Cleantech investment still bucking the trend

Diffusion’s Head of Climate & Cleantech, Peter Jackson looks back at a challenging few weeks for the green technology sector, but the bigger opportunities still remain…

Maybe it’s just the typical autumn weather, but it’s been a depressing few months for those in the UK following cleantech. In September we saw a government auction for new offshore wind fail to secure any bids in ‘the biggest clean energy policy failure in almost a decade.’ This was shortly followed by a tenth anniversary re-enactment of ‘cutting the green crap‘, pushing back a ban on new cars with combustion engines, delaying a phase-out of gas boilers and rolling back progress on home insulation.

As we dive from the warmest September on record into sudden October gloom, it’s hard not to feel the ‘fear and loathing’ that James Murray’s excellent 2018 polemic described creeping in. But enough about me – how do the markets feel? At first glance, the answer seems to be ‘conflicted.’

In a tough market, cleantech investment can beat the odds

According to the FT, ‘asset managers have been dropping the word “sustainable” from the names of funds in response to increasing regulatory and reputational concerns. Forty-four sustainable funds removed the label from their brand name during the first half of 2023, in contrast to 2022, when 99 funds added “sustainable” to their name.’

Partly, this is due to the fact that climate is now another front in the culture war. The days when climate sat as a comfortably bipartisan issue are over, and funds are looking to shield themselves from a conservative backlash against ‘woke capitalism’. The days of Reagan Republicans battling CFC emissions are, for now, long behind us.

On the other side, ESG funds are coming under increasing scrutiny about whether they are, in fact sustainable. Regulators and the public are getting tougher on greenwashing, and part of this nascent trend of ‘greenhiding’ or ‘greenbleaching’ might well be a move towards more cautious – or honest – classification of a term that’s always been poorly defined.

Zoom out further and we see how cleantech fares against a backdrop of increasing geopolitical tension and rampant inflation. It’s perhaps unsurprising given the context, that overall investment in cleantech globally is down – but it’s down less than investment in other sectors, according to PwC . They found that ‘the fall in climate tech investment was significantly smaller than the VC and PE average fall of 50% across sectors. As a result, the share of VC and PE funding going into climate tech continued to rise, accounting for more than 10% of private market start-up investments in 2023, up from 7% in 2018.’

Similarly, the FT reports Barclays’ findings that ‘overall flows into ESG had remained positive despite the high number of closures — although the heady levels of 2021 now look pretty far away.’

Communicating with Courage and Maturity

Cleantech and climate brands need to read the room and communicate accordingly. They can’t rely on ESG hype, and they need to acknowledge their maturing position as a major part of the world economy.

What does this look like? For a start, it means picking your battles. The need to avoid greenwashing is greater than ever, but fear of an ‘anti-woke’ backlash shouldn’t stop you from shouting about genuine green credentials. As the numbers show – clean technology is, despite everything, outperforming the market.

At the same time, brands need to stake out their place in the future tech landscape. Particularly in the UK, the need for infrastructure investment is becoming more and more stark, as the recent report from the National Infrastructure Commission shows. That investment needs to be green  – not just for the sake of the heating planet, but for the wallets of consumers as well. The time is right for genuine green brands to make their cases to be part of the solution – as long as they do so with care and courage.

Get in touch with me at [email protected] to find out more about how we can help ambitious brands in climate and cleantech to bring tomorrow closer.