Private Capital and the Climate Opportunity

Background: This article by BCG investigates the rising trend of climate & sustainability investing among PEs and VCs in Europe. The main drivers according to BCG are regulatory tailwinds (e.g. exemplified by the EU Green Deal and Green Deal Industrial Plan) and enormous unmet demand for the accelerated deployment of capital and climate solutions towards a net zero economy. Given the potential for significant financial and environmental rewards, the article argues that it is time for PE and VC firms to actively support companies that develop and scale climate solutions. Succeeding in this space requires investors to develop a deep understanding of upside potentials and downside risks, hence the need for a strategic approach based on a taxonomy of climate solution sectors and an analysis of the market attractiveness and technological readiness of sub-sectors.

Vidia Takeaway: Focusing its investment strategy on proven climate solution technologies and their respective value chains, Vidia is particularly interested in climate solutions with moderate to high technological readiness and moderate to high market attractiveness. We largely agree with BCG’s assessment of sub-sectors as either “maturing” or in “early adoption”, although we would argue that company-specific factors may supersede sector classifications.  Nevertheless, the taxonomy and the market-technology matrix represent useful tools for a high-level prioritization.

Source: “Private Capital and the Climate Opportunity in Europe”, BCG, 2023