Climate tech

What it is

Climate tech covers private and institutional investment in technologies that reduce greenhouse-gas emissions (mitigation) or help societies function under altered climate conditions (adaptation). The main verticals are clean energy generation (solar, wind, nuclear, geothermal), energy storage (lithium-ion and long-duration systems), electrified transport, green hydrogen, carbon capture, sustainable food systems, and climate-resilient infrastructure. Financiers span venture capital, sovereign wealth vehicles (Norway's Government Pension Fund Global, Singapore's Temasek, Gulf Cooperation Council funds), corporate strategics, and development finance institutions. Policy is a primary demand driver: the US Inflation Reduction Act of 2022 committed an estimated US$3 trillion in US-directed private investment over a decade; the EU's Green Deal industrial package is the European counterpart. PwC's 2024 State of Climate Tech report notes AI-enabled climate tech now captures more than one quarter of all sector equity funding.

History

The first modern climate tech VC wave ran 2006-2011, when US venture capital deployed roughly US$25 billion into solar, wind, and biofuels. Roughly half the capital was lost: Solyndra, a US solar panel maker, received a US$535 million US Department of Energy loan guarantee before filing for bankruptcy in September 2011. The sector rebuilt after 2013 on lower hardware costs, then re-accelerated after the December 2015 Paris Agreement. A second wave peaked at roughly US$70 billion annually in 2021-2022 before falling approximately 50% as rising interest rates and AI competition squeezed available capital. The US Inflation Reduction Act, signed in August 2022, partially re-anchored investment in North America even as global totals fell.

Current state

Global climate tech venture and growth investment reached US$40.5 billion in 2025, up 8% from 2024, according to Sightline Climate (formerly CTVC). The US market drew US$29 billion, the third-highest year on record. Deal count fell 18%, reflecting consolidation: the top 10 US deals captured 28% of all investment. Energy security and resilience dominated mega-deals: US$7.2 billion of US$10.1 billion in mega-deal flow went to energy security plays, driven by AI data-centre power demand meeting climate infrastructure. Fusion, fission, long-duration storage, and grid modernisation absorbed most large-round capital. Gigascale Capital's US$250 million debut fund, closed oversubscribed in June 2026 by former Meta CTO Mike Schroepfer, explicitly bridges the AI infrastructure and climate investment theses. Climate hardware beyond the US and Europe is also attracting capital: Spiro's US$270 million round, backed by China's NewTrails Capital and Afreximbank's FEDA, funds battery-swap electric mobility across seven African markets. BloombergNEF measures the broader global energy transition, including project finance and corporate capital expenditure, at a record US$2.3 trillion in 2025. The US policy environment grew considerably more hostile after late 2024, with SVB counting more than 50 adverse US federal actions through early 2026, including reduced research funding, weaker tax incentives, and permitting rollbacks. Despite this, 52% of US VC-backed climate tech companies reduced their net cash burn year-over-year as gross margins improved, a sign the cohort is maturing past growth-at-all-costs operating models.

Relationships

Climate tech intersects the venture capital and energy sectors. Breakthrough Energy Ventures, the US fund launched in 2016 by Bill Gates, catalysed institutional limited-partner interest in the category. The newer cohort, represented by Gigascale Capital, draws ex-hyperscaler executives who see AI energy demand as the forcing function. AI data centres' surging electricity needs are driving an investment convergence between climate infrastructure and technology infrastructure that were structurally separated for most of the sector's history. The EU taxonomy for sustainable finance and the US IRA together set the effective cost of capital for climate assets worldwide; shifts in either framework move private-market valuations sector-wide.

What to watch

Whether the US IRA survives ongoing Congressional challenge determines the near-term trajectory of North American climate investment. European permitting timelines for offshore wind and grid expansion remain a structural bottleneck: approved projects are often shovel-ready but grid-connection queues can run three to five years. The demonstration-stage gap, where pilot-proven technologies cannot raise the US$500 million or more needed to build a first commercial plant, is the sector's most cited structural problem as of mid-2026. Commonwealth Fusion Systems' planned net-energy-gain demonstration, targeted for the late 2020s, and Form Energy's first multi-hundred-megawatt iron-air storage deployments are the two most-watched technical milestones for the sector's next phase.