If not a miracle, it’s going to take something close to reach what scientists say is a crucial milestone for climate action by 2030.
At the midpoint of the decade, the election of Donald Trump, who has vowed to rescind support for electric vehicles and charging stations and reverse emissions policies, would seem to make even more remote the chance the world succeeds in reducing emissions by the end of the decade by at least 43% from 2019 levels.
Not so fast? The economics of falling costs curves are driving the adoption of clean energy, even in states like Texas and North Dakota that have long been associated with fossil fuels. In the US, renewables made up as much as 90% of new energy capacity this year. And investors are estimated to have put up nearly $2 trillion in financing for the climate transition this year.
Going forward, tech titans like Eric Schmidt and investment firms like “world-positive” Obvious Ventures are counting on artificial intelligence to supercharge the search for new materials and processes that can speed up innovation. The massive energy consumption of AI data centers has so-called hyperscalers scrambling to develop and co-locate clean energy sources, driving the clean energy flywheel along with demand.
And even in a Trump administration, low-carbon progress is possible in areas such as geothermal (which draws from the fracking sector), nuclear and fusion energy, green hydrogen, the enhancement of transmission grids and other areas of bipartisan crossover.
“The new administration will change the contours of the transition in the short term – what gets invested in, where those investments are made, and with what public support,” Generate Capital’s Edward Bossange and Jonah Goldman write in a recent policy outlook. “But it won’t stop the transition.”
Question of the year: Will the pace of the transition be fast enough to stave off the worst of the climate catastrophe? Rather than falling by a compounding 7% per year as needed to meet 2030 goals, greenhouse gas emissions are… still increasing.
Policy tailwinds become headwinds for climate action
Climate tech investors have long insisted that climate-friendly policies such as subsidies and incentives are just an extra sweetener for cleantech investments that make sense on their own. That proposition will soon be put to the test.
After four years of tailwinds, climate investors are about to see what they can accomplish in the face of gale-force headwinds.
The president-elect has vowed to eliminate the IRA’s tax credits for EVs and charging infrastructure, and claw back “unspent” IRA funds, including the $400 billion in loan authority of the Department of Energy’s Loan Programs Office. Trump has also threatened to hobble or outright eliminate entire federal agencies, such as the Environmental Protection Agency.
“It’s going to be a brand new world,” said Spring Lane Capital’s Rob Day.
The climate tech crowd is banking on the fact that the bulk of the factories, jobs and investments generated by the IRA have gone to Republican-led states and districts. Declared Energy Secretary Jennifer Granholm at a recent Department of Energy gathering: “It would be political malpractice to undo the incentives that are causing all of this economic activity in those red states.”
Government officials and climate tech founders stressed jobs, cost savings and the competition with China – repositioning climate action to align with the populist spin that swept Trump back into power.
EVs and wind power—another Trump bugaboo—may be out, but geothermal energy, carbon capture and storage, nuclear energy and critical minerals are in. So-called “challenger technologies” that do not rely on foreign inputs, with investment, could leapfrog incumbent technologies. Examples include sodium-ion batteries and a new generation of small, modular nuclear reactors.
- “Energy Department’s new climate narrative: Creating jobs, lowering prices and beating China,” by Amy Cortese
- “Pacific Fusion bursts out of stealth mode with $900 million to produce fusion energy,” by Amy Cortese
- “As trade wars heat up, climate investors look to back homegrown ‘Challenger technologies,’” by TDK Ventures’ Anil Achyuta and Tina Tosukhowong
Acquisitions and IPOs could give climate LPs an exit ramp
A lack of exits and liquidity has been hanging over climate tech and making LPs restless.
That could change in 2025 as dealmakers gear up for a more lenient Trump administration. The incoming regime is expected to slash regulations and environmental reviews. The policy reversals that are prompting outcries by climate activists could nonetheless reignite M&A and IPO markets.
Renewed market activity would be welcome news to climate tech fund managers who are sitting on some $86 billion in dry powder as their LPs agitate for returns on their capital.
“For sustained progress, you need capital to keep going towards servicing more solutions, reinforcing the things that are working,” said Stonly Baptiste Blue of climate tech venture firm Third Sphere. “The next wave of capital will likely come from the returns of this first wave.”
Offtake agreements and tax strategies represent additional exit pathways, he said. Falling interest rates are also helping drive profits and potential climate tech exits.
- “Needed: Climate tech exits to keep the ‘circular capital economy’ spinning,” by Amy Cortese.
Investors ❤️ infrastructure
Institutional capital seeking low-risk and steady returns is flooding into sustainable infrastructure. Such funds made up nearly 60% of the new climate capital raised in 2024, according to Sightline. A handful of asset managers, from firms such as Brookfield, BlackRock and TPG, have scooped up the bulk of the infra capital.
The mega-funds are hunting billion-dollar opportunities, such as industrial decarbonization and utility-scale clean energy to power data centers. Brookfield is looking to raise as much as $25 billion for its second Global Transition Fund.
The transition to a distributed, clean energy system also creates plenty of opportunity in smaller projects. Infrastructure investor Generate Capital points out, the average size of a US coal facility is just over 400 megawatts, a natural gas project is 86 mw, and a solar project is just 17 mw. Investors increasingly are keying in on mid-sized projects from wastewater treatment and municipal fleet electrification to community solar. Industrial manufacturers and data centers are looking to co-locate with on-site renewable energy generation.
At the local level, the federal Greenhouse Gas Reduction Fund has stood up a green lending network to finance place-based projects from building retrofits to community solar in communities across the US, including rural and low-income places long overlooked by investors.
- “Making impact investments to help communities maximize historic federal funding for water infrastructure,” by Amy Cortese
- “In renewable energy investing, small is beautiful – and so is large-scale infrastructure (The Liist),” by Jessica Pothering.
- “EPA seeks ways to mobilize private capital as it races to beef up green banking,” by Amy Cortese and David Bank
Global climate leadership from unlikely places
Wealthy nations can’t seem to muster the funds, or the will, to help developing countries that contributed little to climate change adopt clean technologies and adapt to the changing climate. The US, the world’s largest historic emitter, has played a key role in climate negotiations, is once again expected to withdraw from global climate cooperation.
The decline of global climate cooperation and Trump’s rejection of both climate action and multilateralism creates an opening for China to step up. China’s industrial policy has made it a juggernaut in solar panels, electric vehicles and batteries critical to the energy transition. Its cheap products and appetite for exports are helping African and other developing nations green their economies, even as Trump vows to slap steep tariffs on Chinese imports into the US.
Deep-pocketed investors flush with oil money also are looking to polish their climate cred. The UAE, which hosted COP28 in Dubai last year, has been busy deploying its $30 billion Altérra climate fund, which includes a $5 billion carve out for catalytic capital. The $5 billion Transformation Fund has backed emerging market-focused funds including TPG Rise Climate’s Global South Initiative and Brookfield’s Catalytic Transition Fund.
And Global South nations are looking to assert themselves. Next year’s COP30 global climate summit will take place in Belém, Brazil, near the mouth of the Amazon river. Brazil’s President Luiz Inácio Lula da Silva has exhorted world leaders to take climate change more seriously. The COP will coincide with the G20 presidency of South Africa, which just passed a national climate change act.
Meanwhile, the V20, a group of 68 climate vulnerable developing countries under the leadership of Barbados’ Mia Mottley of Barbados, is putting front and center the concerns of countries that have contributed the least to climate change but often are suffering the most.
- “Past deadline, COP29 climate talks salvage a meager agreement on climate financing,” by Amy Cortese
- “As Trump retakes the reins, global climate leadership at COP29 shifts to China, Brazil – and Azerbaijan,” by Amy Cortese
- “Climate negotiators head to Baku to craft a financial architecture for the net-zero future,” by Amy Cortese
- Lower green energy prices hand Global South ‘the cheapest route to growth in history’ by Lucy Ngige.
Collapse in biodiversity puts natural capital on the agenda
Just as COP29 in Azerbaijan failed to deliver the climate funding needed by emerging markets, a sister biodiversity summit in Cali, Colombia, made clear that public funding for nature and biodiversity preservation is not forthcoming.
A lot is riding on the private sector to find ways to plug the $700 billion annual biodiversity financing gap. The Nature Conservancy this week helped Ecuador, one of the most biodiverse countries on the planet, refinance $1.5 billion of its sovereign bonds to free up up to $460 million to protect the Amazon. It was TNC’s sixth “debt for nature” swap in its Nature Bonds series. “We’re expecting to be able to unlock $1 billion dollars through these six projects,” says TNC’s Melissa Garvey.
A number of the investors participating in the new debt package, like Legal & General, are repeat debt for nature swap investors. TNC’s fifth deal, in the Bahamas, brought in Lukas Walton’s Builders Vision as a catalytic investor.
Such deals aren’t enough to satisfy the global need for biodiversity and conservation finance, says Garvey, “but they are no longer so niche.”
- “Ecuador makes $1.5 billion debt swap to free up capital for nature preservation,” by Jessica Pothering.
- “Can the UK’s market for trading nature credits deliver ‘biodiversity net gain’?” by Louie Woodall.
Folks are funding NOAKs as well as FOAKs to bridge the ‘missing middle’
For hardware-intensive climate tech companies, the need for project finance for yet-to-be-commercially proven ideas is often referred to as the Valley of Death.
Finding funding for first-of-a-kind projects is the most fearsome phase of growth as companies make the leap from innovative technology to pilot projects and first commercial plants. Project finance is not always suitable for VCs, yet other mainstream investors find such first-, second- and up to nth-time (or NOAK) plants too risky.
Elemental Impact, which estimates the “scale gap” at $150 billion a year, created a funding vehicle, the Development SAFE, specifically to help innovative climate tech projects make the leap.
That Valley of Death is getting a little shallower as more investors get comfortable with the FOAKs, or at least NOAKs. Private equity giant KKR, for example, sees opportunities in the “missing middle” between early stage innovation and later-stage growth. TPG Rise Climate, too, is looking to fill the gaps. “The more the merrier,” Elemental’s Dawn Lippert tells ImpactAlpha.
Early stage investors are spinning up continuation funds to see their fledgling through. “That Valley of Death is closing from both sides,” says Tim Latimer of geothermal startup Fervo Energy.
- “How D-SAFES can help climate tech startups get projects off the ground,” by Amy Cortese.
- “Prime Coalition launches Trellis Climate to plug gaps for first-of-a-kind climate tech projects,” by Amy Cortese
- “Flexible financing to bridge a ‘missing middle’ for commercial climate solutions,” by David Bank
And finally, the worse things get, the better climate adaptation investments look
Climate adaptation has long been a stepchild to mitigation technologies such as clean energy, making up just 5% of global climate finance flows. Investors are starting to pay attention.
“Institutional investors “are seeing the impact of climate change on their investment portfolios,” said Lightsmith Group’s Jay Koh.
Climate-related disasters such as floods and droughts have caused over $3.6 trillion in economic damages since 2000, according to BCG. Without urgent action, the consulting firm says, global GDP could take a cumulative hit of up to 22% by the end of the century.
The dark irony: the worse the climate catastrophe gets, the more valuable climate adaptation solutions become.
Under a Trump administration, companies may see less transition risk as regulations are dismantled, but the physical risk may actually increase,” Peter Cashion of the California Public Employees’ Retirement System told the pension fund’s board last month. “Although this may be unfortunate, it does create investment opportunities in the area of resilience,” such as heat-resistant crops, power generators, air conditioning and fire suppression.
SJF Ventures is another investor wading into adaptation. In its map of the adaptation investment landscape, the venture firm identified three major adaptation investment themes: hazard analytics and response, resource preservation, and owned-asset protection, and sub-categories such as climate risk analytics, climate insurance, fire tech, and water resource management.
- “A market map of tech solutions for climate adaptation and resilience,” by SJF’s Joey Barrick
