10 Jan 2023

Investing in net zero tech (Guest blog by Linklaters)

Guest blog by Julian Cunningham-Day, Partner at Co-Head of the Technology Sector and Clare Murray, Technology Strategy Consultant at Linklaters.

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Technologies needed to achieve net zero  

To achieve net zero, a wide range of technologies will need to be developed and deployed to enable businesses to transition. While cutting-edge developments in deep science such as carbon capture and alternative fuels could have the greatest impact on achieving net zero when deployed at commercial scale, they require significant capital investment from the outset and, for certain technologies, a considerable period of development to reach commercial scale.   

Businesses can make a more immediate impact in managing climate risk and associated regulatory obligations and reducing their carbon emissions with the use of data-driven technology solutions. There is a growing need for tech solutions which can assist businesses in: energy and emissions management; improving efficiencies and optimising processes; understanding the risk outlook and managing risks; carbon offsetting; and complying with regulation and delivering on corporate commitments.   

According to CB Insights data, investment in these data-driven tech solutions reached an annual high of US $1.24bn in 2021, and in 2022 investment had surpassed this level by June.  This comes at a time when the tech sector and the wider economy have seen investment levels fall from the record highs of 2021 as geopolitical tensions, high energy prices and rapidly increasing interest rates have a profound impact on the global economy.  For net zero tech, there are other factors driving investment. 

Tailwinds for net zero tech investment  

As the International Energy Agency anticipates peak fossil-fuel demand this decade and we look for longer-term solutions to the energy crisis, there is an urgency to achieve net zero and a pressing need for scaling tech to enable net zero.   

Businesses continue to face growing pressure for transparency and action on climate change from a range of stakeholders: from regulators to investors; and from consumers with greener expectations to activist shareholders.   There is also an increasing trend of “soft law” standards being incorporated into or referred to in regulation and associated guidance, and many countries are taking action to mandate climate risk disclosure.   

The new reporting regimes will lead to greater scrutiny of capital allocation decisions and progress against published targets.  The evolving regulatory landscape is also creating challenges and complexity for businesses, particularly multi-nationals, and this is likely to continue to increase demand for a range of tech solutions to support compliance.   

Further, many areas of net zero tech investment have a medium to long-term focus and will not be impacted in the same way by the current economic climate.  

The investment outlook 

Net zero tech companies and projects attract investment from a diverse range of potential sources, from major corporates, venture capital and private equity funds to banks, pension funds and sovereign wealth funds.  Investment funds have been pursuing new categories of green investments and many new funds have been established with specific ESG mandates.   

Corporates are seeking to harness technology advances to access new opportunities or change their business and we see corporates investing with strategic collaborations, joint ventures and off-take deals. 

Despite the challenging economic climate and the drop in investment in tech start-ups and scale-ups, we expect the drive for transition to net zero will ensure continued investment in net zero tech in 2023 and beyond.  

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