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Is the Climate Tech bubble bursting?

The Climate Tech industry has experienced a remarkable positive trend in the last year: while other industries, not least the startup and wider tech sector, were and are facing major challenges, Climate Tech companies were getting more tailwind than ever – from investors, from policymakers, and from public opinion. "Green Transition" is on everyone's lips. The European Green Deal Industrial Plan, for example, aims to make Europe carbon-neutral by 2050, boost the economy with green technologies, and create sustainable industry and transport. The Inflation Reduction Act in the U.S. also underlines the renewed focus on climate change and sustainability. However, recent data shows that there is a dip in the market: venture capital investments are 43% lower in the first half of 2023 than in 2022. Has the Climate Tech sector therefore already surpassed its peak?

A lucrative but difficult to navigate environment for innovative Climate Tech companies

There is much to suggest that the growth trend for Climate Tech will continue. Advanced technologies are critical to driving the green transition and stopping climate change. Governments and politicians acknowledge the contribution of Climate Tech innovation to these policy goals which translates into vast public funding and programs that offer considerable financial means to young companies. For instance, Germany’s DeepTech & Climate Fund makes 1 billion Euro available to DeepTech and Climate Tech scale-ups. France also focuses part of their 54 billion Euro plan “France 2030” on innovative tech companies: the French Tech 2030 program specifically promotes DeepTech startups and a majority of the selected cases contribute to the ecological transition (52%).

This goes to show: the sector still has considerable financial means available, but it does not come easy. State aid or incentive programs pose a regulatory thicket that can be difficult to navigate. This is especially true for (young) companies that have little experience with government affairs work. There is a high risk of a specific business model not being considered, and well-intentioned regulatory ideas can become a threat to companies. One example could be witnessed in Germany: a well-intentioned subsidy program initially did not consider that solar panel systems cannot just be purchased, but also rented. Such oversights can cost the affected companies many millions of euros in the worst-case scenario.

Climate Tech companies are often unknown to policymakers

Policy support and regulation will play a key role for the successful bringing to market and uptake of Climate Tech, whether through regulatory alignment, state aid, incentive programs, or market design.

The problem of the Climate Tech sector is, however, that politicians and regulators do not yet know the sector and individual companies well enough. On top of that, it is a very heterogeneous sector with new players joining the stage by the minute. Although public money and new funding programs are made available, young Climate Tech companies are in danger of being overlooked or dropped from the agenda – unlike "policy-experienced" industrial companies that have vast experience with political communication and a whole department at their disposal.

Climate Tech champions can proactively shape the market design

Against this backdrop, it is more important than ever that Climate Tech companies know how to capture policy attention and rally support for their business model. In order to achieve this support, three things are especially crucial:

1. Raise your profile among policymakers: Tailor your communication to the audience and address questions that political stakeholders might have about your business model and contribution towards climate goals.

2. Explain and build trust: Educate the market and policymakers alike on the unique contribution of your business model. At the same time create confidence that you will not waste public money.

3. Engage in designing the market: Use the opportunity to share your knowledge and perspective when policymakers engage with the sector during the creation of potential funding programs, pointing out the needs of the industry and legal pitfalls, as well as taking on an active role in the allocation of the funding dedicated to climate technologies – instead of staying on the sidelines.

As the strategic advisor for the stakeholder economy, FGS Global helps companies and investors in Climate Tech navigate regulation and gain a competitive edge when they venture beyond established markets and industries.

Find more insights from the tech and regulation sector here.