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OVERVIEW
Mazarine conducted a survey to poll our network of climate/environmental-focused investors and professionals on their thoughts around decarbonization (i.e. NetZero, Carbon Neutrality, ‘decarb’, etc) vs. Climate Adaptation (i.e. dealing with the effects of a changed climate). The survey also included a question about which verticals in Climate Adaptation are of the highest interest.
Mazarine’s motivation to conduct this survey comes from our interest in understanding why so much financial capital goes into decarbonization, and how little is allocated to Climate Adaptation. On the surface, it’s apparent why, but we wanted to dig deeper. Mazarine will utilize the survey results to contribute to ongoing investor conversations around Climate Adaptation Tech, which Mazarine refers to as “CAT”.
DEFINITIONS Decarb generally refers to decarbonization, which includes technologies spanning 1) renewable energy, 2) energy efficiency, and 3) carbon sequestration, all with the purpose to help industry and society transition to a low-carbon world. When someone says ‘ClimateTech’, traditionally this is what they are referring to nowadays, including alternative meat, scooters. and circular fashion, which are part of this ‘transition to a low carbon’ world.
Climate Adaptation means dealing with a changed climate, which includes: 1) technologies that allow us to measure, monitor and see how the physical world is changing (e.g. IoT, earth observation, etc), 2) technologies that help us interpret and understand trends and risks in the physical world (e.g. AI, etc), and 3) technologies that affect change on the physical world by addressing climate-induced water risks (e.g. engineering, process innovations, etc)
RESPONSES
Question #1
How do you view decarbonization vs adaptation?
Summary: 82.8% of responses indicated that the two ‘sides’ of ClimateTech are of equal importance, a few responded that the ‘fight’ to slow global warming is over and we need to only focus on adaptation, and one responded that all efforts should be on decarb.
Some insightful responses included:
“Most venture funding (i.e. funding innovation) should go towards mitigation over adaption. However, significant funding will need to be invested in adaptation in the form of project/infrastructure finance, which is a different pool of capital and different risk-reward profile.”
“I think they're both important but not mutually exclusive. Adaptation is needed to address local communities' resilience while decarbonization can be conducted anywhere that the conditions are right. Both are needed but in different ways.”
What surprised us: No surprises actually, it’s normal that people conclude that ‘vitamins’ are of equal importance to ‘prescription medications; however, the flow of money tells opposite stories. In healthcare, treating sickness is more lucrative than preventing it, and in ClimateTech, preventing ‘climate change’ is more lucrative than ‘treating’ the symptoms and casualties. Nevertheless, responses told us that both are of equal importance.
Conclusion: Nearly everyone agrees that Climate Adaptation is just as important as Decarb, yet, the money is not flowing into decarb, meaning, there is a barrier. See PwC 2021 report on investment in ClimateTech here. Mazarine’s conclusion is that investors are interested in Climate Adaptation but the framing and taxonomy have to date not been clearly presented. Where are the deals? What are the plays? Mazarine is dedicated to bringing the Climate Adaptation investment opportunity into focus for our fellow impact investors.
Question #2
It's been said "If climate change was a shark, the shark's teeth would be water" Rank the following risks from '1' (most concerning to me) to '3' (least concerning to me). (*They are all equally problematic but which concerns YOU most?)
Summary: Almost 60% of responses indicated that they see water scarcity (drought/ aridification) as the area of biggest concern, with compromised water coming in second, and lastly, surprisingly was flooding.
What surprised us: The responses don't surprise us. People generally sense that, in general, humanity is somehow ‘running out’ of water, land, or natural resources. There is a finite amount of water on the planet, we can never ‘run out’; however, water supply (e.g. precipitation, ground, surface, etc) are becoming less reliable, plus, people live in places like Arizona that will unlikely ever have a sustainable supply of water to meet the needs of industry and society there. The facts point to too much water (flooding, sea level rise) being the biggest destroyer of lives and livelihoods going forward. Harmful algal blooms (a direct result of nutrient runoff and warmer atmospheric temps) may end up being the dark horse, rendering the source water of hundreds of millions of people toxic for any use.
Conclusion: Industry and society will have to adapt to all three (too much, too little, and compromised quality), but each will manifest itself differently around the world in localized ways.
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Question #3
In your opinion, why is decarbonization (eg: renewables, energy efficiency tech, carbon sequestration) more 'investable' than innovations that support adaptation (eg: technology used to monitor changes in climate, predict changes in climate, and mitigate the risks associated with a changed climate?)
Summary: More than 50% of the responses indicated that decarb is somehow more ‘tangible’ or ‘easier’ in some way, including straightforward metrics and a clearly defined taxonomy. Also many pointed to decarb as positive and proactive, whereas Climate Adaptation is seen as somehow defeatist.
Several insightful responses included:
“Decarbonization reads as more cutting-edge, perhaps because it is viewed as proactive whereas adaptation is viewed as retroactive and therefore not as impactful/high-priority.”
“ROI is much more difficult to measure/prove. Decarbonization produces tangible revenue streams (in terms of long-term energy savings from renewables, energy efficiency measures, etc.). Whereas the benefits of adaptation are measured in terms of lost / prevented damages, which are much more difficult to measure and monetize.”
“Investors (the global top 0.0001%) have an easier time seeing how decarbonization allows them (and humanity as they perceive it) to continue to live the way they do. It's akin to why pharmaceuticals are more investable than "live and eat healthy" community service work.”
“There’s no easy way for investors to understand the value proposition for putting capital into adaption.”
“It is intuitive that decarbonizing will have an impact on the warming of the planet (less GHG --> less warming). Everyone "gets it" and can connect how investing in new highly efficient solar panels will be a good thing for the planet. It is a complex web how adaptation plays into the climate picture, and harder to "feel good" about it as we are addressing the symptom, not the root cause. It is like we are accepting defeat.”
“Just like the war on drugs and the war on terrorism, the war on climate is a fight that has no compromise, therefore no one is willing to announce the unfortunate conclusion that 'hey, we need to live with a changed climate.”
What surprised us: No surprises here. The Climate Adaptation side is more nuanced and the framing and taxonomy are not universally agreed upon like decarb.
Conclusions: Decarb will remain the dominant investment play in ‘climate’ for the foreseeable fixture for 3 primary reasons: 1) Decarb is more scalable (a roof is a roof, solar panels can be put anywhere), whereas Climate Adaptation requires an understanding of the local context, a customized or engineered solution to a degree, therefore less scalable, 2) Decarb is more mature and the opportunities are understood as most are in energy, whereas Climate Adaptation spans so many industries and fields of expertise, and 3) Decarb investments ‘feel good’, whereas Climate Adaptation investments somehow feel defeatist. That being said, many pointed to Climate Adaptation as a ‘frontier market’ in ClimateTech that will deliver rewards to those investors willing to navigate the Climate Adaptation Tech landscape.
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Question #4
Public policy of course matters, but in your opinion, why is there so little public discourse around leveraging technology to support industry's and society's adaptation to a changed climate?
Several insightful responses included:
“The speed at which climate change has severely impacted industry and society vs. the speed at which society can conceptualize that we have already been impacted (versus about to be impacted) are not aligned.”
“Lack of education and public policy makers in denial”
“Generally adaptation tends to get less attention because the perception is that it implies defeat (even if it doesn’t).”
“I don't think this is really the case, but to the extent that it is, it is partially connected to it not being tangible. You can see wind turbines, you can see nuclear power plants; you can't usually see IIOT sensor networks monitoring flood risk (energy efficiency has the same issue).”
What surprised us: It surprised us that no respondents addressed the part of the question about leveraging technology, indicating that the Climate Adaptation space lacks a clearly defined and well-understood taxonomy. Most appear to regard Climate Adaptation as something for public policy to address (e.g. the government needs to help people in flood zones or affected by drought), and the technology play in Climate Adaptation remains elusive, for now.
Conclusion: An agreed-upon framing and taxonomy Climate Adaptation Tech is needed
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Question #5
Which technology verticals on the adaptation ‘side’ of ClimateTech are you most interested in (Check as many as relevant)
#1 Response: Technology innovations that support water conservation efforts in regions experiencing aridification. (eg: water-efficient appliances, leak detection, in-building water reuse/recycling, etc.)
#2 Response: Technology innovations that support industry's and society's efforts around water availability risks by realizing the potential of untapped 'new' water sources. (eg: desalination, atmospheric, groundwater, direct/indirect reuse/recycle, etc)
#3 Response: Technology innovations that support industry's and/or society's efforts to mitigate climate change-induced flooding and/or drought risks. (eg: dikes, levees, dams, cisterns, sea walls, retention, detention, etc)
#4 Response: Technology innovations that support industry's and/or society's efforts to predict where and how the climate will change in a given location or region (eg: Artificial intelligence, etc)
Notably, the area of lowest interest was: Technology innovations that support emergency response efforts to distribute safe drinking water before, during, and after climate change-induced natural disasters.
What surprised us: No surprises here. People generally think that humanity is ‘running out of water’ (which is a fact in some places) and that the solution is simply to use less, and find more. It’s surprising that more respondents didn’t point to technology solutions that address agriculture/aquaculture (i.e. food supply) risks, which is the sector likely to be most affected by a changed climate. It is surprising that respondents, likely to read the daily news feed, didn’t recognize the importance of disaster relief/emergency response.
Conclusion: Technologies that enable industry and society to conserve water and realize ‘new’ water sources for the built environment (where we live) are likely to see the majority of investment going forward.
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OVERALL CONCLUSIONS
This survey was interesting because it illustrated that investors recognize the importance of a two-pronged approach, yet the flow of money tells another story. Decarb has and will continue getting the majority of ClimateTech investment; however, for investors looking to generate social and environmental impact, the Climate Adaptation ‘side’ of ClimateTech will continue to be the most compelling opportunity.
While all of humanity will experience the effects of a changed climate, the most vulnerable will be those in base-of-the-pyramid countries and communities that more often than not: 1) live in areas most likely to flood, 2) work in agriculture or water-dependent sectors, and 3) will not have the financial means to afford purification solutions that deliver safe drinking water.
This represents the final summary of this survey, utilized by Mazarine and our network of partners to inform thesis, taxonomy, and strategy.