More and More CVCs Are Investing in Climate Tech. Here’s Why.
Companies are taking sustainability more seriously than ever before. Reducing greenhouse gas emissions is now an imperative corporate and shareholder mandate. Over 20% of the world’s largest public companies have committed to reaching net-zero emissions, and many have shared their plans for how they’ll actually get there in the years to come. These sustainability strategies often focus on greening supply chains, purchasing carbon offsets, or embracing the circular economy. But there’s another tool which corporations are increasingly deploying in the race to reverse the effects of climate change: corporate venture capital.
Corporate venture capital (CVC) is the practice of investing corporate funds directly into external startups and in some cases the private venture funds that back them. CVC units have traditionally invested in technologies and adjacent markets that are strategically important for their parent company. But increasingly, says Erik Terjesen, Partner at Silicon Foundry, CVCs are purposefully expanding their scope and investing in startups that address pressing society-wide issues like climate change.
“Emerging technologies are critical to slowing down global warming and reducing carbon emissions,” Terjesen said. “The startups building those technologies need investment. CVCs can be instrumental in advancing those technologies and bringing them to market.”
When it comes to investing in climate tech, oil and gas CVCs are leading the charge. Decarbonization requires incumbent energy companies to radically change their business models. In order to stay competitive, major oil and gas players need access to the emerging technologies shaping the future of energy.
Take BP Ventures: the CVC was created to give BP access to disruptive technologies and business models in the renewable energy sector. It’s also a critical enabler of BP’s commitment to be net zero by 2050.
“Over time BP aims to increase the proportion of investment it makes into non-oil and gas businesses,” BP CEO Bernard Looney said in a 2020 announcement about the company’s net zero plans. “We expect to invest more in low carbon businesses — and less in oil and gas — over time. The goal is to invest wisely, into businesses where we can add value, develop at scale, and deliver competitive returns.”
BP Ventures targets five focus areas: advanced mobility, bio and low carbon products, digital transformation, and power and storage. They’ve made investments in companies specializing in everything from mobile energy storage to carbon capture, desalination, sustainable feedstock, AI-powered energy management systems, and EV charging and ride sharing in emerging markets.
Meghan Sharp, BP’s Global Head of BP Ventures, told Silicon Foundry that they take an active role in the startups they invest in.
“We are both an investor and an end-user of the technologies in which we invest,” she said in a past interview. “This creates a longer term commitment because we look beyond a quick financial return. We want to see these new technologies deployed into our businesses. In order to do that, we have to be pretty close to the company at both the board and business levels.”
BP Ventures isn’t the only oil and gas CVC investing in climate tech. Shell Ventures recently announced that they’re setting up a dedicated $1.4 billion fund to invest in startups that will accelerate the move to a lower-carbon future. Equinor Ventures, the CVC for Norway’s state-owned multinational energy company, recently announced investments in companies focused on combined solar and long-duration storage technology, technology to convert the energy wasted in pressure reduction processes into clean electric power, and solid state batteries.
But Terjesen points out that you don’t have to be an oil and gas CVC in order to invest in sustainability-focused companies. Increasingly, CVCs with parent companies across industries have been creating specific funds committed to making clean tech investments. BMW i Ventures announced a $300 million sustainability fund in June 2021. National Grid Partners announced a $150M energy and IT fund shortly before that. Salesforce Ventures launched a $100 million impact fund last year, with sustainability and climate action as one its major focus areas. These announcements show the increasing focus across the corporate landscape on sustainability as a crucial priority for global corporations.
“CVCs are important levers for corporate sustainability strategies,” Terjesen highlighted. “When CVCs invest in sustainability focused companies, it signals to stakeholders and the public that your company is serious about reducing emissions. You’re deploying capital and putting your money where your mouth is.”
Sending that signal, he added, can give CVCs and their parent companies both a competitive advantage and reputational boost. “CVCs often operate in the background,” Terjesen said. “Investing in sustainability offers an opportunity to increase CVCs’ visibility and demonstrate their impact and relevance.”
When CVCs expand their scope beyond their parent company’s traditional focus areas, they may encounter pushback about the ROI and time horizons of their investments. CVCs have historically tied their investments to specific business areas tied to their core competencies. But when it comes to sustainability investments, Terjesen says the usual rules do not apply.
“The time horizon is usually long for these types of investments,” he explained, “and in the case of corporates the returns can be both direct and indirect. It’s important for CVCs and their parent companies to be comfortable with these return profiles and horizons and really understand their motivations for investing in sustainability.”
Reversing the impacts of climate change and accelerating society’s transition to net-zero emissions is only possible with sustained commitments from leading global corporations. CVCs, Terjesen says, are an important part of that.
“Mobilizing capital in support of sustainability initiatives offers CVCs the opportunity to engage with startups that are making world-changing advances,” Terjesen said. “Corporate venture capital has a unique role to play in advancing the technologies that will reverse the impacts of climate change and contribute to a greener, cleaner world.”