More than 90% of the global economy has committed to net zero and there is increasing action on nature and biodiversity. The transition towards these goals is happening at a pace that was unimaginable only a few years ago.

Getting there requires solutions – new breakthrough technologies and innovations in many of the industry supply chains that currently deliver the products and services humans need to live their lives.

It also requires a reorientation of finance toward the projects and ideas we need to solve the existential challenge of our lifetimes. This is the biggest disruption of the global economy since the industrial revolution and by far the largest opportunity on offer for capital markets.

For Australia’s venture capital sector, it is also a wakeup call. Net Zero is redefining competitiveness and access to markets. It is throwing up risks but increasing the focus on opportunities. Success demands real engagement and an ability and willingness to finance innovation is a critical piece of the puzzle.

The world has shifted and the race is on

Australia is trailing other developed markets in the size of climate tech venture capital investment relative to both size of the economy (GDP) and emissions. If we want to emerge stronger and more prosperous in the net zero future economy that needs to change.

The past two years have been challenging for the venture capital sector globally, with the war in Ukraine and high inflation causing a significant dip in investment across Europe, North America, Asia and beyond.

But a more exciting story has been playing out alongside these short-term factors. While late-stage ‘megadeals’ are harder to come by, early-stage funding has been more resilient. And while other sectors across the early-stage spectrum have been suffering a significant downturn, global investment in climate and nature technologies has been booming.

So why have these areas been the exceptions?

In Europe, climate change solutions that leverage technology have been earmarked as a priority and considerable effort has been put into creating a favourable regulatory environment for companies to develop and commercialise these creative solutions.

In the past 12 months alone we’ve seen Swedish start-up H2 Green Steel raise €3.45bn. In Australia – a larger national economy with considerable natural advantages when it comes to green steel manufacturing – it can be hard to imagine that level of investment right now.

It’s not just in Europe where conditions have been nurtured to encourage investment in climate and nature solutions. The United States has dramatically refashioned the competitive landscape with its Inflation Reduction Act, which has already been successful in accelerating investments in climate innovation.

The climate and nature transition is driven by technology

Through our global advisory and investment work, Pollination has a ‘front row’ view across industry sectors and we see the investment that these companies are attracting from the global venture capital industry.

Global climate tech investment is booming and now represents almost 20% of all global tech funding, a number that has doubled in the past three years. The transition imperative is the focus of short and long-term corporate capital investment and is driving merger and acquisition activity. Increasing demand for electric vehicles is driving a boom in mobility solutions and gigafactories, industrial processes require solutions such as green hydrogen and carbon capture technologies, and environmental solutions in goods and services markets are experiencing tremendous growth.

According to a recent report on the State of Climate Tech by Net Zero Insights, $82bn was raised by climate tech companies in Europe and North America in 2022, a 19% increase over the previous year. Almost half of this capital was invested in energy-related ventures, where batteries, hydrogen, and solar are the most funded technologies. Funding for carbon capture technologies and emissions tracking solutions has also skyrocketed, with the emissions control, reporting, and offsetting sector growing by 479% over the prior year.

Australia’s time to act is now

Australia holds natural advantages in the highest value sectors and we have vast potential to make a global impact. Whether it is reserves of critical minerals, access to bountiful solar and wind energy, a sophisticated research and development sector or established trade relationships with nations such as the US, South Korea and Japan, Australia can consider itself well positioned.

However, we urgently need to address the local tailwinds, including changes in government policy and regulations, to meet the rising corporate focus on decarbonisation and growing interest in climate tech linked skills and careers. These factors, combined with the boom in investment from the US and Europe, mean that out-of-date approaches to assessing risk and opportunity need to be quickly recalibrated. Australia’s venture capital sector needs to reset from the narrow focus on conventional SaaS applications over the last decade, to embrace climate solutions that can be sold to the world.

There is no shortage of ingenuity in Australia, or an ability to generate bright ideas, however securing a long-term competitive advantage and the investment returns that come with it requires investors and financiers to take a leadership position in backing the climate solutions that will deliver on our global net zero goals.

Our early-stage ecosystem is building and has vast unrealised potential when it comes to delivering breakthrough climate and nature solutions. Despite this, we need a step change for Australia to capitalise on our competitive advantages.

Australia has one of the highest rates of start-up establishment in the world but financing for climate and tech has proven a tough nut to crack. found that 40% of Australian founders had taken no external funding at all to launch their startup while more than 25% were funded exclusively by family and friends.

Whether it is software to calculate the state of natural environments, or feedstocks meeting increasing consumer demand for low-emissions beef, Australian climate and nature tech startups are already working on the new technologies that will be applied to next-to-abate sectors, and aiming to deploy ‘first of their kind’ pilots ahead of scale-up and global adoption.

Such opportunities are often difficult to fund due to the conservatism of local capital markets, an incomplete understanding of the risk profile and adoption trajectory of these technologies, and the capital required to commercialise at scale.

It’s time for Australian investors to reframe their approach to funding the development of these technologies and solutions, rather than cede the economic benefits to others as has happened too often in the past, notably for solar panel technology.

How will Australia succeed?

How can we activate the local venture capital sector to achieve the same focus and technology step changes we are seeing elsewhere?

Further public sector measure via industry policy, incentives and regulatory changes,  as seen in Europe and the US. This will support an increase in capital allocation to sustainable strategies consistent with a growing trend toward the diversification of asset classes.

Beyond that, there is a clear need for greater connection between finance and deep sectoral expertise; venture capital investors that with true sector insights and an ability to diligence the dynamically changing whole-of-environment opportunity, rather than relying on outdated or incomplete assessments of risk versus opportunity.

Pollination was founded with the conviction that delivering climate and nature impact at scale requires connectivity between all of the stakeholders and factors that are being applied to the net zero mission. Pollination has grown to a team of more than 200 engaging with clients and investment opportunities all over the world. Our advisory, project development and investments businesses work collaboratively to identify opportunities, solve problems across the value chain and develop partnerships to connect new ideas, products and technologies with the customers who need them.

Our advisory business is currently engaged with large corporates developing strategies and execution pathways for waste management, high-quality carbon removals, technologies that support industrial decarbonisation, and qualified sustainable materials (such as feedstock, bio-materials and alternative chemistries.

The climate transition is underpinned by the emergence and adoption of new breakthrough technologies, which means that the venture capital sector is a vital component of our collective success in reaching a net zero and nature positive future.

Pollination’s early-stage investment team works hard to understand the larger efforts underway from corporates and governments on decarbonisation and sustainability and how these drive the requirements and demand for solutions across industry sectors. We invest where we find and can deliver real market connectivity in high-impact use cases, with high-value scale customers. Over the last two years we have invested in early-stage companies developing innovations in renewable energy, energy storage, waste conversion and low-emissions animal feed.

We believe that the Australian early-stage climate and nature sector currently represents a compelling opportunity for investors, where sector specialists such as Pollination can bridge these needs and opportunities across sectors, harness Australia’s natural advantages and tap into our inherent passion for innovation.

That’s the kind of catalytic collaboration we need more of, and it can’t come fast enough.