The dual tempo of climate investing: A journey of patience and urgency

Climate Voices

The dual tempo of climate investing: A journey of patience and urgency

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Climate tech investment opportunities are increasing around the world. Here’s how we got started with a climate change VC.

Three years ago, when we founded Climate Venture Capital Fund, we had a simple yet audacious goal: To drive capital towards the plethora of climate-focused start-ups in Australia and New Zealand. Today, that goal feels more pressing and relevant than ever, and the opportunities are increasing.

Why we founded a climate-focused VC

The decision to start a venture capital firm focused on speeding up emissions reduction was a response to the urgent call of our times. The impacts of climate change are inescapable right now, and innovation and technology are critical to addressing the global challenge.

But innovation doesn’t happen in a vacuum. It needs support and aligned incentives, including capital. Global finance experts say the world needs up to US$150 trillion in climate-related capital by 2050 to keep warming to a liveable level. Meanwhile, Australia and New Zealand are becoming hotbeds for climate-focused start-ups with innovative ideas. Sadly, the dearth of investors ready to back them was obvious, and this gap in the market was the genesis of the Climate Venture Capital Fund.

Investing patiently in a hurried climate

Investing in climate tech requires both a certain level of patience and urgency. 

Patience is necessary for two reasons. First, developing and scaling new technologies takes time. Second, the markets for these technologies are often nascent and require time to mature. These are not necessarily investments that yield immediate returns. They are medium-to-long-term bets on technologies that have the potential to revolutionise our approach to climate change and create sustainable economies.

Our model is underpinned by our fundamental belief that reducing emissions at scale and as quickly as possible is both an environmental imperative and a good financial strategy.

On the other hand, we simply cannot afford to wait to reduce emissions.

With that challenge in mind the Climate Venture Capital Fund operates with a patient capital model but we are increasingly urgent in our approach. Our existing fund, which has been investing since 2021, has a 10-year lifespan and is focussed on early-stage companies. We already see a further funding gap for climate tech companies seeking growth capital. These firms could deliver both emissions reduction and financial returns for investors well within 10 years. To address the climate crisis, it’s essential that sufficient capital is pushed towards startups as well as established companies that have compelling propositions for material levels of emissions reduction. 

Our model is underpinned by our fundamental belief that reducing emissions at scale and as quickly as possible is both an environmental imperative and a good financial strategy. In this business, emissions reduction impact and financial returns are highly correlated. 

A growing demand for climate tech

We have seen a significant increase in the demand for climate tech solutions over the past few years. This has been driven by the growing societal awareness of the urgency of the climate crisis, and an increasing recognition by businesses and governments that sustainability is not just a ‘nice-to-have’ but a ‘must-have’. This plus the clear market signal of  the Paris Climate Agreement in 2015, and countries and innovators really started to move. 

As demand grows, so do the investment opportunities. This is not just about renewable energy or electric vehicles. Emissions reduction solutions now span  diverse sectors like agriculture, manufacturing, waste and land use, to name a few. This opens up a whole new world of possibilities for investors.

Learning by doing

The climate tech investment landscape is complex and evolving rapidly. The only way to truly understand it is by diving in and learning by doing.

In our experience, each investment teaches us something new – about the technology, the market or the challenges faced by entrepreneurs. This knowledge is invaluable, helping us refine our investment strategy and better support our portfolio companies.

A strong pipeline of opportunities in Australia and New Zealand

Like much of the rest of the world, Australia and New Zealand are teeming with climate tech innovation, from start-ups developing new ways to harness renewable energy, to companies creating sustainable agricultural practices, to businesses driving the circular economy.

The climate tech investment landscape is complex and evolving rapidly. The only way to truly understand it is by diving in and learning by doing.

Some recent investment deals have shown us the potential of the market. These businesses are not just solving climate problems, they are creating jobs, driving economic growth and building a more sustainable future for us all. Some of our favourites include:

  1. MGA Thermal: This revolutionary Australian clean energy company is developing a breakthrough energy storage technology that uses Miscibility Gap Alloy (MGA) blocks to store and deliver thermal energy. It is a game-changer for grid decarbonisation, making renewable energy available any time of the day. MGA Thermal was our first investment.
  2. Cleanery: A New Zealand-based company in our portfolio that manufactures powdered cleaning and personal care products. This simple concept has enormous potential for impact by reducing costs, CO2 emissions, plastic and packaging waste and driving consumer shifts towards more sustainable products.
  3. Mint Innovation: The world’s first company to use natural biomass and smart chemistry to extract green metals from waste at commercial scale, accelerating the circular supply chain. Although we were not operational when Mint was raising their early rounds, we admire their work and see them as a significant player in our space.

Exploring other investment options

While our primary focus is on direct investments in climate tech start-ups, we know that investors looking to make a difference in the climate space have other options. These include:

  1. Investing in debt products with a low carbon profile or specific emissions reduction goals
  2. Investing in listed equities that prioritise low carbon emissions or have explicit emissions reduction targets
  3. Investing directly into carbon instruments
  4. Investing in nature-based solutions
  5. Offering grant funding for local, national or international environmental projects. 

To help navigate these options, we recently joined with the New Zealand Centre for Sustainable Finance, Philanthropy New Zealand and Bay Trust, to compile a comprehensive guide, “Climate Investment in Aotearoa.*” It’s a simple and compelling read for anyone  interested in exploring the investment landscape and options.

Joining the climate investment revolution

The climate crisis is here, and we need all hands on deck to address it. As investors, we have a crucial role to play. We can help drive the innovation and technological breakthroughs necessary to reduce greenhouse gas emissions and build a more sustainable future and we can generate great returns for our investors while we do it.

*Aotearoa is the Maori name for New Zealand and is now commonly used in the country and around the world to acknowledge the country’s Maori First Nations peoples. 

Featured photo: Mint Innovation facility

Written by

Rohan McMahon

Rohan MacMahon is a co-founder and partner at Climate Venture Capital Fund, a venture capital firm focused on supporting climate tech start-ups in Australia and New Zealand. The Climate Venture Capital Fund recently picked up two awards from Mindful Money, a leading New Zealand not-for-profit promoting ethical investment. The Fund won the “Best Net-Zero and Climate Action Investor” category and was highly commended in the “Best Impact Investment Fund” category.