Whither climate tech? What is the future of the sustainability sector in a changed market environment?
A lot has changed since then, and 2022 proved to be the peak for startups and fundraising in this sector. Real or perceived pushback from the electorate on the cost of climate policies led to many politicians on both sides of the Atlantic rolling back on their carbon reduction plans. While the IRA remains in place, the new administration in the U.S. has doubled down on energy production from fossil fuels and signaled clearly to the private sector that environmental concerns are secondary to maximizing returns to shareholders.
Climate tech investment experienced a significant downturn in 2024, with fundraising falling for its third consecutive year to $51 billion across 1,200 deals, and AI being the undisputed priority for all deals. Many VCs even jettisoned sustainability, thinking it had become a politically charged term with potentially negative connotations. It became a horizontal, and not a vertical, and where they focused on the application (energy, infrastructure, etc.) rather than listing it as a standalone or just bundled into 'future tech' or another bucket.
So, where does the climate sector stand in 2025? Will it wither on the vine or are there green shoots that will continue to grow resiliently even in a more challenging climate?
FOCUS ON THE APPLICATION
On closer examination, the outlook for the sustainability sector is more mixed than it may appear. In 2024, there was a 36% decline in investment in green mobility companies while startups focused on industrial decarbonization in areas such as cement, steel, and sustainable infrastructure dropped 29%. However, green energy continues to grow with a 12% increase and several large rounds, including Intersect Power, who raised more than $800m to deliver clean energy projects for data centers and address the insatiable energy demands of data centers.
Overall, while the number of deals decreased, the average value size rose by 14% to $28m. This suggests both maturity in the sector and a flight to quality now that the market environment is more challenging. Fresh, new ideas at startups may struggle to attract attention, but proven market-ready and revenue-generating companies will still be able to raise funds. Across clean energy and storage, battery technology, agrifood and regenerative agriculture, circular economy, and climate fintech, there are examples of companies that continue to scale and thrive in the U.S.
It's also worth remembering that despite the rollback at the federal level, environmental protection rules remain at many state and local levels in the U.S., and many large corporates remain committed to ESG goals, so the demand for innovative solutions to help address the climate crisis remains.
FIND THE FERTILE SOIL
While many sustainability companies continue to thrive in the U.S., many are assessing the changes in the political and funding climates, and diversifying their efforts to include locations where their ideas may find a more receptive audience.
It's too soon to provide data behind the shift in 2025, but anecdotally, I'm being told by founders in the sustainability space that they will 'follow the science' and refocus their efforts on markets where funding and a commitment from government feels more secure. Cities across Europe are aware of this trend and are working hard to lure these companies, and the innovation and jobs that come with them, away from the U.S.
There is a clear value proposition. Using London and the UK as an example, fundraising in climate tech bucked the global trend and grew by 24% in 2024 to £2.4bn, according to figures from PWC. Notable examples include London-based CIRTEC (waste-to-fuel and circular chemicals) which raised €150m, and Notpla (sustainable packing) which raised $20m and launched on the NASDAQ. This has attracted the attention of U.S. VCs such as TDK Ventures, who opened a London office to tap into the innovation taking place in sustainability.
Similarly, U.S. innovators, including the Denver-based energy-as-a-service unicorn Redaptive, opened a location in London in 2024 while the climate tech accelerator London GreenCity recently launched in Fulham, offering a home to world-changing scale-ups from around the world.
The London Growth Plan launched in March 2025 and outlined its vision for growing London's economy for the next ten years, and frontier innovation in sustainability is a key priority. The plan states in a bold mission statement that 'by embedding climate action at the heart of our growth priorities, we can not only help tackle the climate and ecological emergency, but also create thousands of new jobs, cement London's position as a global leader in sustainability, and attract investment in the industries of the future.'
The message is clear: Being good to the environment is good for business. London also remains committed to its goal of being carbon neutral net zero by 2030. The city also needs to take advantage of innovation from around the world to achieve this.
2022 may have been a peak for fundraising in the sustainability startups, but the sector has matured since then and continues to thrive in both the U.S. and in Europe. Cities that position themselves as welcoming homes for climate tech will reap the benefits of the innovation and high-value jobs it creates, while also doing what's right for the planet in addressing the climate crisis.
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