May 02, 2024

Decarbonization and Climate Tech: IT’S Climate’s perspective

Let's start with a fact: 2023 was the hottest in the last 125,000 years, according to Berkeley Earth, ERA 5. When discussing climate change, all the arguments linked to it are “hot topics”. Literally.

This is what emerges from reading the report by Nat Bullard, former Chief Content Officer at Bloomberg and an expert in everything related to climate, technology, strategy, and capital markets. In 2023, the United States experienced over $1 billion in damages caused by extreme weather events, while in Canada, 21% of the land lost to wildfires in the last 40 years burned last year. The connection of such events to climate change and the intensive use of fossil fuels since the industrial revolution (fossil fuel emissions are at an all-time high in 2023, with more than 36 gigatons of CO2) is not a new discovery, unfortunately.

To mitigate the effects of climate change, all decarbonization initiatives and processes that touch various aspects of our lives play a vital role. In this sense, there are encouraging signs that help to cool off the negative data we've just seen. Solar and wind energy combined contributed to 12% of all global electricity production in 2022 (source: Nat Bullard’s “Decarbonization: Stocks and flows, abundance and scarcity, net zero”), continuing a more than positive trend that bodes well for the future. Additionally, in the last eight years, investments in renewable energy have consistently surpassed those in fossil fuels.

Renewables and, in general, all sectors related to the decarbonization process and mitigation of climate change effects are indeed areas where funds, efforts, and ideas are increasingly concentrated in search of solutions to achieve the goal of Net Zero emissions. According to Nat Bullard, citing Atomico's data, Climate Tech is the sector that encompasses the majority of European tech investing, with a value of more than 30% of the total in 2023. 

But what do we mean by Climate Tech? It refers to a broad sector encompassing solutions, companies, and services related to innovations aimed at mitigating the impact of human activities on the planet. This includes applications in areas such as energy supply, zero-emission transportation, reducing the impact of agriculture, and industrial processes. Moreover, over the last 10 years, the sector has attracted increasing interest, constituting more than 10% of the value of global venture capital and private equity.

Therefore, Climate Tech is an area where investors and founders are increasingly focusing because it responds to a need and tries to offer solutions to achieve a fundamental goal like Net Zero Emissions. In this regard, we spoke with those in Italy who have given life to a very significant national events to discuss investments, technologies, and startups operating in the Climate Tech sector: IT’S Climate (ITalian Startup for Climate), a series of events created by MITO Technology and COREangels Climate. The goal is to facilitate the exchange of knowledge between Italian innovators in climate change and investors. At the latest IT’S Climate evening, organized at B4i's spaces, we talked with Silvia Costantino, one of the organizers of the event, and Michele Morabito, Managing Partner at COREangels Climate, who told us about how and why IT’S Climate was created and the current state of the Climate Tech sector and the decarbonization process. 

When and why did you create IT’S Climate? (Michele Morabito)

IT'S Climate was conceived about a year ago from a collective desire among us at COREangels Climate (Michele and Federico), Silvia, and Leonardo from Mito Technology. As investors focused on Climate Tech, we saw a pressing need for a hub where like-minded enthusiasts and stakeholders in this sector could converge. Drawing on successful existing international models, our goal was to cultivate a thriving Italian community of startups and investors dedicated to climate technology.

The genesis of IT'S Climate can also be traced back to Leonardo’s preliminary efforts in the ecosystem. He had produced a detailed and comprehensive mapping of all Italian climate tech startups, which illuminated a notable gap: there was no ecosystem to foster connection and that united entrepreneurs and investors for the climate of the Italian climate tech startups. Hence, we were motivated to establish IT'S Climate as that focal gathering point to foster interactions and networking.

IT'S Climate aims to create a synergistic environment that not only facilitates but also accelerates collaboration between entrepreneurs and investors. Another key goal is to educate and prepare entrepreneurs to develop scalable, impactful solutions. Moreover, considering the relatively modest attention climate tech receives at the national level in Italy—despite significant interest and investment on a European and global scale—we also focus on amplifying awareness and underscoring the critical importance and opportunities within this sector.

Why did Climate Tech gain such importance in recent years? And which is VCs' role in this sector? (Silvia Costantino)

As previously mentioned, mitigating climate change is a multi-faceted and complex challenge that requires collaboration from various stakeholders, including governments, policymakers, corporations, and financial institutions. Together, they must work to achieve an ambitious goal: the complete transition of our economy within a relatively short time frame. With the 2030 target set by the Paris Agreement only five years away, the urgency is clear. But achieving this goal is exceedingly complex, especially when considering the transition of energy supplies. For example, coal today still accounts for just over a third of global electricity generation, despite being the most carbon-intensive fossil fuel. This comes 265 years after the industrial revolution, yet we aim to completely decarbonize the economy in 25 years. In this context, we are undoubtedly discussing a complete disruption. This highlights the critical importance of technological innovation. As we strive to change the status quo, it is almost self-evident that one crucial lever is to support these emerging technologies; helping them grow and reach commercialization as soon as possible is essential. This is why the role of venture capital is pivotal in this sector. Many still view having a startup in the climate tech space as a form of activism or merely as compliance with ESG standards, whereas it actually represents the core business of enabling technologies focused on combating climate change. Additionally, some may not fully grasp the potential because it is challenging to apply conventional venture capital metrics, such as exit strategies and alignment of the business with the fund lifecycle. This is peculiar, considering that most of these individuals have witnessed numerous paradigm shifts during their lifetimes, including the advent of mobile phones, the internet, and social media.

What is your vision of the Italian ecosystem related to Climate Tech? (Silvia Costantino)

Italy is one of the Countries which is most vulnerable to climate change due to several factors: its geographical shape, energy dependence, ineffective policymaking, and a significant portion of its economy reliant on climate-sensitive activities. Despite this, the climate tech sector remains underdeveloped, a situation that applies to venture capital as an asset class in Italy as well. Currently, there are very few vertical funds, and most startups are in the pre-seed and seed stages. Unfortunately, discussing climate change in Italy is still considered innovative. However, this also presents an opportunity. Italy is brimming with talented individuals and young people often forced to leave our country due to a lack of opportunities. It would be amazing if, despite our modest efforts, we could foster a collective consciousness and encourage both new and serial entrepreneurs to pivot to this sector. This approach can be applied not only to founders but also to employees. In other parts of the EU and the US, communities such as Working in Climate and Climate EU are emerging, demonstrating that dedication to the planet can seamlessly integrate into our daily work, transcending mere activism.

As VCs, what investment trends do you see emerging in the Climate Tech sector? (Michele Morabito)

Climate Tech is a rather unconventional investment vertical within the VC world.  In Climate Tech, the emphasis is predominantly on hardware technologies, as they hold the tangible potential to effectuate substantial climate impact—take direct air capture systems or energy storage solutions, for example. Indeed, it's a challenging and risky domain, given its capital-intensive nature, but at the same time, it is marked by deep-tech innovations that offer a higher level of defensibility and uniqueness compared to other industries. This also translates to the potential for generating substantial returns, both in financial and climate impact terms. Nevertheless, this doesn't downplay the role of software in the industry; software plays an essential role in maximizing the efficiency and optimizing the output of these hardware solutions.

Which are the next steps for IT’S Climate? (Michele Morabito)

IT'S Climate is designed to be a series of recurring events. Our inaugural event last October focused on showcasing successful startup cases. This gave early-stage founders a chance to learn about both fundraising and development from their more experienced peers. Our most recent event shifted the focus to the perspective of climate tech investors, featuring international investors with whom we collaborate. They shared insights on tackling industry challenges and what they look for in a climate tech opportunity, providing valuable knowledge not just for founders but also for generalist investors who are exploring this vertical.

Looking ahead, we have plans to continue these events, with the next one scheduled for this autumn. The panel is still in the planning stages, but we are keen to focus on corporations that are investing in these technologies and seeking open innovation solutions. We also aim to include the perspectives of technicians and scientists in the field to understand which technologies truly have the potential to make a significant impact.

Additionally, while our structured events are currently held semi-annually, we are considering organizing more informal monthly gatherings to keep the networking dynamic alive among ecosystem stakeholders. Also as being a community based model if anyone has an idea or wants to get involved can drop us a message on LinkedIn or Luma.