Corporate venture capital investment in climate technology companies more than doubled in 2021, setting a new record. Last year, these types of funds injected $23.2 billion into the sector, which includes renewable energy, energy storage and electric vehicles, among others.
That increase — up from $10.1 billion in 2020 and the previous record high of $12.9 billion in 2018 — amounted to 210 transactions in total, according to PitchBook data. acquired by the Wall Street Journal.
The pronounced recovery demonstrates widespread pressure on companies to show their climate good faith and potentially benefit from the energy transition (even if start-ups have been a mixed bag in terms of financial performance to date).
Creating a venture capital arm is an opportunity for a company to do just that. Traditional companies — including those in carbon-intensive industries like automakers, aviation and big oil — have increasingly added venture capital deals. Beyond profit, these operations can be a way for companies to invest in the technologies they will need to achieve their own climate goals.
In fact, some are extremely transparent about it; that’s the stated goal of the United Airlines venture capital firm, which has made five investments so far. United’s investments include Alder Fuels, which offers a lower-cost way to integrate biomaterials into low-carbon aviation fuels, and ZeroAvia, a developer of hydrogen-powered electric jet engines.
Data from Pitchbook shows that total venture capital investments in companies seeking to accelerate the energy transition remained low until 2016 and 2017, when they doubled and then doubled again. Funding has hovered around $10 billion over the past four years, however, until a dramatic peak in 2021. The recovery has coincided with a slew of corporate climate plans, as well as more business engagement more broadly on environmental, social and governance issues.
Whether these investments will actually translate into climate gains, however, remains to be seen. Emissions have continued to increase in recent years, reaching their highest level in history in 2021, even as funding for their mitigation has also increased. While over $23 billion invested in the clean energy transition may seem like a lot – and may well pay dividends on the road for investors and the climate – the actual financial commitment from companies and governments needed to make it happen is an order of magnitude greater. Globally, funding for fossil fuels still exceeds funding for renewables, and the International Energy Agency warned that investments in the clean energy sector “remain well below what will be needed to avoid the severe impacts of climate change”.