Venture capital firms are recommending climate tech as a shield from the coming recession.
- With a fear of inflation, investors are starting to divert to safer assets that can weather the storm more effectively.
- “Typically recessions see investors fleeing to safer assets like government bonds and mature companies. And they start investing less in or even divesting from riskier assets, such as venture capital, which bets on early-stage companies fully expecting many to fail and hoping that some succeed wildly. Things are different now,” says Bloomberg.
- One asset that appears to be holding stable through the economic downturn will be climate investing, with the industry skyrocketing in venture capital and federal investments as major governments seek to combat climate change.
- Venture capital technology in climate change has increased from $1.9 billion in 2013 to $37 billion in 2021, according to Holon IQ.
Why it’s important
Climate tech investments may prove quite useful to investors who are eager to shield their portfolios from the worst effects of the recession.
The investments may also prove helpful to the environment, jumpstarting a decades-long transition toward emissions-free energy and bringing forward-thinking investors along with it.
“2022 is on pace to eclipse every other year in venture-capital fundraising… There’s still a very robust, potentially recession-proof, segment within climate tech for people who are trying to solve really hard problems,” says Prelude Ventures managing director Mark Cupta.
“Investors see that funding these technologies will help avoid a hotter planet, which would have worse, long-lasting economic impacts than the short-term recession we might be about to face,” says Bloomberg.
Backing up a bit
As we previously reported, President Joe Biden signed the Inflation Reduction Act on August 16, which set aside $370 billion in spending for climate investments.
“The new U.S. climate bill… has plenty of incentives for solar and wind power, but also for nascent technologies, such as direct air capture and long-duration energy storage for the grid,” says Bloomberg.