease relative to the rolling four-quarter average. Venture funding into the climate and carbon sector slid by 3% to $501 million.

There are some notable geographic changes to the investment landscape. Beijing's policies supporting domestic electric vehicle purchasing have led to more investment in startups making battery-powered cars. That, in turn, helped mainland China reclaim its position as the world's largest climate tech market, with a total of $4.5 billion raised across 25 deals. By contrast, the US fell back to be second-largest market as measured by funding, though it remained the leader in deal count.

Sweden has emerged as the world's third-largest climate tech market by funding, with a staggering 224% increase in investment value versus its four-quarter rolling average. That was due to large funding rounds raised by two Swedish startups: battery maker Northvolt and H2 Green Steel.

Additionally, BNEF found that 34 new venture capital and private equity funds with a climate tech focus closed in the third quarter, which are expected to inject $8.2 billion in fresh capital.

(Adds quote from BloombergNEF'sMark Daly in the fourth paragraph.)

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