How EquitiesFirst Can Finance Climate Tech and the Global Push Toward Decarbonization
The world is racing against time to decarbonize, but financing the scale of the technological development and sustainability projects required remains a critical obstacle. While COP28 has set an ambitious global target of net-zero emissions by 2050, substantial work remains to be done to achieve that pace.
At the same time, recent data paints a stark picture of the climate tech funding landscape. According to Bloomberg New Energy Finance, climate tech companies raised $51 billion in venture capital and private equity funding in 2023, spread across more than a thousand deals. While this is a robust figure, it represents a 12% decrease from the previous year. This decline, though less severe than the 35% drop reported for startups overall, is nevertheless indicative of tightening financing options for climate innovation in a higher interest-rate environment.
EquitiesFirst, a global financing firm, could potentially play a role in addressing the funding crunch. The firm specializes in providing financing secured by publicly traded equities. This equities-based model is often used to free up capital while maintaining long-term exposure to assets, and it could be a helpful bridge for investors and companies with illiquid assets looking to support climate tech development as soon as possible.
The Current Financing Environment for Climate Tech
The financing squeeze for climate tech couldn’t come at a worse time. The International Energy Agency estimates that around 35% of the emissions reductions needed to reach net zero by 2050 will come from technologies that have yet to be commercially deployed.
And the current environment is particularly challenging for capital-intensive climate technologies. Sustainable aviation fuel, for instance, is about 2.5 times more expensive than regular jet fuel. Green hydrogen, produced using renewable energy, currently costs up to 12 times as much as widely used gray hydrogen produced from natural gas.
There’s a clear need for investment in these technologies to drive down prices and achieve commercial viability. We’ve already seen this approach work for technologies such as solar and onshore wind energy. Global weighted average costs for solar power have dropped 89% from 2010 to 2022, while wind energy costs have declined 69% . Investments in these technologies have helped set them on track to compete with fossil fuels, with the world expected to generate more electricity from renewable energy than from coal by 2025.
The mismatch between funding and emissions impact is also evident in the distribution of climate tech investments. While the industrial sector accounts for up to 34% of emissions, only 14% of climate tech investment is directed at solutions aimed at reducing that sector’s emissions. Similarly, food production and land use make up 22% of emissions but receive only 8% of climate tech investment. These gaps represent both a frustrating reality for the effort to reduce emissions and a promising opportunity for those willing to fund tech to make these sectors more sustainable.
But climate tech startups face unique challenges. Unlike software-focused companies, many climate tech firms require significant upfront capital for hardware development and infrastructure. They often face longer paths to profitability and must navigate complex regulatory environments. Traditional venture capital models, geared toward quick returns and lower capital expenditure requirements, may struggle to accommodate these realities, as evidenced by the $2 trillion financing gap[12] for climate tech.
How EquitiesFirst Can Help
EquitiesFirst’s approach to financing is relatively straightforward: Clients pledge shares of publicly traded securities in exchange for financing, typically receiving 60% to 70% of the shares’ market value at interest rates between 3% and 4%.
The potential applications of this model in the climate tech space are numerous. It could provide bridge financing for companies approaching key milestones or awaiting the close of a funding round. Institutional investors or family offices with substantial stock portfolios could use such services to free up capital for strategic investments in climate tech. The flexible nature of equities-based financing could also benefit climate tech projects with longer development timelines, offering access to capital without the pressure of short-term repayment schedules typical of traditional venture debt.
However, it’s important to note that while specialty financing models like EquitiesFirst’s could play a role, they’re just one piece of a larger puzzle. Addressing the climate tech funding gap will require a comprehensive approach involving multiple strategies and stakeholders.
Government policy will also play a crucial role. Well-designed policies — including production credits, carbon pricing, and green procurement initiatives — can help create more favorable market conditions for climate tech deployment. The impact of such policies is already evident in markets like the United States, where the Inflation Reduction Act has spurred increased investment[14] in clean energy technologies.
Bridging the climate tech funding gap will require creativity, collaboration, and a diverse toolkit of financial solutions. Specialized financing models like EquitiesFirst’s equities-based approach, alongside more traditional financing avenues and supportive government policies, should all play a role in ensuring that promising climate technologies don’t falter due to lack of funding.
With the window for effective climate action narrowing, ensuring a sufficient flow of capital to innovative climate solutions is a global necessity.
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