VivaTech 2024: Financing innovation to reach climate net zero goals
There is widespread agreement that massive innovation is needed to fight climate change and secure the planet’s future.
However, there is less consensus on how to finance and scale the breakthrough technologies to ensure maximum impact.
Revaia Founding Partner Elina Berrebi discussed both the investment challenges and opportunities created by climate change as part of a panel at the recent edition of Viva Technology, the Paris-based conference. She was joined on stage by Eleanor Blagbrough, Co-founding partner of climate tech growth investor Blume Equity, and Ashish (Ash) Puri, Ppartner at impact investor Lightrock, in a discussion moderated by France Digitale’s Marianne Tordeux Bitker.
The conversation covered a wide range of climate financing issues, from the need for new types of private financing to the role of governments in supporting this sector. The panel stressed that reaching net zero goals has to be an effort that concerns all businesses if it’s going to be successful.
"It requires all companies across all verticals to reduce their power consumption and minimize their impact,” Elina said. “With 100% of our portfolio, we strive to put them on a sustainable trajectory in terms of their carbon footprint and all their practices. It's a very complex effort to get companies to net zero but it has never been more urgent.”
Climate tech opportunities
There has been growing hype around the climate sector and signs that investors have become bullish on the potential to make a positive impact and create returns for investors. In 2023, Climate Tech was the most resilient sector for VC investment, according to Dealroom, and Europe has emerged as a clear leader in the sector.
Despite the grim news of heatwaves and other forms of extreme weather, the panelists insisted there are good reasons to remain optimistic that tech can be part of the solution. To align climate goals and financing, a good place to start is by emphasizing the opportunities for investors.
“The climate revolution we’re going through is a huge macro trend and huge opportunity that will change the way most of our society operates,” Eleanor said.
Within climate tech, investors are defining key subsectors. Elina pointed to the emergence of tech enablers, the innovations that allow other companies to analyze their carbon footprint. She cited the example of Revaia portfolio company Deepki, which has developed a decarbonization platform for the real estate industry.
“A lot of these solutions from Deepki are important because they enable companies to make the right diagnostic about where they stand in terms of carbon footprint,” she said. “Just think of the savings they could achieve with the right solution.”
Adaptive Climate Tech
Unfortunately, even if climate action accelerates, there is going to be fallout from climate change in the near and mid-terms. That’s why Ash said Lightrock has identified “climate adaptation” technology as a key theme.
Lightrock recently led a $58 million Series C funding round for AiDash, which uses satellite technology to help identify and predict threats to distributed infrastructure assets like power lines. Some of the biggest wildfires in California in recent years were caused by power lines that were pulled down by overgrown vegetation, he said. Not only does that cause huge physical damage, but it leads to ongoing economic fallout caused by power cuts.
By using satellite imagery, connected sensors, and AI, the company can forecast how the electrical grid will be impacted by high winds and where vegetation needs to be cut back. That enables utilities to be more proactive in their maintenance.
“Climate change is happening, and we can't ignore that,” Ash said. “While we work towards decarbonizing industries, we cannot ignore infrastructure that we already have in place. We’ve got to protect our economies and the way we live.”
The GenAI Problem
As GenAI continues to expand its reach throughout the tech industry, it is also coming under scrutiny for the massive compute power it requires – and the energy needed to support the additional data center resources.
The tremendous carbon footprint caused by increased computational capacities calls for more efficiency across the board in the digital economy which accounts for about 4% of global greenhouse gas emissions, Elina said.
Even here, tech can be part of the solution. New tools to optimize the creation of software and the management of data center resources have the potential to create new efficiencies that reduce power consumption, she said. Companies can also be strategic about choosing data centers in locations that rely more on climate-friendly energy sources. Revaia portfolio company Platform.sh recently launched a feature that incentivizes companies to make such choices.
“If you locate your digital computation in Sweden versus some other places, the carbon footprint can be reduced by an order of magnitude of 40,” she said. “This is one of the ways to think overall of how this AI digital economy contributes negatively or positively to climate initiatives.”
Regulation’s role
The impact of government was also explored. Elina said that Europe’s strong regulatory approach has helped create fertile ground for innovation around sustainability. By putting in place clear rules and requirements for companies, Europe has created a market for startups that can provide the solutions needed for industries to comply with disclosure obligations and reach their reduction benchmarks.
“What we're seeing is that the European companies that have built a very strong product based on navigating the complexity of European regulation will have a much better product than the companies that have started operating in the U.S. where the environment is more flexible around the need to decarbonize,” Elina said.
Ash would like to see policymakers go further and faster. For instance, having a common set of rules around decarbonizing homes in Europe would spur more innovation to address a sizable problem.
“Our homes are one of the biggest polluters on the planet,” Ash said. “One of the key factors is the number of sources of energy consumption in our homes because these devices are regulated by different agencies. So, we need to support sensible regulation to create a cohesive market for energy-efficient solutions.”
Rethinking climate financing
The challenge of scaling climate tech raises the question of whether current venture capital models are suited to this type of investment.
Eleanor noted that many late-stage and growth equity firms have developed their investment models around SaaS platforms but don’t have the in-house expertise to properly evaluate climate investments which can be far more complex from a technical and scientific perspective.
“For climate, we don’t want to take the traditional SaaS metrics,” Eleanor said. “You need to understand the technology in some detail, whether that's the batteries, data centers, or infrastructure like direct carbon capture.”Because scaling and industrializing climate tech solutions is far more expensive than software, the returns will happen over a much longer timeline.
“We have to rethink the ways we've built later-stage funding,” Elina said. “The risk-return is going to be different. That requires the people who provide money to funds like ours to rethink their expectations of returns. For us, it’s about reviewing our use of capital for these projects.”
Governments must help support this new climate tech funding framework, the group agreed. As a model, Elina highlighted the €2 billion in financing for Verkor to build a factory to build its lithium batteries in Northern France. The money included a mix of equity, government subsidies and grants, and procurement agreements by an automotive partner. Despite such promising advances, Europe faces a disadvantage in the way innovation is funded compared to the U.S. in terms of both private and public funding for climate tech.
While the U.S. has large public pension funds that back venture capital, Europe has far fewer private institutional investors who have become active LPs, Elina said. She suggested governments could adopt requirements that such investors allocate some of their funds to venture and growth capital.
Ash said U.S. regulators and governments have done a better job of providing the capital and financial incentives to support the huge costs incurred by companies overhauling their infrastructure to reduce their carbon footprint. The U.S. has become a leader in EV battery recycling thanks to large grants and tax subsidies that have accelerated the industrialization and commercialization of innovative technologies.
“If we have to undo what we've been doing for the last 200 years, it takes money,” Ash said. “The reality is that the money being offered by the government in the U.S. for the climate transition is disproportionate to Europe.”
From left to right: Marianne Tordeux Bitker (France Digitale), Elina Berrebi (Revaia)
Thinking bigger
Finally, the panel stressed that the discussion about financing net zero goals has to extend beyond the companies developing the solutions. It has to be an effort that concerns all businesses if it’s going to be successful.
They wanted to see governments offer more support to help companies manage the costs of their climate transition – something that would also create the market for climate tech solutions and increase revenue for climate startups.
“We already overshot the planet’s boundaries,” Elina said. “So, it requires all companies across all verticals to reduce their own power consumption and minimize their impacts … With 100% of our portfolio, we really strive to put them on a sustainable trajectory in terms of their own carbon footprint and all their practices. It's a very complex effort to get companies to net zero but it has never been more urgent.”