These are the biggest trends in clean tech in 2021, investors say

Eighteen years ago, Andrew Beebe was on the other side of the table.

In the 2000s, during the “clean tech 1.0” boom, he was a cofounder raising money for his startup, Energy Innovations, a company developing solar panels. The business was sold to Suntech in 2008.

Beebe has since begun funding such startups himself, as a managing director at early stage firm Obvious Ventures. And while the clean-tech space is booming once more, the mood, Beebe says, is different.

“Back then, I would say we were trying to push a certain type of future we wanted to see: a cleaner future, a greener future,” Beebe tells Fortune. “And now there’s more of a pull.”

In 2021, that pull of customer and investor demand is coming from all sides—including, in the U.S., from a new administration.

Newly elected President Joe Biden has unveiled a slew of climate-related actions in his first few weeks in office, including having the United States rejoin the Paris Agreement and proposing net-zero carbon emissions policies. And Biden is taking these actions at a time when there’s much greater consensus in the private sector about the importance of shrinking industry’s carbon footprint.

“Clearly, the former administration’s policies were not quite as climate friendly as President Biden is intending to be,” says Edmund Shing, chief investment officer at BNP Paribas Wealth Management. “Governments are accelerating the push [by the private sector]—they’re pushing on an already opened door.”

The coronavirus pandemic, meanwhile, has forced the world to slow down—grounding planes and cars and cutting greenhouse gas emissions, according to some estimates, by 7% last year. That phenomenon was also expected to reduce total global energy investment (which includes the beleaguered oil and gas industries) in 2020, but leave clean energy investment somewhat resilient, according to International Energy Agency estimates in a May report.

Although emissions ticked lower under lockdowns, the experience showed that the world would need much bigger interventions to bend the curve on climate change. “You can’t reduce carbon emissions simply by doing less,” says Leon Saunders Calvert, head of research and portfolio management at London Stock Exchange Group and leader of Refinitiv’s sustainable investing research business. “We’ve learned a very important lesson, which is what you require is more technology, not less; more capital, not less; and mass mobilization of that capital toward decarbonization outcomes.”

With the many tailwinds propelling clean tech, Fortune asked climate investors what predictions they have for the space this year—including the hottest areas to invest in and the impact of accelerating corporate maneuvers to go green.

Climate goes full-on corporate

There has long been pressure on companies—from policymakers, investors, consumers, and many others—to adopt ESG and net-zero goals. But in the year ahead, climate investors expect to see a climbing number of companies committing to do their part.

One “phenomenon you want to look at in 2021…[is] large companies at the senior levels and within the middle of the company coming into this space with earnestness—not about just trying to look good, but actually serious about doing good business in this space. We’re seeing a lot of that,” says Carmichael Roberts, business lead of the investment committee at Breakthrough Energy Ventures (BEV), a climate-focused VC firm backed by investors including billionaire tech-industry founders like Jeff Bezos, Bill Gates, and Jack Ma. (Gates founded BEV in 2016 and chairs its board.)

In recent weeks, industry titans have been proving Roberts’s point. General Motors announced it will make its fleet 100% electric by 2035, for example, while Toyota said it will introduce three new electric cars in 2021. Climate investors say they expect such announcements will likely become more frequent from here on out.

“The fact that [GM] made such a firm and specific commitment I think is going to be looked at as a major turning point,” argues Obvious’s Beebe.

That’s not to say embracing cleaner energy is entirely a moral decision for companies. What’s happening now, argues Refinitiv’s Calvert, is comparable to companies deciding whether they want to be a Blockbuster or a Netflix. “The disruption of the economy is just going to go low-carbon,” he says. “You have to be on that journey, otherwise you will be in an antiquated business model which won’t survive.”

That’s increasingly true of Big Oil, too. Though some players in Europe have made progress, U.S. majors like Exxon Mobil still lag in their sluggish moves toward lowering emissions, even as investor and government pressures heat up. But according to BEV, having such companies involved in what climate firms are doing is key.

“We’re absolutely talking to those people, we talk to them all the time,” says BEV’s technical lead, Eric Toone. Toone believes the interplay between clean-tech firms and companies and the Big Oil players will be “critically important, because those are some of the only people on earth that understand how you build things at scale,” he notes.

Companies of all kinds—and not just in the energy industry—are also starting to face more financial pressure to focus on climate and carbon reduction. Calvert reckons this year banks “will genuinely start to factor the cost of carbon into who they decide to lend to and under what terms you can [get] money,” he tells Fortune. “You might not be excluded from financing, but your terms are going to be a lot worse unless you have a very clear transition plan. We’ve seen signs of that previously, but I think this year that will start to become very, very material.”

The hot list: Hydrogen, mobility, agriculture

As climate investors will tell you, there’s now a cornucopia of areas where companies are working to improve the planet. As many of these burgeoning industries gain traction, investors highlight a few hot sectors that should only get bigger in the coming years.

Beebe believes an “industry to watch is automotive and mobility, transportation in general.” That’s not just electric vehicles à la Tesla. Beebe argues that innovations in planes, trucking, and even marine craft “are going to be big.” It’s “blatantly obvious,” says Beebe, but “we’re going to see a continued, if not accelerated, wholesale transformation to electrification.”

Elsewhere, hydrogen is increasingly attracting venture dollars, not only for use in transportation but as chemical energy for industry. BEV in particular is spending “a bunch of time focusing on very low-cost production of zero-carbon hydrogen” and is looking farther out into the future for solutions to how it will be better transported and stored, says Toone. (BEV just led an $11.5 million funding round for C-Zero, a company focused on converting natural gas to clean hydrogen.)

Greening up agriculture, meanwhile, continues to be high on the list for many investors. Lila Preston, partner and cohead of growth equity at Generation Investment Management (the firm founded by former Vice President Al Gore), says she is looking at climate-friendly technologies across the agriculture ecosystem. Examples include soil quality improvement and even companies making nutritional fungi protein to shift people’s diets away from dairy and animals. (One company in the fungi space that both Generation and BEV are in on: Nature’s Fynd). BEV, meanwhile, is funding companies working to replace synthetic fertilizer with cleaner nitrogen alternatives.

Even the ways companies track their own carbon footprint are piquing VC interest. Companies from “Unilever to Exxon Mobil to a cattle company to Sephora [are] all working on greening their businesses and their supply chains,” Beebe points out. That’s why he’s enthusiastic about carbon accounting and carbon management for enterprise. “That’s a space on the early stage side that I would say is going to get a real spotlight shone on it this year,” predicts Beebe.

‘Green,’ but not inexperienced

A common thread among many of the conversations Fortune had with venture capitalists and strategists: Investors are seeing droves of entrepreneurs (and, often, very experienced ones) continuing to flood into the climate space.

Beebe, having been a climate entrepreneur himself in the noughties, jokes deprecatingly that the “quality” of clean-tech entrepreneurs in the 2020s “has improved—at least in my case.” Generation’s Preston, meanwhile, notes that many of her portfolio companies’ CEOs are now “second- or third-time entrepreneurs” and that she’s seen a “maturation” in management teams of late compared with when she started investing on the private side back in 2008.

BEV’s Roberts notes one thing he thinks “will happen this year is you’re going to see an abundance” of entrepreneurs coming into the climate space. “It’s already happening, and I think we’re at the tip of the iceberg.” Roberts points to examples like JB Straubel, the Tesla cofounder and former CTO who left to focus on Redwood Materials, a recycling company he cofounded in 2017. “People like that [are] coming out of different companies, some of whom are not in this industry at all,” notes Roberts. He says increasingly (and over the past 18 months), BEV is fielding “calls from people just saying, ‘Hey, I’m looking at what’s next; I want to do something in climate.’”

Even with the abundance of talent and cash flowing into the space, investors are realistic about where we stand in 2021 on the journey toward net zero.

“If you look at any of the emissions trajectory pathways, it’s the ‘bend it like Beckham’ moment—you have to get that curve down very fast,” says Generation’s Preston. “All opportunities need to be on the table.”

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