Latest news with #climateinvesting
Forbes
21 hours ago
- Business
- Forbes
What Are Climate Investors Saying About The State Of The Industry?
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.
Forbes
16-05-2025
- Business
- Forbes
Three Key Lessons From Warren Buffett That Climate Investors Must Learn
Words to live by The news of Warren Buffett's impending retirement has led to a flood of writings about his accomplishments and failings (yes, there have been a few), as the Oracle of Omaha holds a strong place in the hearts of many investors out there. Many over the years have looked for inspiration in his writings and actions as one of the most successful investors of our lifetime. Buffett, a figure synonymous with long-term value and business fundamentals, might not be the first name that comes to mind when we think about climate investing. After all, he's been famously cautious—some would say skeptical—about renewable energy and electric vehicles. But scratch the surface, and Buffett's approach offers three key lessons that every climate-focused investor should take seriously. These principles may not scream 'invest into breakthroughs', but they whisper something more powerful: business fundamentals, and durability. 1. 'Be fearful when others are greedy, and greedy when others are fearful.' This oft-quoted Buffettism is particularly relevant in the climate investing space, where capital has poured into and then run away from sectors like EVs, hydrogen, and carbon capture with dizzying speed. Consider what happened in 2021 and 2022: a frenzy of SPACs and public listings promised revolutionary green technology returns, only to see valuations collapse as companies failed to deliver profitability. A Buffett-minded investor likely would have held back from that SPAC wave — not because the technologies weren't promising, but because the exuberance outweighed the fundamentals. Today, as the climate investment landscape cools, policy headwinds catch headlines, and valuations deflate, the fearful are retreating or waiting on the sidelines. That's the moment a Buffett-style climate investor leans in. Not to chase the next hype cycle, but to identify businesses with proven cash flows, strong value propositions, and management teams who understand capital discipline. For instance, instead of the flashiest nuclear startup that won't generate revenues for a decade even if successful, a climate investor might look at companies building boring-but-essential water treatment solutions, or firms with a solid existing footprint in renewable project development and operations. These aren't the shiny new thing that business journalists like to write about, but they're more likely to survive — and thrive — over the medium and perhaps even the long term. 2. 'Our favorite holding period is forever.' In the climate world, short-termism can be lethal for investors. Political winds shift, hype cycles emerge and collapse, and exit windows can be very narrow. That's why Buffett's emphasis on owning companies, not just trading stocks, offers a powerful mindset shift. Buffett looks for durable competitive advantages — brands, cost structures, solid customer bases — that can stand the test of time. Climate investors should do the same. The temptation to jump in and out of the 'next big fast-growth market opportunity' is strong. But we've now all seen how quickly the latest hot sector can become an obvious 'dog' and then later on become hot all over again. As always, being early looks an awful lot like being wrong. Jumping in and out of sectors and companies may be intellectually stimulating, and perceived momentum is always a siren's song for investors. But long-term value is built when you partner with companies solving tough, systemic problems over years, not quarters. Take waste-to-value – a sector that rarely gets the buzz that solar or wind do. 'One man's trash is another man's treasure': Companies that get paid to take in waste and then also paid for what they produce from that waste often have long-term contracts, high recurring revenue, and a built-in advantage: they save customers money. That's an economic value proposition you can measure. Instead of chasing the 'next Tesla' bump, climate investors should channel Buffett by asking: will this company still matter 10 years from now? Does it have a strategy to adapt and compound value in an evolving policy and technology landscape? 3. 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.' Climate investors, like all investors, can fall into a trap: assuming that the execution potential of a particular company is either inherently unknowable or fixable, and so what really matters is the idea. But of course, there are a million patentable ways to turn a photon into a kilowatt-hour (for example). In the energy, food, water, waste and transportation sectors, what proof is there that the 'best idea' usually wins, commercially? No, in these huge, hard-to-change industries, superior execution is what wins. And of course, just like with houses or even personal relationships, 'fixer-uppers' are rarely turned into massive winners, at least within any single investor's holding period. Buffett's advice? Don't compromise on the quality of a company and management team just because you think they have a good idea. That wind turbine startup might have a really cool new design that appeals to your 'inner engineer', but if its margins are slim, its technology unproven, and its management team inexperienced, even the most amazing new way to turn wind into power won't deliver shareholder value. Instead, climate investors should look for businesses with already-exhibited operational excellence. Even at a pre-revenue stage, for those who want to tackle angel or venture capital investments into 'hard tech', you can find early evidence (or the lack thereof) of the ability to hit promised milestones, deliver clear investor updates that aren't obvious spin, and prior commercial success at other companies. Yes, the fixer upper will be a lot cheaper to invest into than the company with clear signs of existing strong execution capabilities. Obvious advantages are obvious to all observers, so the companies with obvious advantages do get bid up. Yet, Buffett has long said that time is the friend of the wonderful company and the enemy of the mediocre. Climate investors must be similarly discerning. Pick the right businesses and management teams, even if they aren't the cheapest to back. In the end, the climate crisis demands urgency. But climate investing demands patience and a consistent focus on what's real. Buffett's principles weren't written with the climate in mind, but they're precisely what climate investors need: discipline in a market full of noise, a focus on fundamentals over fashion, and a belief that true value takes time. While it's still a smart bet in my personal opinion that the global investment megatrend around massive shifts toward environmental sustainability – doing more with fewer natural resources – is real and magnificent, let's not forget that investing is still about owning great businesses. And great businesses, as Buffett reminds us, are built to last, not to shine brightly like a shooting star. After all, shooting stars shine so brightly because they are in the process of burning up.
