What are the opportunities for climate tech in Asia?
A building opportunity in Asia
The Asian continent will be disproportionately affected by climate change, yet investment flows to the sector in the region remain low. What will it take to dial this up?
As temperatures rise faster in Asia than the global average, with record-breaking heatwaves across the region in April 2024, it’s clear that the continent is already bearing the brunt of climate change. Yet scientists predict that there will be worse to come, with more intense typhoons and extreme rainfall in some areas, while droughts will become more common in others. The financial and social costs of these events are immense.
Yet Asia Pacific lags the US and Europe when it comes to investment in climate technology companies. “At around $90bn, the forecast total invested in climate tech ventures in 2024 is expected to exceed 2023 levels,” says Jasandra Nyker, Managing Partner of Saja Climate Partners. “Yet the lion’s share of that is being invested in the US and Europe. By contrast, climate tech investment in Asia is still in its infancy with pent-up demand. The market is growing, but it’s still quite small – only $1.6bn is being deployed in Asia.”
Today, the mentality has shifted and the solutions have tangible results and quantifiable impact. And while we’re seeing significant climate tech investments in areas such as electric vehicles, there are so many more problems we need to solve
And, while this means there is significant opportunity for growth in years to come, there is still a long way to go. So where are GPs and LPs finding opportunity in Asia? And how will the sector scale up to attract more investment and generate more impact? It really is different this time. Some investors with long memories may still be shying away from any opportunity with the “climate tech” badge. After all, nearly half of the $25bn of capital invested by clean tech funds formed between 2006 and 2011 was either lost or impaired, according to Cambridge Associates estimates.
Many investments didn’t deliver on sustainability goals either. “I wasn’t in the space then, but 15 years ago, there was a lot of hype and solutions that sounded great, but their impact on a sustainability front was limited at best,” says Ariel Shtarkman, Managing Partner of Undivided Ventures. But, she adds, things have changed a lot since then.
“Today, the mentality has shifted and the solutions have tangible results and quantifiable impact. And while we’re seeing significant climate tech investments in areas such as electric vehicles, there are so many more problems we need to solve. Our sector – the built environment – is responsible for 40% of carbon dioxide emissions globally. We need to address this challenge, and there is a tremendous opportunity for outsized returns while addressing this challenge via investing in the most innovative solutions.”
Large, local investors are helping to build out the climate tech sector in Asia. Temasek, for example, sees sustainability as vital for creating long-term portfolio resilience and value creation.
Climate tech investments support its ambition to reduce the net carbon emissions attributable to its portfolio to half their 2010 levels by 2030, with the ambition to achieve net zero by 2050, according to Eliza Foo, Director of Impact Investing at Temasek.
“We all have to play our part in investing our capital to make a difference or we won’t have a world to invest in,” she says. “Many climate technologies are still quite early in development, and it will take time to bring them to scale. We have a part to play in helping to build the ecosystem.
At Temasek, we have a range of partnerships to support this, including with Breakthrough Energy Fellows to set up its Southeast Asia Fellows Programme, and with the National University of Singapore to set up the Centre for Hydrogen Innovations.” Temasek has also recently announced a commitment to set aside $100 million of concessional capital for climate action, aimed at supporting marginally bankable climate action projects in Asia through its community gifts.
We all have to play our part in investing our capital to make a difference or we won’t have a world to invest in.
Early-stage companies need support to scale. The response to climate change lies not just in renewable energy project deployment but requires several enabling plug-in technologies, according to former IFC Regional Lead for Disruptive Technologies in South Asia, Ruchira Shukla, who is now Managing Partner and Co-Founder of Synapses.
“Renewables are part of the answer, but the world’s energy mix has only moved towards renewables by 2% in the past two decades,” she says. “That’s despite large-scale renewable capacity additions, as the overall global energy needs continue to compound. We also need engineering-led and deep science-based innovations to enable the transition at scale, and investments in new materials, new battery chemistries, circular economy models that deliver waste to value, more efficient motors, heat exchangers, smart EV components and climate-smart agriculture solutions.”
“We have a venture fund, a seed fund and an incubation programme to support the development of these STEM-led inventions and solutions through the lifecycle. We take product risk in the incubation programme and the seed fund, and only invest from the venture fund when the pipeline investees are commercially ready and have high quality, early revenue. That derisks the business from a product perspective, but it also shortens the time to exit for the venture fund.”
He points to an example in Vietnam. “We’ve invested in a textile company here that makes polyester using 50% recycled plastics,” he says. “It has been doing this for 10 years and it’s not cutting-edge technology, but we’re now seeing big brands become customers as they seek to improve the sustainability of their own products.”
The range of climate tech is vast. From creating solutions that prevent battery fires, cooling and heat exchange, and electric two and three-wheeled mopeds, through to carbon capture and green hydrogen, there is a huge array of technology and innovation for investors to select from. Temasek, for example, estimates that there is an annual $330bn investment opportunity in climate mitigation and adaptation in emerging markets alone. “We have to activate all pathways,” says Foo. “Otherwise, we won’t meet any of our ambitions by 2030 or 2050. That means building renewable energy and improving energy efficiency at a faster pace as well as using more innovative technologies, such as AI for advanced monitoring control systems and even bi-directional charging. We should also tap emerging technologies, including carbon capture, sustainable hydrogen and use nuclear energy. These are game changers.”
Partnerships and engagement will be vital. “We need to be bold and innovative,” says Foo. “To scale solutions, we have to test different business models and partner with think tanks, DFIs, philanthropic organisations, foundations and more to achieve solutions. We all need to work together to share ideas, knowledge, innovation and financing to find the right solutions and reach our goals.”
“The climate change challenge is large, urgent and it hits everybody,” adds Shukla. “No nation can solve it alone and no nation can be left behind. We need collaboration. If innovations solve problems in India, they may solve the same problems in Europe, the US or Africa, so there needs to be a lot of cross-pollination of ideas between organisations and countries.”
