In 2025, the landscape for investors in climate technology will undergo a radical transformation, marked by technological advances, political uncertainty and a recalibrating of priorities.
Investors are reevaluating their strategy in pursuit of solutions that reduce carbon emissions as Donald Trump’s return casts a dark shadow on US climate policy.
Trade wars complicate the global economy and force a renewed focus of strategic technologies and sectors.
The great climate technology pivot: AI, national security and the NSA take center stage
Sightline climate reports that despite a steep decline in the amount of equity raised for climate technology from $127 billion to $43 billion by 2024, investors have approximately $86 billion worth of unspent capital.
This substantial war chest will fuel strategic investments into areas that are growing in popularity.
Bloomberg Green spoke to a dozen analysts and investors in order to better understand the direction that smart money will take.
Buy: AI and National Security: The Rise of AI
Artificial intelligence (AI) is one of the biggest shifts.
Investors are beginning to recognize the dual role of AI, mirroring that of the tech industry as a whole: AI’s own carbon footprint, and its potential for reducing pollution.
Monica Varman is a partner with G2 Venture Partners. She highlights the transformational opportunities for “frontier technologies such as nuclear fusion”, driven by the massive energy demands of data centres.
While fusion may be a long-term solution, solar coupled with AI-managed storage is emerging as an immediate solution.
Blair Pritchard of Australia’s Virescent Ventures notes that solar power could be “the backbone” to run data centers. This is because technology can be used in order to overcome its intermittent nature.
Melvyn Yao, the founder of Trirec and a startup, has noted that materials that absorb carbon can become more affordable quickly.
AI promises to improve grid management and reduce emissions. BNEF estimates that this will cost $811 Billion annually by 2030 in order to achieve net zero.
According to Blue Bear Capital founder Ernst Sack, AI will enable utilities to optimize their grid and save time and money. National security plays are another major shift.
Startups find areas where clean tech and national security overlap, such as in the production of critical metals, steel, or semiconductors.
Sarah Sclarsic is a founding partner at Voyager Ventures. She told Bloomberg that “these are huge global markets worth trillions of dollars, and we currently see a golden opportunity to win these markets, ensure stability and prosper,”
Growing companies: Bridging the “missing Middle”
Investors also shift their attention to companies in the growth stage that are more mature.
Several promising startups have been killed by the challenges of scaling up from prototypes to commercialization. This is often called “the valley of death.”
Now, VC companies are seeking to bridge the funding gap and propel these businesses towards large-scale operations.
Since 2022 there has been a decline in IPOs, but Varman points out that “there are a few climate technology startups that have reached commercial inflections” and that her firm has, along with others, allocated funds to “help bridge the’missing mid-point’ of financing.”
Sell: The decline of green hydrogen and Direct Air Capture
In contrast, enthusiasm for green hydrogen is waning.
BNEF revised its predictions, predicting that the price of hydrogen would remain high for decades, with some estimates reaching as high as $5.09 a kilogram.
Dhanpal Jahveri, Eversource Capital’s chief executive officer, told Bloomberg, “we continue seeing some challenges in the industry.”
According to Yeo the demand for hydrogen in 2024 “didn’t catch up to the hype”. He expects that the bubble will deflate even further in 2025.
Direct air capture (DAC), a similar technology that has been popular in recent years, also faces scrutiny.
The high costs and energy required to extract carbon dioxide from air, despite significant government support and investments, raises questions about the viability of this method, particularly for reaching the massive CO2 targets that will be needed in the coming decades.
Sebastian Pollok said the “uncertainty of economics” would be a challenge for the technology.
Hold: sustainable agriculture and decarbonizing buildings
Decarbonizing buildings and sustainable farming are important long-term investments, even though they don’t generate the same excitement as AI.
Pritchard, Virescent Ventures’ partner, explains that, due to the high number of startups in this area, investors are looking for innovative companies and those with the potential to dominate the market.
According to Tien Nguyen of Earth Venture Capital, despite a decline in heat pump installation in Europe, this sector and emerging markets still hold promise.
Pollok, from Visionaries Tomorrow, says that while the entrenched nature Big Ag makes it hard for startups to succeed, “the potential to tap into large pools of value” makes sustainable farming a sector well worth investing in for the future.
Elta Koiou from the Ad Hoc Group agrees. She notes that, despite changes in US federal incentives, people have “already changed how they use and control their energy”, and that such consumer behavior will continue.
The Invezz published the following post: The Climate Tech Survival Guide: What investors are buying, holding, and selling appeared first on The Invezz
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