The news: A coalition of over 20 VC firms launched the Venture Capital Alliance (VCA) Tuesday to increase investments in climate tech.

• Some of the world’s largest VC funds, like Tiger Global and Union Square Ventures, are behind the effort to help VCA members and their portfolio companies achieve net-zero emissions by 2050.
• The VCA’s firms collectively have $62.3 billion in assets, according to Crunchbase data, per CNBC, which can be used to invest in climate tech startups and provide guidance on decarbonization and energy efficiency.
• The UN approved the VCA as part of its Race to Zero campaign.

The macroeconomic context: After soaring levels of investment between 2020 and 2022, VC interest in climate tech has taken a hit in 2023.

• VC funding in climate tech reached $70.1 billion in 2022, an 89% increase over 2021, according to HolonIQ Global Impact Intelligence, per Bloomberg.
• In Q1 of this year, 4,600 climate tech companies raised only $5.7 billion—the lowest quarterly showing since June 2020, according to PitchBook data, per Politico.
• Although green technology initiatives are buoyed by government assistance in many countries—including the US with the Inflation Reduction Act (IRA)—the sector isn’t immune to the overall tech industry’s economic slowdown.
• Silicon Valley Bank’s collapse also left a funding deficit for startups, including those associated with climate tech.

The problem is that worsening climate fallout won’t wait for economic conditions to improve.

• US Special Presidential Envoy for Climate John Kerry estimated that half of the nation’s efforts to cut carbon emissions by 50% to 52% by 2030 come from technologies that don’t yet exist.
• Like the UN, VCA members are aware that coordinated efforts to steer funding toward climate tech are necessary.

Connecting the dots: Climate change has significant implications for business, but its global impact makes it difficult for some to see the ROI on climate tech investments.

• The environmental fallout includes economic disturbances such as factory shutdowns, higher risk for insurers, disrupted tourism industries, supply chain havoc, property damage, network outages, and food-price inflation.
• Increasing climate-related regulation internationally means demand for effective climate technologies will rise over the long term.
• We can expect to see more willingness to collaborate between climate startups and traditional industries like fossil fuel companies on technologies like carbon capture and alternative fuels.