BCAA supports the release of China Climate Tech Venture Investment Trends (2022). As "carbon peak and carbon neutrality" becomes a hot topic, many domestic private equity funds (PE) and venture capital funds (VC) in China have begun to focus on the ”dual carbon field“ as a key direction, and equity investments in this area have become an important part of the primary market. Due to the lack of authoritative and consensus-based definitions for Climate tech investments and limited data sources for primary market equity investments, there is not much research on Climate tech venture capital. This report aims to track and study the development, current status, and trends of China's Climate tech field private equity and venture capital funds by synthesizing various public data and investor questionnaire feedback, providing a reference for investors interested in this field.
Since China proposed the carbon peak and carbon neutrality goals in 2020, the proportion of primary market investments in the Climate tech field has increased significantly. According to interviews with investment institutions, questionnaires, and other primary information, as well as the collation and statistics of public data, there were a total of 1,574 investment events in this field from 2019 to the first half of 2022, involving 1,112 companies and 1,893 investment institutions, with a total investment amount exceeding RMB 350 billion. Between 2021 and 2022, approximately 50 investment institutions have accumulated investments exceeding RMB 1 billion or 10 investment events in the Climate tech field. Compared to 2020, the number of investment events in the Climate tech field in 2021 increased by 180%, and the investment amount accounted for nearly 14% of the total primary market investment, showing significant growth. Social attention, funds, technology, and talent are all pouring into the Climate tech field.
To further study the structural characteristics and industry trends of investments in the Climate tech field, this report divides the field into eight directions: energy and power, transportation, industry, construction, agriculture, new materials, informatization, and negative carbon technologies. We found that investments in the Climate tech field are concentrated in the energy and transportation sectors. In 2021, energy and transportation received the most investments, with the number of investment events in these two directions accounting for more than 75% of the total investment events in the Climate tech field and the investment amount accounting for over 90%. Industries such as construction, agriculture, and others have carbon reduction benefits comparable to those in the energy and transportation sectors but have not received the same level of attention and investment. As industry policies continue to be introduced and low-carbon technologies in these sectors mature, innovative enterprises in industries like construction and agriculture are also worth more attention from investors. We also found that some investment institutions continuously focusing on the Climate tech field have delved deeper into more segmented and detailed areas of the industry chain to identify projects, looking for more reasonably valued and growth-assured investment targets while avoiding the risks of overly crowded and overvalued popular tracks.
The announcement of China's carbon peak and carbon neutrality goals has triggered another wave of investment in the Climate Tech field, with PE/VC institutions showing great enthusiasm for participating. However, investment in this field faces many challenges, such as many investment institutions just starting to invest in this field, needing a deeper understanding of it; some areas of carbon neutrality investment are booming, while other key directions have not received enough attention; and some areas of investment require more patience and long-term capital, which is still relatively lacking in China. Based on our research, we offer the following suggestions to promote the better development of investment in the carbon neutrality field:
It is recommended that investment institutions increase their focus on less-attended directions under the consensus of Climate technology investment.
In recent years, investment in the Climate Tech field has shown a clear trend of hotspots clustering, with energy and power, transportation, and logistics investments booming. PE/VC institutions can focus on other industries and directions with carbon emission reduction benefits or subsectors within the consensus direction.
It is recommended that investment institutions place more emphasis on seed-stage investments.
National and local industrial guidance funds, as important investors in private equity funds and venture capital funds, can guide investment institutions with professional capabilities to pay more attention to seed-stage investments.
The government can actively coordinate more social capital to participate in private equity investment in the Climate Tech field.
An analysis of the investors behind the fundraising of funds in the Climate tech field reveals that the main investors are central enterprises, state-owned enterprises, and local guidance funds. The government can coordinate more social capital to participate, narrowing the gap between fundraising targets and actual fundraising.
Link green finance and transition finance policies to expand the market demand for green low[1]carbon innovative technologies.
Academic research on the previous boom and bust of the green technology/carbon neutrality field found that policies promoting the expansion of green technology demand are more important than direct financial support policies. The government can orderly link green finance and transition finance policies, introduce more policies to promote the growth of green technology demand, and guide enterprises with transition needs to actively adopt green low-carbon innovative technologies.
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