How can finance accelerate the clean tech transition to net zero?

Finance could play a vital role in mobilising clean tech to reach net zero across the economy.

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To tackle the climate crisis and limit global temperature increases to 1.5°C above pre-industrial levels by 2100 means the world needs to be carbon neutral by 2050. Banking on climate technology and scaling up innovative solutions across multiple sectors will be critical in the roadmap to net-zero. There is significant potential for new technologies to provide a catalyst to dramatically reduce emissions and the World Economic Forum calculates that digital technology could reduce global emissions 15% by 2030. The opportunity is momentous too, and Bloomberg New Energy Finance estimates that 83% of the $13.3 trillion of global investment in electricity systems by 2050 could be in zero-carbon technologies.

What are the key challenges facing start-ups in the space, and how can finance become an enabler of the clean tech transition to net zero?

BNP Paribas Sustainable Business expert Marieme Rocchi joined Tech Nation’s ‘Banking on Net Zero: Financing the future of climate tech’ panel with experts from Triodos Bank, Ember and Sustainable Seaweed to discuss the solutions and finance approaches needed to harness transition technologies for a greener future.

Challenges facing clean tech founders

One of the biggest challenges clean tech start-ups face is navigating unknown risks. Climate technology is evolving rapidly and the solutions created are incredibly new, meaning founders often have to face potentially higher investment risk perceptions from sometimes unproven technologies. Research from Tech Nation shows that climate tech remains a nascent sector overall in the venture capital market, and secures only around 6% of total venture capital funding. The characteristics of organisations developing net zero solutions matters too and over a third of UK Net Zero companies are at an early stage.

Finding investors to secure clean tech funding is another key challenge, as the complexity of solutions developed requires a translation of sector specific knowledge into financial modelling.

Government policy as a driver

In recent months, several governments have ramped up commitments on emissions reduction. At the recent Leaders’ Summit on Climate organised by US President Joe Biden, governments further strengthened their decarbonisation targets, with the US targeting 50-52% emissions reduction from 2005 levels, and the UK targeting 78% reduction by 2035 compared to 1990 levels.

This necessary ambition in government climate policy can have a domino effect to drive demand for new technologies across sectors, including energy, transport and the built environment. For example, the UK’s 2050 net zero target has filtered into a strategic ten point plan in which the government has committed to mobilise £12bn of public investment into the net-zero transition, a large proportion of which would be dedicated to accelerating clean tech.

Inter-sector coalitions are essential

Knowledge sharing across different sectors, such as between science and finance, will address a significant part of the net-zero challenge.

During the Tech Nation Net-Zero Banking panel discussion, Rocchi explained that “to provide answers to these huge net-zero challenges we need to understand the disruptive trends to better anticipate what will change in the coming business models for companies. We also need to have different lenses for how to look at investment”.

New forms of financial collaboration are critical and Rocchi explained that although it “goes without saying that traditional financing solutions need to be here including lending and venture capital”, there is a “new way through coalitions and business partnerships”.

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We have to find the right partners to build together new solutions and leverage on the strengths of the different players along the value chain

Marieme Rocchi, Head of Engagement Project & Partnerships, BNP Paribas CIB

Data and the information gap

Coalitions can also help to address the information gap. Rocchi summarises that coalitions help to “leverage on experts and boutique or niche players that know the tech or specific sector fields (such as agriculture, energy efficiency and the blue economy) to make sure we can combine skills and have direct impact for scalable solutions”. Data is an important part of having material impact towards net-zero though, and Rocchi believes that “all tech companies have a role to play in terms of data. Some of them have incredible data and we need to learn how to better leverage these data to make sure we can measure impact. This will be critical, especially in sustainable finance KPIs development”.

Blended finance could also be a useful lever in addressing financing gaps for clean tech companies through bringing together different forms of capital across multiple investor types. Crucially, Rocchi highlighted that blended finance enables “the right tools to ensure replicability, de-risking and enable scaling up” as it brings together “governments, investors, banks, philanthropists, projects owners, and start-ups”.

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Start-up coalitions towards net-zero

Movin’On is a ground-breaking co-innovation community committed to a sustainable mobility. Among other initiatives, BNP Paribas, Solar Impulse, Michelin and ENGIE are collaborating in a community of interest on energy efficiency. This includes gathering energy efficiency champions, academics, energy solutions users and innovative start-ups together as well as major players across the public and private sector to develop concrete solutions and innovations.

Tech Nation, a growth platform for tech companies and leaders,and BNP Paribas launched a six-month UK partnership. The Net Zero Tech Nation programme aims to nurture fast-growth tech companies that will help the UK reduce greenhouse gas emissions. The programme includes 29 scale-ups from sectors critical to the net zero transition including energy, transport, agriculture, manufacturing, and built environment among others.

BNP Paribas Group mobilising capital with a venture capital team dedicated to the energy transition. Four and a half years after the first investment, BNP Paribas invested in 10 start-ups and three funds on energy efficiency, energy storage, sustainable mobility and other transition themes. BNP Paribas has proven to be a solid partner by supporting five of the start-ups in its portfolio via complementary investments. This has enabled these companies to continue to grow and innovate in support of the energy transition and the fight against climate change. In 2021, BNP Paribas is expanding the scope of these investments to include the challenges of the ecological transition and support innovation in areas such as biodiversity, sustainable food and the circular economy.