The finance world wakes up to the climate crisis

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The Weekend Pitch

November 14, 2021

Presented by Elements Global Services

(Jeff J Mitchell/Getty Images)

Fear and loathing at COP26

Weeks of negotiations in Glasgow came to a close Saturday as diplomats agreed to a deal to guide humanity away from a worst-case climate trajectory.

Despite incremental progress, the summit has left activists with little to celebrate.

Every G20 government has failed to meet their Paris Agreement targets, according to watchdog group Climate Action Tracker. A global commitment to funnel $100 billion worth of climate finance from rich countries to poor ones each year has fallen short. The US and China announced a collaborative agenda that, while notable, lacks both firm targets and reliable enforcement.

But behind the political stage, a powerful force is taking shape. The financial world has woken up to the climate crisis and appears willing to supply much of the capital that will be needed to transition to a net-zero economy.

I'm James Thorne, and this is The Weekend Pitch. You can reach me at james.thorne@pitchbook.com or @jamescthorne on Twitter.

The other 35%

"A paradigm shift has happened," said Svenja Telle, an emerging tech analyst at PitchBook. "Before, climate finance was seen as a task without returns. It was a sinkhole. Now climate finance is seen as one of the most profitable investment strategies out there. That changes everything."

The clearest example of this change came last week from former Bank of England Gov. Mark Carney's Glasgow Financial Alliance for Net Zero. The group aims to provide $130 trillion in private capital to the net-zero transition by 2050 and is backed by an army of 450 fund managers, banks, pensions and other asset owners.

GFANZ believes that private capital could provide 70% of the $32 trillion in investment needed by 2030 to be on track for a net zero economy by 2050.

That kind of widespread commitment from the largest asset managers is critical to deploying existing technologies, but there's a rub. Only about 65% of emissions can be eliminated with current tech, according to the Boston Consulting Group, leaving a yawning gap for the world's entrepreneurs to fill.

Deal Flow

Nuclear energy startups have raised $676 million in VC funding through the third quarter of 2021, according to PitchBook data. That number is more than the total amount raised by startups in the sector over the past five years combined.

Helion Energy, which is working to generate zero-carbon electricity from fusion, added to the record last week with a $500 million Series E led by industry veteran Sam Altman.

Quote/Unquote

(Maryna Terletska/Getty Images)

"Direct-to-consumer is a really saturated market. I think it is hard for these startups to generate strong returns relative to enterprise companies."

—Michael Kim, founder of Cendana Capital, a fund-of-funds that backs Lerer Hippeau, the VC firm that led Allbirds' seed round and participated in Warby Parker's Series A.

The DTC business model is suffering from rising customer acquisition costs, few barriers to entry and competition from incumbent retailers. And venture capitalists are quickly realizing that the model isn't as cost-effective and scalable as initially thought.

Datapoints

The flood of capital into foodtech through Q3 has put an upward pressure on deal sizes and valuations. The global median valuation of early-stage startups in the sector is $35 million—a 133.3% increase over 2020, according to PitchBook data.

Record levels of dry powder and an influx of nontraditional investors in the VC asset class are a few of the many reasons why the foodtech industry is expected to continue its unrelenting pace of growth next year, according to our latest Emerging Tech Research.

Did you know ...

… That Rivian's upsized IPO has pushed the value of all companies going public on US exchanges to a record $1 trillion so far this year?

VC-backed startups comprised more than half of the total exit value at $618 billion, and nearly $167 billion has come from companies that merged with SPACs, according to PitchBook data.

Recommended reads

When an organic consumer goes shopping, they're looking to buy both a product and an assurance of production standards. But what happens when that product is a fraud? How one man exploited consumers' trust in labels and made a fortune. [The New Yorker]

GE announced Tuesday that it will split into three public companies. A look into the energy giant's history, and how the breakup turns a page in modern business history. [The Wall Street Journal]

China is hoping to become a force in the global auto industry by selling battery-powered vehicles in European locations like Germany and Norway. [The New York Times]

New data suggests that some 10% of Duke University's endowment returns could have come from a Coinbase investment. [Institutional Investor]

What keeps someone from activating a library card or returning a book? How one library system in New York is using behavioral science to reduce barriers to library access. [Fast Company]

The CEO of Impossible Foods wants to make its plant-based protein products available everywhere. But first it will have to break through regulatory barriers in one notorious mecca for pork lovers. [Fortune]

This edition of The Weekend Pitch was written by James Thorne and Priyamvada Mathur. It was edited by Angela Sams, Andrew Woodman and Sam Steele.

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