Climate Tech Update — Gaya Capital

Despite short-term challenges in funding, the long-term drivers for climate-tech remain robust. Over the past decade, 92% of the world's GDP has committed to Net Zero pledges, underscoring a global commitment to climate action. Additionally, the significant traction is evident with over 5,000 companies receiving approval from the Science Based Targets initiative (SBTI), indicating a growing emphasis from both the public and private sectors on planetary decarbonization. In 2023, climate-tech companies secured $51 billion in venture capital and private equity funding, a 12% decrease from 2022, but notably less severe than the 35% decline reported for startups overall. Despite challenges such as high interest rates and rising costs, the climate-tech sector managed to increase funding by 4% in 2022 compared to 2021. Deal activity saw a 15% decline in the number of deals completed in 2023 compared to the previous year, yet within climate-tech, there was a 26% growth in the number of active investors participating in two or more deals, indicating sustained interest and investment in the sector.

We note the following segments within Climate Tech that continue to attract funding:

Carbon Capture Sequestration (“CCS”)
Carbon Accounting Management Platforms (“Carbon SaaS”)
AI-Powered Recycling Robots

Carbon SaaS

Watershed raises 100MM Series C @ !.8BN

Feb. 2024: Watershed Technology, Inc., a software startup, recently completed a significant Series C fundraising round, securing $100 million. This financing has elevated the company's valuation to $1.8 billion, showcasing the increasing importance of carbon disclosure in today's business landscape.

Watershed specializes in aiding companies in tracking and mitigating their greenhouse gas emissions. One of their key metrics is "carbon under management," which currently stands at 479 million metric tons of carbon dioxide, nearly 1% of the global total. As the company expands its client base, this figure is expected to increase. However, the ultimate goal is to reduce this carbon footprint as companies adopt more sustainable practices.

The funding round was led by Greenoaks, an early investor and customer of Watershed, with participation from other notable firms like Sequoia Capital and Kleiner Perkins. This investment will fuel the expansion of Watershed's operations.

Over the past two decades, global standards for corporate carbon accounting have evolved, with the Greenhouse Gas Protocol serving as a foundational framework. Watershed has rapidly gained traction, attracting major clients such as leading banks and private equity firms. The company's workforce has doubled in size to 300 employees, with plans to reach 500 by the end of the year. Additionally, Watershed acquired VitalMetrics, an environmental data firm, to enhance its capabilities.

The ongoing appetite for investments in the Carbon SaaS space highlights the growing market demand with potential SEC Climate Disclosure Rules to be implemented. Although, we note the headwinds such as the entrance of large tech in Carbon and ESG SaaS. The most notable threat, in our opinion, is IBM’s acquisition of Envizi and recent collaboration with E&Y in 2022. Envizi, a provider of data and analytics software for environmental performance management, underscored the company's commitment to bolstering AI-powered solutions for sustainable operations and supply chains. By integrating Envizi with IBM's suite of AI-powered software, companies can optimize critical aspects of their operations, including asset management with IBM Maximo, supply chain visibility and responsible sourcing with IBM Sterling, and environmental impact assessment and planning with IBM Environmental Intelligence Suite.

We anticipate further consolidation in this space and convergence between Carbon and ESG SaaS. Case in point, Cority, a prominent global Environmental, Health, and Safety (EHS) software provider backed by Thoma Bravo, has been strategically acquiring Environmental, Social, and Governance (ESG) Software as a Service (SaaS) companies. In May 2023, Cority acquired Greenstone+, an organization dedicated to optimizing the collection, analysis, and dissemination of sustainability data through customizable workflows, user-friendly tools, and advisory services, serving over 75 clients across 106 countries and 15 industries from London and New York. Additionally, in 2022, Cority acquired Reporting 21, a sustainability-focused SaaS platform and consultancy based in Paris, previously known as Sirsa, with a track record of providing ESG performance solutions to over 150 clients worldwide, including major corporations like BlackRock, L’Oreal, Eurazeo, and UBS.

SLB | AKER Carbon

SLB acquires 80% stake in Aker Carbon

March 2024: SLB, formerly Schlumberger, has finalized a deal to acquire an 80% stake in Aker Carbon Capture Holding for $380 million, aimed at bolstering industrial decarbonization efforts. The collaboration between the two entities aims to expedite the integration of innovative early-stage technologies into the global market through a commercial platform.

Aker Carbon Capture is currently involved in the deployment of seven carbon capture plants. Notably, in the Netherlands, the company is nearing completion of the Just Catch 100 project at the Twence waste-to-energy facility. Aker Carbon Capture offers its Just Catch technology with capacities ranging from 40,000 to 400,000 tonnes of CO₂ per year, providing CO₂ in gas form with purity exceeding 99.9%, tailored to meet customer specifications.

The International Energy Agency (IEA) recognizes carbon capture, utilization, and sequestration (CCUS) as pivotal in the transition to net-zero emissions, projecting a need to capture over one gigatonne of CO2 annually by 2030, escalating to over six gigatonnes by 2050.

The agreement outlines provisions for SLB to potentially make further payments of up to $125 million over the next three years, contingent upon the business's performance. The investment will help accelerate the reduction of carbon capture costs, which often constitute a significant portion, ranging from 50-70%, of total capex in CCUS projects. Regulatory approvals are pending, with the transaction anticipated to be completed by the end of the second quarter of 2024.

AMAZON | Glacier Recycling Robots

AI-Powered Recycling Robots

March 2024: The Climate Pledge Fund of Amazon has recently made an investment in Glacier, a company specializing in AI and robotics aimed at assisting the recycling industry in striving for a waste-free world. Founded and spearheaded by Rebecca Hu and Areeb Malik, Glacier utilizes AI-driven robots to streamline the sorting of recyclable materials and gather up-to-the-minute data on recycling processes for both recycling firms and consumer brands.