Analysis: Climate Capital's Biggest Mispricing Is in Emerging Markets
A recent analysis argues that the most significant mispricing in climate-focused venture capital is not in developed markets but in high-growth emerging economies. The thesis suggests that these markets have the greatest need for climate infrastructure and policy-driven demand. This presents an opportunity for regional funds in places like Turkey that can structure deals to attract international limited partners.
- According to the World Bank, Turkey has the highest potential among middle-income countries to benefit from the global increase in demand for climate technology-based products. While climate tech is a top three funded sector globally, in Turkey it has not yet broken into the top ten by investment value, though the number of deals has nearly doubled in the last year. - Turkey's goal of achieving net-zero carbon emissions by 2053 necessitates a significant shift in its energy sector, which is currently responsible for over 72% of the country's total greenhouse gas emissions. The national energy plan aims to increase installed solar capacity to 30 GW and wind capacity to 18 GW by 2035. - Despite a 45% drop in overall venture capital funding in 2025 to $589 million, AI-focused startups in Turkey accounted for a quarter of all investment deals. This aligns with the government's strategy to integrate AI into nearly every major policy area, from defense to tax administration. - The commercialization of university research in Turkey faces challenges, including a low rate for deep tech ventures and difficulties for Technology Transfer Offices (TTOs) in creating spin-offs. However, 27% of deep tech startups are academic spin-offs, and incubators like Cube Incubation at Teknopark Istanbul are specifically focused on fostering deep tech commercialization. - Turkish venture capital is attracting international attention, with firms like Earlybird's Digital East Fund and Revo Capital raising significant funds to invest in the region. Furthermore, a 2024 regulation for Venture Capital Investment Funds (VCIFs) now enables them to invest in startups both in Turkey and abroad, with a particular focus on ventures led by the Turkish diaspora. - Macroeconomic pressures, including high inflation and a key lending rate of 46% as of March 2025, have cooled investor confidence and contributed to a drop in startup funding. These conditions, coupled with a "brain drain" of tech talent, present significant challenges for the ecosystem. - Limited electricity grid capacity is a major obstacle to expanding renewable energy in Turkey, with only 0.52 GW of available capacity for new unlicensed plants as of May 2025. To address this, 74% of the Turkish Electricity Transmission Corporation's (TEİAŞ) 362 billion TL budget for 2024-2028 is allocated to grid renewal and development. - International limited partners are showing increased interest in emerging market climate strategies, with vehicles like the UAE's $30 billion Altérra fund committing capital to managers like TPG and BlackRock for Global South investments. This trend signals a growing availability of large-scale institutional capital for climate-focused funds in regions like Turkey.
