The 29th conference of the parties of climate action (COP) held between 11th-22nd November 2024 was a huge disappointment according to various sources including Mint. The “Finance CoP” failed to secure the target investment commitment from countries to mitigate climate risk. Recognising the importance of mobilizing varied sources of investments, CoP-29 including previous CoPs believe that private sector investments will play a key role in driving climate related initiatives.
In 2023, investment in the climate tech industry was $33.3Bn more than (or only 3 times) the total investment in the Indian Startup ecosystem, which stood at $11.3Bn
While CoP-29 signals low commitment of governments, businesses and societies at large towards climate action, investors in climate tech probably have a different view.
Recently, I had an opportunity to speak with a VC in the climate-tech space. He asked me why I was interested in this space. I explained that I was led to this space in 2020 while being concerned about the tonnes of waste that we are generating. Then, the growing energy demands and the urgency to identify renewable energy sources to meet that demand caught my attention. I shared how I think that our current economic metrics conflict with sustainability goals and hence there’s a need to redefine how nations and companies measure success including the success of various sustainability-related initiatives.
The VC, however, conceded that he had a capitalist perspective and emphasized that the profit potential of investments is driven by customer demand like demand for sustainable textiles, packaging and fast charging for e-vehicles.
While I appreciate his view, I argue that the primary driver of demand in climate tech remains government regulations and incentives. These come in various forms, such as subsidies to lower initial costs for technologies like electric vehicles (EVs), increased lifestyle choices (think: sustainable clothing), or entirely new experiences that entice consumers (electric vertical takeoff and landing vehicles [eVTOLs] designed for Passenger mobility).
A mint article dated 22 Nov 2024 illustrates my point. In Delhi, the removal of subsidies for commercial EV purchases in October 2024 led to a drastic 79% drop in sales. This sharp decline underscores the critical role of government support in fostering demand for sustainable technologies. It’s not that consumers lack interest; rather, regulations and incentives make these technologies more accessible and appealing.
To ensure sustained growth in climate tech, we must align environmental goals with economic incentives. This involves designing smart policies that encourage both innovation and adoption while simultaneously redefining success metrics to include sustainability impacts. For businesses, this means crafting strategies that leverage government support and creating experiential value for consumers.
The future of climate tech is undeniably bright. However, the urgency of combating climate change alone won’t drive the sector’s growth. Thoughtfully aligned Government policies and targeted incentives will be instrumental in driving the industry toward profitability and scalability.
References:
- https://www.livemint.com/opinion/columns/climate-myopia-this-year-s-cop-was-a-big-disappointment-but-small-surprise-green-transition-change-finance-cop29-11733298243085.html
- https://www.ctvc.co/a-weak-11-3bn-start-to-2024-climate-tech/
- https://www.statista.com/statistics/881521/india-value-of-startup-funding/
- https://www.livemint.com/auto-news/electric-cars-sales-delhi-pollution-emergency-noida-ghaziabad-gurugram-pm-e-drive-fame-ii-market-pv-11732196014604.html