Israel rallies its tech industry to help curb climate change

December 10, 2021, 2:00 PM UTC

When Microsoft cofounder Bill Gates met with Prime Minister Naftali Bennett of Israel on the sidelines of the Glasgow Climate Summit in November, they had a clear message to Israeli entrepreneurs: Climate change should be on their radar.

Gates, dressed in a dark jacket over a blue sweater and white shirt, said Israel is known for its innovation, “but not so much” in the climate tech arena. 

“Given the talent that you have and what we have seen in the digital space, how do we unleash more of that?” he asked Bennett at the meeting, which was captured on video. “So, I’d love to take that R&D innovation push and figure out where Israel can partner with us.”

“Israel is known as the startup nation,” Bennett told Gates during their meeting, “and I think that it’s time we pivot and channel our national energy—which is the energy of the people, the brainpower—to fighting climate change. We’re going to take this as a national mission.”

Indeed, Bennett’s new government, which took the reins in June, is signaling a new urgency for Israel on climate change and the development of climate technologies. For one, officials spelled out a new climate agenda, after previous governments traditionally sidelined environmental issues because of a lack of interest and awareness. 

Climate technologies and climate change were “not a national priority” for Israel until now, and “there was a lack of awareness regarding the urgency of climate issues,” said professor Yoav Yair, dean of the School of Sustainability at Reichman University. “Cybersecurity and fintech, for example, are faster to market, have a quicker return on investment, and the markets were larger. But that was shortsightedness because the climate tech market is huge.”

This lack of prioritization has been matched by the tech industry, which typically seeks quick returns and shuns fields that require patience, huge investments, and are deemed high-risk—leaving out climate innovation as a result.

Now Bennett’s government is looking to Israel’s thriving tech ecosystem to help fix the nation’s dismal failure to meet climate targets, meet newly set zero-emission goals by 2050, and on the way strive to make the world a better place to live.  

A dual agenda

“We are trying to build a double bottom-line profit here,” said Ari Siegmann, a director of business development at the Israel Innovation Authority, in charge of fostering the nation’s tech ecosystem and setting out its innovation policies.

“On one hand, we want to develop the climate tech sector as a fruitful ecosystem which can provide global solutions to climate challenges, and on the other hand we want these technologies to be implemented in Israel and directly influence our ability to bridge the gap and to meet our targets,” Siegmann said.

This is a “very new” push by the new government, Siegmann said, and is “still a work in progress.”

In a flurry of activity in October, ahead of the Glasgow Climate Summit, Israel’s government, led by Bennett, passed a new environmental agenda for the nation that also envisages encouraging the creation of technologies to help reduce greenhouse gas emissions and prepare for climate change.

Bennett also declared the tackling of climate change as a new national security interest of Israel and passed a number of resolutions as part of a “100 Action Items” plan set out by the Environmental Protection Ministry, earmarking some NIS 15.5 billion ($5 billion) in new and old money to get initiatives off the ground. Israel also pledged to be carbon neutral by 2050, compared to a previous target of reducing greenhouse gas emissions 85% by that time, and of 30% by 2030, compared with the 2015 level.

Israeli environmentalists welcomed the government’s direction shift, but noted implementation and actions will be key to real change.

The world has about a decade to halve global greenhouse gas emissions and avoid global warming of above 1.5°C, a measure beyond which scientists warn will trigger dangerous consequences. Technology is seen globally as a key to helping mitigate the climate crisis, but the field, which has seen a surge in investment in recent years, is still nascent, accounting for just 6% of global annual venture capital funding in 2019. And capital, albeit some 4,000% higher than in 2013, “remains thin, not bountiful,” according to the latest report on climate tech from PricewaterhouseCoopers (PwC).

The report, which represents a first-of-its-kind analysis on the state of global climate tech investing, says many technologies still await commercialization; others are in the lab while others still have not yet been conceptualized.

“Climate tech,” according to the PwC report, encompasses a wide set of fields that tackle the challenge of decarbonizing the global economy. These include helping cut emissions in energy, buildings, transportation, and heavy industry, while also improving food and land use efficiency, and carbon capture and storage.  

Investing in the climate crisis has not been the highest priority for many VCs globally and in Israel, said Jon Medved, the CEO and founder of OurCrowd, a venture capital platform based in Jerusalem and the most active investor in Israel according to PitchBook data.

Climate technologies are often deemed too high risk by both entrepreneurs and investors, Medved said. The sector involves “complicated customers,” generally governments, and a lot of regulation. The technologies are also extremely expensive to develop and need deep scientific skills, often coupled with hardware, and generally long development times. 

“Venture capitalists like companies that in just a few years can be worth billions, and that is not typical for climate companies,” Medved noted. 

Even so, Medved said, both globally and in Israel, interest in climate tech firms is on the rise, while not quite in the same realm as cybersecurity, artificial intelligence, or digital health.  

Medved said that just a small portion of OurCrowd’s investments is directly related to climate technologies, about 10 out of a portfolio of 300-plus companies that are located around the world. When you add food technologies, energy, and transportation to this mix, this number grows to several dozen companies, he said.

“We are really increasing our activities in this area. My team is hunting these deals quite actively and fighting to get in,” Medved said, referring to deals both in Israel and abroad. “There is a change: People realize how critical the world’s situation is, and it is super competitive.”

The PwC State of Climate Tech report identified the San Francisco Bay Area, Shanghai, Beijing, Boston, and Berlin as global hubs for climate innovation. Israel is not included in that list, and a new report, published in October by the nation’s state comptroller, shows that the field has been underfunded by governments in favor of other tech sectors.

Even so, an October report, Israel’s State of Climate Tech 2021, compiled by the Israel Innovation Authority and PLANETech, a nonprofit innovation community for climate change technologies in Israel, shows that since 2014 an ecosystem of such technologies has developed in Israel, and these will be ready to run once the appropriate obstacles are removed and funding comes in.

“There is a dissonance between what the government has allocated to the sector to what is happening on the ground actually,” said Uriel Klar of PLANETech. “An ecosystem has developed even with low government support, with entrepreneurs attaining private funding and going abroad to test and sell their technologies. What is needed is to bring attention and funding to these technologies.”

Lagging environmental record

Israel’s new environmental agenda comes as the state’s watchdog issued a damning report on the dismal state of the nation’s environmental policies and its failure to meet emission targets. The document shows how over the past decade Israel neglected climate issues by not properly budgeting for them or not implementing decisions made on the subject.

“Israel is unprepared for the climate crisis, and there has not yet been a change of perception in Israeli policies on the matter,” State Comptroller Matanyahu Englman said in October, as his office published a special report on the preparedness of Israel to deal with the climate crisis.

The audit found that per capita emissions in Israel are high compared to other countries, with Israel, which is the size of New Jersey, emitting greenhouse gases “at a magnitude similar to that of a medium-size state,” the report said. The nation is also botching climate targets: Its energy efficiency is 62% below its target for 2020 and the use of renewable energy as of the end of 2020 was just 6.1% of total energy production, a far cry from a 30% aim for 2030, which is even then among the lowest of OECD countries. Not meeting these targets and setting unambitious goals for lowering emissions have cost the economy a potential NIS 217 billion, the report said.

Israel also ranks “at the bottom of the ladder” compared with other OECD nations with regard to climate related technologies, the comptroller’s report said. The Israel Innovation Authority, in charge of setting out the nation’s tech policies, invested just 4% of its 2018 budget to promote energy, water, environment, and sustainability technologies, compared with 14% in the fields of software, 32% in health technologies, 11% for communication technologies, and 8% for robotics and automation technologies, the report showed.

Data presented in the comptroller’s report also showed that as of 2019, just 8% of all Israeli startups dealt with climate related technologies.

“Israel is late to the game because the previous governments of Prime Minister Benjamin Netanyahu did very little with respect to the environment,” said Reichman University’s professor Yair. “We didn’t prioritize environmental issues or technologies because there was a lack of awareness regarding their urgency.”

The head of the right-wing Likud party, Netanyahu served as prime minister of Israel from 2009 to 2021, when he was replaced by Bennett in June.

“We lost 10 years. We should have done this 10 years ago,” said Yair. “It is not too late, but it is an uphill battle, and we need to do this really fast. Being resilient and very agile and quick, I think we can catch up, especially now with the government setting out this 100-step plan, which is a good plan. But it will be tested by action, not words.”

We lost 10 years. We should have done this 10 years ago. It is not too late, but it is an uphill battle, and we need to do this really fast.

Professor Yoav Yair, dean of the School of Sustainability at Reichman University

The government’s new plan envisages setting up a task force that will focus on speeding up the development of new climate technologies and work to lift regulatory obstacles to the research and development and the application and assimilation of technologies that will help Israel cut greenhouse gas emissions and prepare for climate change. The prime minister’s office will also encourage investment in research and development of climate technologies, including promoting binational R&D funds, a government statement said. At the moment, it is too early to say what budgets will be given to the technology plan, the Innovation Authority’s Siegmann said.

Climate technologies are today high on the prime minister’s agenda and that of the Ministry of Environmental Protection, said Yuval Laster, director of policy and strategy at the ministry. The ministry will be looking to see how to allocate more budgets for innovation, he said in an interview.

The PLANETech report showed that some $280 million of government funds have gone to climate tech projects and startups between 2018 and 2020, showing that there has already been some effort made in this field in the past three years, which now hopefully will get an added impetus, said PLANETech’s Klar.

Israel’s tech industry, which as of the end of 2020 accounted for over 50% of the nation’s exports, not only chugged along during the pandemic, with workers quickly plugging in their laptops from their homes, but also blossomed, as shopping, schools, and business turned online, spurring demand for technologies and boosting sales and valuations of technology firms.

Israeli tech firms raised a record $17.8 billion in the first three quarters of the year—71% percent more than the amount raised in all of 2020, also a record year—according to data released by Israel’s IVC Research Center and the law firm Meitar.

Cleantech companies, including agri-tech, energy, environment, materials, and water technology firms, raised some $430 million in the first three quarters of 2021, compared with a total of $1.2 billion in 2020, according to data compiled by IVC Research Center. This compares with $313 million raised by these firms in 2016, the data showed.

Materials firms include those producing advanced chemical and bio materials, or which promote the use of raw, recycled, or recovered materials. Environmental firms are those developing eco-friendly technologies and processes, including for solid waste treatment and recycling, emissions monitoring and control, and technologies to prevent or reduce pollution, according to IVC’s definitions.

Among the largest deals, according to data compiled by IVC, was SolarEdge Technologies. The maker of inverters for solar energy systems, based in Herzliya, Israel, raised $550 million last year in a private offering of convertible senior notes to qualified institutional buyers. 

Aleph Farms, a maker of cultivated meat, raised $105 million from investors in July 2021.

Israel’s economy is forecast to grow some 7% this year, according to Finance Ministry projections, as the economy rapidly recovers from the crisis triggered by the coronavirus pandemic, after shrinking 2.4% in 2020. The main growth drivers are private spending and a recovery in exports, fueled by the nation’s high-tech sector.

Global tech giants, including Microsoft, Intel, Nvidia, Facebook, and Apple all have research and development centers in Israel, dealing with everything from chips to artificial intelligence and cybersecurity.

“I believe Israel can play a bigger role in climate than we have until now, and I predict Israel will lead in this area,” said OurCrowd’s Medved. “The world won’t be saved by Israel cutting its carbon emissions just a little bit more. That is not going to save the world. It can be saved if we create more and more companies that are playing an important role in solving the big challenges.”

Israel’s leadership in cybersecurity technologies may be an example of how leadership in climate tech can be replicated.

Some 20 years ago, Israel earmarked the cybersecurity industry as a key strategic field for the nation, with the government adopting resolutions to advance the nation’s capacity in cyberspace, setting up a dedicated agency to lay out strategies and promote capabilities and leadership in the field. Today Israel’s cybersecurity companies attract 41% of global cybersecurity investment, with one of every three cybersecurity unicorns in the world being Israeli, according to the Israel National Cyber Directorate 2021 report. Unicorns are privately held companies valued at over $1 billion.

“Israel is today a powerhouse in cybersecurity,” said Jonathan Aikhenbaum, Greenpeace Israel director. “I can’t even imagine how the world would look, if 15 to 20 years ago we had done the same thing for climate tech as what Israel did for cybersecurity. We could have significantly contributed to the subject.”

What the Israel Innovation Authority government is seeking to do now, explained director Siegmann, is to replicate this experience in climate tech.

“We want to shift or in parallel incentivize Israeli high-tech entrepreneurs to also deal with climate challenges,” Siegmann said. “They can use our already running ecosystem to also develop solutions for the climate sector.”

Israel is today a powerhouse in cybersecurity. I can’t even imagine how the world would look, if 15 to 20 years ago we had done the same thing for climate tech as what Israel did for cybersecurity.

Jonathan Aikhenbaum, Greenpeace Israel director

These efforts won’t be starting from scratch. Israel’s State of Climate Tech 2021 report, which maps an existing climate tech ecosystem and climate technologies in Israel, shows that there are some 1,200 companies, most of which are startups less than seven years old, that are currently dealing with climate technologies. These include the fields of smart agriculture, clean energy systems, smart mobility, alternative proteins, food waste, and green construction. 

The number of newly set up climate tech related startups jumped in 2014, and their share of all newly founded Israeli startups has increased each year, reaching 9% in 2020, the report showed.

The climate tech startups in Israel have received investments from over 560 investment groups, of which two-thirds are headquartered abroad. Between 2018 and 2020, total investments in climate tech reached $2.97 billion, growing at a compounded annual rate of 14%, the Israel’s State of Climate Tech 2021 report said. Initial data suggests that the total capital invested in climate tech startups during the first half of 2021 was nearly 40% more than the total amount invested during the previous three years, the report said.

To reach their potential, Israeli startups in the field need better access to capital to develop and grow their technologies; regulatory hurdles must be removed; and the companies must have the possibility to test out their technologies. They also need professional guidance and help in modeling their climate impact, the report said.

A key way to boost the local climate tech ecosystem, the authors said, is to create incentives and draw to Israel the attention of global climate-dedicated funds, like that of Amazon’s $2 billion Climate Pledge venture fund and Microsoft’s $1 billion Climate Innovation Fund, which are currently absent from playing on the local field.

“One of the things we’d like to accomplish is find a model in which the Israeli government can share the risk with those funds and incentivize them to come to Israel,” said the Israel Innovation Authority’s Siegmann.  

On Nov. 23, Danish VC firm Kompas announced a $160 million fund for U.S., European, and Israeli early-stage startups in the real estate and construction sectors that seek to reduce waste and CO2 emissions. 

In March, H2Pro, which is based in Caesarea, Israel, and seeks to make low-cost green hydrogen at scale, said it raised $22 million in funding from Microsoft founder Bill Gates, Hong Kong billionaire Li Ka-shing, Korean carmaker Hyundai, and Japan’s Sumitomo Corp. 

At the meeting in Glasgow with Israeli Prime Minister Bennett, Gates said he is “very excited” about the H2Pro company.

The steps taken by the Israeli government regarding targets, emissions, and earmarking clean technologies as a strategic market are in the right direction, said Amit Bracha, the executive director of environmental advocacy group Adam Teva V’Din, in an interview. But without legislation, regulation, and appropriate budgets, “all of these statements will remain on ice, and won’t oblige anyone to comply.”

It is essential for Israel to pass a climate law, he said, to legally anchor all of its decisions and create economic incentives and tax breaks for the adoption of green technologies by companies and the public. In addition, a dedicated environmental agency with a “climate czar” should be appointed to track coordination, implementation, and the meeting of targets, Bracha said.

In 2019, total global venture funding in climate technologies increased to $16.1 billion, a more than 3,750% increase from the $418 million venture funding for climate tech companies globally in 2013, the 2020 PwC report said. Total global venture capital funding in 2019 was $264 billion.

“Handling the climate crisis necessitates investment in research and development that is 100 times higher than what we invest in environmental technologies globally today,” said Yohay Carmel, a professor of civil and environmental engineering at Technion-Israel Institute of Technology.  

To meet the climate challenge, he said, “we need to take 100,000 scientists from across the globe, tell them to sit down and invent environmental technologies, and not leave until there is white smoke.”

Technologies alone won’t be enough, he said. They have to be coupled with a “mental, cognition change” as well as strict regulation and enforcement. 

This story is part of The Path to Zero, a series of special reports on how business can lead the fight against climate change. This quarter’s report highlights how governments and private industry are approaching the biggest challenges and opportunities in the sustainability space.

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