What Are Climate Investors Saying About The State Of The Industry?

Forbes

11 hours ago

You don't need a weatherman to know which way the wind blows
It's probably safe to say that 2025 has been an interesting year for climate investors everywhere. Especially in the United States. In many ways, we haven't seen the sector face these kinds of headwinds – energy policy, trade policy, macroeconomic uncertainty – in many years.
The good folks at CTVC recently released a poll of around 100 climate investors (predominantly venture capitalists and private equity investors), which was quite illuminating. It provides a snapshot of a sector that is still trying to grapple with the challenges.
Here are some insights I took away from the survey results:
1. The real pain hasn't been truly felt yet
A plurality of those surveyed expect more bankruptcies in the sector, even among companies with strong underlying fundamentals. This reflects how difficult it is right now to raise capital for cash-burning companies in the sector – which is pretty much most venture-backed startups, by design.
What I hear in talking with my investor peers out there is that many of them are 'pencils down' for the moment. They are tending to their existing portfolios and husbanding their capital reserves. Partly this may reflect a desire to have dry powder for when the market stabilizes and bargains will be available. But mostly it seems to indicate that VC/PE investors expect 2025 to be a really tough market for raising new capital into their own funds; plus they see their existing investments having a rough time of it, and so they don't want to spend what capital they have left on new bets.
Of course, the vicious cycle of this is that when investors aren't writing new checks, they don't support any growing valuations and acquisitions of other investors' portfolio companies, which then means further reduced exit activity and lower valuations across the sector. And one of the factors that has held back fundraising for all PE/VC sectors recently has been institutional investors' frustrations at the lack of liquidity and returns, because of the lack of exits. And that was before this climate sectoral downturn.
On the plus side, for the few firms out there still writing checks into new investments, they have their pick of the litter right now.
2. That said, the root causes of the pain probably start to fade in 2H25
Those surveyed pointed to policy uncertainty as by far the most meaningful headwind right now.
A lot of this is tied up in the US federal governments' efforts to roll back key provisions of the Inflation Reduction Act. The target date for passage of the major rollback bill is the Fourth of July. While no one expects that target date to realistically be met, I am hearing from policymakers that they do think it'll have to pass in some form before the end of the summer.
Whether it's good news or bad news, at least it will then be crystalized and investors and entrepreneurs will be able to react accordingly. Right now it's simply the uncertainty that's a killer for investor appetites.
To be clear, these next three and a half years will almost certainly see continued significant uncertainty and political attacks on renewables and climate solutions. That's what happened eight years ago, so we can expect it this time soon. But what also happened eight years ago was that investments into climate solutions actually grew anyway. The macro theses around climate solutions and adoption of new technologies by huge markets (energy, food, water, waste, transportation) aren't going away. So as soon as this period of acute uncertainty fades back into a dull roar upon final passage of the major federal bill, we can expect check-writing to become more active again.
I wrote about this a couple of months ago, and while the attacks on renewables and climate solutions have been even more vindictive and effective than I initially expected, I still personally expect to see dealmaking activity come back in force by year-end.
3. The 'Missing Middle' is still… missing
After last year's New York Climate Week, I wrote about how everyone was talking about 'The Missing Middle' – while still managing to disagree about what it actually meant. For some it meant Series B/Cs, for some it mean first-of-a-kind (FOAK) project finance, and for yet others like myself it means the true bridge between FOAKs and when mainstream infrastructure is prepared to back a new project developer and their new solution, and carry them into the broader market at scale.
Regardless of which definition investors favor, they're all still very much pain points, according to this survey.
And now the team at CTVC have taken it one step further, identifying what they describe as a 'missing middle within the missing middle', for projects that cost somewhere between $45-100M. This makes sense, because below that level it's more feasible for early project deployments to be funded by some combination of venture / growth capital and non-dilutive capital, and above $100M even an early stage project can at least fit the preferred check size of larger infrastructure and PE firms.
The fact remains that there are just simply too few investors with both the appetite and the know-how needed to effectively partner with less-mature project developers on distributed infrastructure projects. It's a multidisciplinary challenge requiring a mix of skillsets that few investment firms have, and an awkward deal size.
And so I don't personally expect this market gap to be sufficiently filled anytime soon, even if the overall conditions for the sector do improve. As an industry, we just simply need more firms that know how to do this.
4. Is now the time to be a contrarian?
Notably, despite the negative headwinds especially hitting the renewables subsector right now, that was still the most popular area for the investors surveyed. Why? Because that's what has always been the most popular area, I suppose.
But there are very interesting yet less-favored areas like waste-to-value, climate adaptation and resilience, and yes even transportation. And the underlying fundamentals for those subsectors remain strong.
For example, while the IRA rollback effort will inevitably mean a significant reduction in U.S. federal support for electric vehicles, nevertheless the adoption of EVs continued in Q1 even despite a terrible quarter for the U.S.'s leading brand (Tesla). Despite all the negative headlines, the electrification of transportation is still happening – quite often for simple economic reasons, not 'green' ones.
So is now the time to be a contrarian investor and to target those less-favored opportunities where the long term shifts remain quite clear? To take advantage of the timidity of more headlines-influenced investors and to step in before the subsectoral rebounds become obvious to all? It would take a bold VC or private equity investor to purposefully take such a stance. But the survey results do suggest it's an available strategy, at least.
Overall, as we near the halfway point of 2025, it's been one of the toughest half-years for U.S. climate investors and their portfolios that I can remember in my career. And most of this is unnecessary self-inflicted harm. There will absolutely end up being long-term, tragic damage done to the U.S. economy because of what we are seeing here in 2025.
But there are also signs of resilience, and some hope that there will be new green shoots of growth later in the year.