JAKARTA — 2023 was the hottest year on record, bringing extreme weather events and crippling economic losses.
Green and climate tech investments and fundraising also gained momentum, bolstered by an urgent need to adopt sustainable practices. This has heralded a new era of climate-conscious investments.
In Southeast Asia — a region particularly vulnerable to climate change due to its long coastlines and low-lying areas — 16 green tech startups raised funds from July through September, the sector’s highest quarterly deal volume in at least five years, according to DealStreetAsia’s Data Vantage report SE Asia Deal Review: Q3 2023.
Among them, the 16 startups garnered $140 million, led by Singapore-based renewable company InterContinental Energy, which raised $115 million in September from the city-state’s GIC sovereign wealth fund and clean hydrogen industry-focused investor Hy24.
Waste management companies Blue Planet Environmental Solutions, based in Singapore, and Rekosistem, based in Indonesia, were also among the third quarter’s climate-tech fundraisers.
Other companies that have built up a kitty, riding the boom of climate- and impact-focused investments, include Singapore’s green wastewater technology company Hydroleap, which raised $4.4 million in a Series A round led by Real Tech Holding. More recently, Climate Alpha, a Singapore-based, AI-powered analytics platform, bagged $5 million in a seed round led by Jungle Ventures.
Climate tech has become a hot topic among investors and entrepreneurs over the past couple of years.
“The region’s vulnerability to climate change has intensified awareness and concerns regarding the immediate and long-term impacts of global warming,” said Paul Ong, a partner at venture debt firm Innoven Capital. “As the region grapples with environmental challenges, there has been a notable emphasis on addressing climate issues and risks.
“This commitment is reinforced by active government initiatives that have created a conducive environment for attracting green tech investments.”
Ong added that while Innoven Capital doesn’t have any green funds, the firm has always invested in climate-adjacent technology like electrified mobility, food sustainability and the circular economy.
Throughout 2023, numerous impact- and climate-focused funds emerged in Asia and Southeast Asia to support entrepreneurs building solutions to mitigate climate-related challenges.
These include Singaporean venture capital firm TRIREC, which announced a $100 million climate fund in May in partnership with Thai energy tech company Innopower, and The Radical Fund, which announced the first close of a $40 million Southeast Asia climate fund.
In December alone, Singapore-based climate tech venture builder Wavemaker Impact hit the final close of its debut fund at $60 million, while U.K.-based British International Investment made investments in three separate Asia-focused climate finance funds.
In November, Swiss impact investor responsAbility Investments announced a $500 million climate investment strategy, and asset management firm Edelweiss Capital Group, also based in Switzerland, launched a $150 million private equity fund to make climate-related investments in Asia.
Also in November, global impact fund manager LeapFrog Investments secured commitments from Singapore state investor Temasek and the European Investment Bank (EIB) for its $500 million climate strategy targeting Asia and Africa.
“SE Asia has a critical role to play due to the scale and urgency of the climate crisis,” Charlie Ill, Investible’s chief investment officer, told DealStreetAsia. “Opportunities are equally wide-ranging. With investment and support, countries in the region have an opportunity to leapfrog the carbon-intensive path to prosperity that many nations have taken.”
The Australian early-stage investor is said to be launching a climate tech fund with Mandiri Capital Indonesia in October.
The region’s geographic and demographic diversity presents opportunities in this field. Several sub-sectors with high potential include electric vehicles, renewable energy, waste management, the circular economy as well as solutions related to food and water sustainability, investors say.
“Abundant renewable energy resources have fueled growth in solar and wind projects in the region, with countries like Vietnam and Thailand leading in renewable energy capacities,” TRIREC partner Mike Lim said. “Electrification is also an interesting space to watch. Many technologies that function on electricity remain expensive, and innovation is needed to keep costs viable and bring these technologies closer to mass adoption.”
Moreover, the growth in renewable assets deployed across the region is strategically in place to support the decarbonization shift, especially toward the adoption of clean hydrogen, he added.
Meanwhile, Ill argued that sectors related to critical mineral extraction, processing and recyclability are also ripe for innovation. Critical minerals are a tremendous resource that countries are slowly protecting for national security, strategic trade and political gains as well as for domestic value-add activities.
“As such, critical minerals are likely to become more scarce for general use, while demand for the resource continues to grow,” Ill said. “Here we are seeing tremendous cross-border collaboration for technologies that maximize the capture and use of critical minerals — key corridors are Australia, Singapore, and Indonesia.”
Despite its potential, the path to a greener future is paved with hurdles that demand careful navigation and strategic solutions. This is especially relevant since climate tech startups operate in a capital-tight and challenging investor landscape.
Investing in this sector comes with inherent risks, common to many nascent sectors. Challenges include uncertainties around product or market fit, customer willingness to pay, extended product development cycles, investment holding periods and securing funding sources, Ong said.
“However, these challenges are not unique to climate tech,” Ong said. “We believe in supporting leaders who possess the ability and creativity to adeptly navigate changes in regulation, market dynamics, and technological advancements, ensuring resilience and adaptability in the face of evolving circumstances.”
As many climate tech solutions require a scientific approach, climate tech is capital-intensive, according to Ill. Heavy R&D and manufacturing requirements, long sales and integration cycles are ongoing challenges that startups often need to overcome via clever adjustments of their business model.
“Founders who use non-dilutive resources well to supplement their R&D needs and design their products to simply integrate within existing processes, are critical qualities we look for when investing,” Ill said.
Echoing this sentiment, Marie Cheong, founding partner at Wavemaker Impact, said that decarbonization necessitates tangible, widespread and integrated solutions, blending hardware and software. Climate tech companies aiming to make meaningful impacts must navigate the challenges of securing funds for capital expenditures and scaling.
“One of the risks is that VCs and other investors will be looking for SaaS (software as a service) models rather than companies that have the potential to deliver impact at scale,” Cheong said, adding that Wavemaker Impact aims to invest in four new companies in the next three months and to build another six to eight climate tech ventures in 2024.
“This will bring our total portfolio to 16-18 climate tech companies by the end of next year,” Cheong said. “We will continue to follow-on invest in our portfolio companies through to series B.”
Moving forward, investors see a promising future for the climate tech sector as it is poised to remain one of the fastest-growing sectors globally, with particular significance in Southeast Asia.
The region’s climate tech startup scene remains in its early stages of growth. However, despite tough economic conditions over the past one and a half years, the sector promises resilience.
“Innoven Capital bears an optimistic investment outlook for the clean tech/energy sector in the upcoming years,” Ong said. “We aim to contribute to a landscape where climate solutions become fundamental across industries, underlining the imperative for all stakeholders to actively participate in addressing environmental challenges.”