APAC climate tech outlook seen strong amid funding crunch
The pace of venture capital investment in climate technology in the Asia-Pacific region has eased during the past couple of years amid a widespread VC funding crunch. But, the outlook more broadly appears solid, according to figures from PwC and experts who spoke with AsianInvestor.
Statistics on Asia-Pacific VC investment in climate tech supplied to AsianInvestor by Preqin and PitchBook indicated year-to date investment averaging at $932 million, following an average of US$1.53 billion in 2022.
Those figures came against a backdrop of ex-China total investment in the sector of $7.09 billion as of the end of the third quarter, up marginally from $6.88 billion the previous year, according to PwC’s State of Climate Tech 2023 report.
That same report also identified an ongoing decline in climate tech investment in North America and Europe since 2021 and in China since last year.
CAPITAL COSTS
JP Morgan
Asset Management
“It’s been quite a challenging year, with funding costs having gone up,” Tomomi Shimada, J.P. Morgan Asset Management’s lead APAC sustainable investing strategist, told AsianInvestor.
“But we still need climate technology, and everyone sees the funding gap, so I don’t think it’ll be a long-term situation.”
She pointed to clean energy and electric vehicles as the two highest-profile examples of climate technology, noting the adoption and scale they have achieved.
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Minyue Liu, an Asia/global emerging market equities investment specialist at BNP Paribas Asset Management asserted that Asian institutional investors were interested in less obvious opportunities in climate tech, where alpha was as sustainable as the focus of the technology.
BNP Paribas
EFFICIENCY GAINS
"One area we’re focused on is industrial upgrading, using energy more efficiently. We already know how to use wind and solar power, but some companies focusing on digitalisation and automation may help others to use energy more efficiently and reduce power wastage, ” she told AsianInvestor.
Bryan Goh, chief executive and chief investment officer at Singapore’s Tsao Family Office, echoed that view, saying that incremental technological improvements implemented at scale could deliver climate and investment outcomes on par with those brought about by rare major breakthroughs.
Tsao Family Office
“We’re going to have a greater impact improving current processes by a few percentage points than in, say, coming up with nuclear fusion,” he told AsianInvestor.
abrdn
Jerry Goh, investment manager of Asian equities at abrdn, cited the example of carbon capture – frequently criticised as a fossil fuel industry distraction tactic – as a climate tech wish-list item.
“Carbon capture has been debated for a very long time, but until now we haven’t really seen any viable solution,” Goh explained.
“What can we afford to solve later and what do we need to solve now? It’s (a) triage,” he added.
ADAPTATION ALPHA
Shimada identified climate adaptation as a major source of untapped potential for investors, apart from the more well-known technologies such as clean energy.
“Some of this technology, such as resilient agriculture, might achieve scale in three to five years. Realising even the most ambitious [climate] goals might still not be enough to mitigate all climate change, so how we adapt to that is a big area, and it’s important to understand where the risks are coming from and where the strongest financing needs are going to be,” she said.
Shimada pointed to three focus areas: cities, in respect of infrastructure, energy and disaster management; nature and biodiversity, involving agriculture, forests, ecosystems and tourism; and wellbeing, encompassing issues like healthcare and water.
She also said new technologies such as climate tech required infrastructure that is often lacking, reducing its appeal to investors, yet also presenting them with an opportunity.
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“Electric vehicles, for example, need charging points. You need that infrastructure from the public side as well as the private side to support the penetration of climate tech. Alot of infrastructure is now owned privately, and there are ways to invest into it,” she said.
POLICY PUSH
All four sources interviewed for this story said that the development and deployment of climate tech at scale would nevertheless require decisive action by governments. Jerry Goh from abdrn called out Asian policymakers for being slow off the mark.
“We really need governments to push this,” he said.
“For more investment to come through, the push needs to come from the top. The second part will be subsidies for green technology and also the pricing of carbon-related risks through carbon taxation. That’s super-important, but we haven’t really seen it,” he explained.
In terms of those risks, Shimada said as in any new field, mitigating them would be key to encouraging more climate tech investment.
“[Uncertainty] can certainly be a disadvantage to those who have bought into the idea of contributing to transition but are still not ready to take the risk of investing into early-stage climate tech,” she said.
“If public institutions can to a certain extent de-risk or use guarantee mechanisms, that might open up the field for a broader range of institutional investors. Blended finance can also play a role here.”
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Bryan Goh echoed that sentiment explaining that it was the duty of governments to ensure regulations encouraged climate tech investments.
"There's no other way," he said.