Australian climate tech is a must-watch sector as the urgency for climate action is increasingly in focus, and regulatory policy drives the need for innovation. Corporates, governments and consumers are all looking to change behaviour and quick innovation is needed to enable that.
Australia has already committed to reducing greenhouse gas emissions by 43 per cent by 2030, and to reaching net zero by 2050. But it will take technological advances and widespread adoption of climate tech solutions to reach this goal.
According to the 2023 Australian Climate Tech Industry Report, climate techs intend to raise $1.5 billion in the next 12 months. The overwhelming majority (94 per cent) have ambitions to go global.
Australia has the skilled workforce, the leading research institutions and the vast natural resources to make this happen. We have an incredibly opportunity to take a leading role and become a primary player in world-class climate tech solutions.
So what’s in the way? Funding.
The traditional funding challenge
Australia lags behind other OECD countries when it comes to climate change investment.
Traditional venture capital funding is not geared toward complex capex-intensive solutions and climate techs often don’t look like the SaaS software solutions that investors might be more familiar with. This necessitates a new funding model. One that is different from the typical 7 to 10 year investment horizon. While family offices are stepping into the fold, more funding is needed if we want to put Australia in a leading position to tap into the climate tech potential.
One hurdle often reported is the mismatch between the aims of founders and investors when it comes to raising capital. Founders often approach investors with a radical climate change idea, but investors are looking for a venture that can make a dent in climate change AND a return on their capital.
Climate tech startups need to find a stage-appropriate way to showcase their impact, demonstrate that they are making a difference and show investors what kind of returns they can expect. Quantifying climate impact for investors and customers can be challenging, especially since many climate solutions are solving problems that are years into the future.
Where is the public sector support?
The other natural gap to address is government support.
Public policy is another critical driver of investment and another valuable source of funding for climate tech innovators.
Other OECD countries are driving consumer behaviour changes and fuelling innovation with public policies, such as the IRA Energy Efficiency Home improvement credit for consumers in the US or the UK’s £11.6 billion investment across mitigation and adaption, with £3 billion allocated to solutions that protect and restore nature.
While there has been policy to drive demand for renewables, Australia needs to accelerate funding more broadly in the climate tech space if we are going to become a true innovator and global leader.
Key opportunities for increased funding
Action is urgently required over the next few years if Australia is to emerge as a global leader in the climate tech space.
Several areas hold exciting potential, but game-changing solutions are going to require substantial capital investment with longer-term horizons – making them ripe for bold investors looking to think outside the box and marry investment with impact or government investment.
Below are some of the key opportunities.
1. Renewables: solar, wind, geothermal power
Renewable energy sources combined with innovation in energy storage and grid integration are critical in the fight against climate change. These sectors are also backed in Australia through public sector funding initiatives.
Hydrogen is an emissions-free fuel and becomes a way of storing renewable energy for use when it is needed. There’s plenty of startup innovation in this space, with NSW green hydrogen startup Hysata recently named Startup of The Year. The Clean Energy Finance Corporation (CEFC) is also backing HydGene Renewables, whose carbon-negative solution turns biomass into hydrogen.
2. Agtech innovation
Agriculture is a huge greenhouse gas (GHG) emitter and is under pressure to innovate and become more sustainable. As one of Australia’s most important and largest industries, reducing its carbon footprint is all the more important.
Globally, the agtech market was valued at USD $13.44 billion in 2022 and is expected to expand at a CAGR of 10.3% until 2028. While Australia’s share of this remains modest, the local agtech community is active, with an estimated 300 to 400 young startups.
Some Australian agtechs are already attracting international interest.
Earlier this year Bill Gates invested in Perth-based Rumin8, including co founder Elaine Darby, which is creating a dietary supplement to reduce methane from cow burps and MEQ announced a partnership with Siemens to boost productivity and efficiency in the red meat supply chain.
3. The circular economy
Another ambitious goal is for Australia to achieve a circular economy by 2030.
Despite all of Australia’s environment ministers agreeing to work with the private sector to eliminate waste and pollution, the country is still a way off this target.
According to the 2022 National Waste Report, Australia generated 2.6 million tonnes of plastic waste from 2020 to 2021, with a recovery rate of just 13 per cent, the lowest of all waste materials. T
here’s a huge opportunity for innovative startups to step in and solve the issue. Plastics recycling service RecycleSmart, recently raised over $1 million in equity crowdfunding, keeping 400 tonnes of hard-to-recycle waste out of landfill.
Australia possesses immense potential in the field of climate tech, yet a critical disparity exists between envisioning transformative advancements and realising them. What is imperative now is looking to funding mechanisms that can expedite the market entry of a broader range of innovative solutions.
This necessitates guiding founders in redefining their impact models to resonate with investors and educating a wider spectrum of investors. With this, we as a nation can truly set a global benchmark for innovation, collaboration, and sustainability and establish Australia as a leader in this crucial sector.