VCs Target 'Hard-to-Abate' Industries for Climate Tech
European venture capitalists are increasingly focusing on climatetech opportunities in "hard-to-abate" industrial sectors such as cement, steel, and chemicals. Commentary suggests investors see the next wave of breakthroughs in novel materials and carbon capture, utilization, and storage (CCUS) technologies, moving beyond a sole focus on electrification.
- Hard-to-abate sectors like iron, steel, cement, and chemicals are responsible for approximately 40% of global greenhouse gas emissions, yet the industrial sector has historically received less climate tech financing compared to energy and transportation. For example, from 2013 to Q3 2022, industrials received only 8% of startup investment despite accounting for 34% of emissions. - The EU's Innovation Fund, capitalized by the EU Emissions Trading System, is a key public funding vehicle, potentially reaching €40 billion by 2030 to support decarbonization projects. This is complemented by the "Clean Industrial Deal," which aims to mobilize an additional €100-150 billion for industrial decarbonization and energy sector development through various platforms. - Investment in industrial decarbonization is gaining momentum, with annual investments tripling between 2018 and 2023 to over $48 billion. In the first four months of 2024 alone, companies like Holcim and Hydro committed $7.4 billion to emissions reduction projects in the aluminum, steel, and cement industries. - In November 2024, Turkey launched the Industrial Decarbonisation Investment Platform (TIDIP), an initiative spearheaded by the EBRD. The platform aims to deploy €5 billion in investments by 2030 to decarbonize the country's steel, aluminum, cement, and fertilizer sectors, with plans to later include glass, ceramics, and chemicals. - While overall European VC funding has seen a downturn, deeptech has remained resilient. The European Innovation Council (EIC) has become a major force, completing over 300 investment rounds in deeptech startups and attracting over €4 billion in co-investment from private VCs. - A significant funding gap persists for European climatetech startups at the Series B stage. Between 2020 and 2024, European climatetech companies faced a $13.5 billion funding gap at this stage compared to their US counterparts, with average round sizes being 20% smaller. - Turkish startup AIS Field has developed a robotic system for inspecting oil storage tanks for clients like Tüpraş, the largest industrial enterprise in Turkey. Other Turkish firms like Erguvan and KarbonStation are focused on carbon markets, footprint analysis, and management consultancy. - AI is a growing focus within climatetech for its potential in data analysis, predictive modeling, and optimizing energy use. In the first three quarters of 2024, AI-focused climate startups globally raised $6 billion, with a significant portion going to industrial applications.
