Corporate Investment Could Boost Climate-tech Innovation

Corporate investments in climate-tech startups are a growing but overlooked aspect of energy innovation, according to a new report co-led by a University of Maryland researcher.

The analysis by lead co-authors Kavita Surana, a senior fellow at the Center for Global Sustainability (CGS) at the University of Maryland, and Morgan Edwards, a professor of public affairs at the University of Wisconsin–Madison (and former CGS postdoctoral researcher), found that startups often have the potential—but not always the resources—to rapidly commercialize innovation. Corporations, on the other hand, tend to have those resources, like access to global markets and supply chains, manufacturing facilities and experience across the energy system. The report was published this month in the journal Joule.

Additional authors include other CGS staff, including Director Nathan Hultman, a professor of public policy and Kathleen Kennedy, postdoctoral associate and lead for energy innovation research at CGS, as well as Distinguished University Professor of physics Ellen Williams, director of the Earth System Science Interdisciplinary Center.

While corporations’ investment strategy is generally profit-driven, they can also be motivated to expand business models, gain innovation insights, and meet environmental, social and governance commitments. Well-resourced corporations that invest in startups can have an outsize influence on which startups succeed and grow, therefore shaping climate technology trajectories, the authors said.

“Corporations and the choices they make investing in climate-tech startups are particularly important as they tend to focus on technologies closer to reaching widespread adoption, compared to public or other private investors,” said Surana, who is also an associate faculty member at the Complexity Science Hub Vienna.

In 2021, corporate investments in climate technology totaled over $11 billion; that money flowed to more than 460 startups, representing a quarter of all public and private investment dollars. This number has grown considerably since the Paris Agreement began in 2016, but still leaves a sizeable gap for governments to step in and incentivize investment in climate tech that aligns with long-term climate and societal goals.

The paper’s team of researchers investigated 6,996 climate-tech startups from North America, Europe and Israel that were founded between 2005 and 2021. They also looked at 9,749 investors who participated in 33,698 investment deals.

The team found that corporate investment is most active when technologies are close to market deployment and that this investment in climate-tech startups is highly concentrated, with a few large corporations like Shell, Alphabet and Samsung playing an outsize role. Between 2016 and 2021, each invested in over 25 climate-tech startups. A handful of companies, including Amazon, Ford and Alphabet, each invested over $1 billion.

Investments were also concentrated in certain technologies. For example, fuel cell and hydrogen technologies received a much higher percentage of corporate investment than marine and hydropower, nuclear and biomass generations. These sectors also receive little funding from other private sources, suggesting that public investment may be necessary.

The research team's policy recommendations include:

• Using data-driven insights on corporate climate-tech investments and their outcomes to anticipate technological change and identify policy and regulatory gaps.
• Incentivizing investments that support long-term climate solutions.
• Identifying opportunities for corporate and private investment in key technologies and infrastructure. This would help policymakers balance the portfolio of technologies needed for decarbonization.

Edwards, Surana and their team see this paper as a first step in understanding the relationship between corporate investors and climate-tech startups and eventually inform policy that can benefit the climate and society.

"We will need a whole host of new technologies to transition to a net-zero or net-negative emissions economy. Many innovations are currently in development but not yet mature," said Edwards, who holds a joint position in UW’s Nelson Institute Center for Sustainability and the Global Environment. "Finding the right mix of corporate, private and public investments will be critical to getting these technologies to market quickly and encouraging new innovations."