ESG for Venture-Capital-Backed Companies

The energy sector may be further fragmented into innovative technologies focused on renewable energy generation, distributed energy solutions, battery storage, and power grid solutions. While the energy sector is quite mature, the decentralized nature of renewable energy technologies has disrupted the energy ecosystem through heighted private and public investment. The 2022 Inflation Reduction Act has served as a significant catalyst in the transition to America’s clean energy economy in the form of nearly $370 billion which many companies within the energy sector may benefit from. The global response to this green stimulus has been met by similar subsidization in key economic regions like the European Union where $270 billion in green subsidies have been designed to ensure a globally competitive playing field of clean energy innovators. 

The transportation sector is often associated with electric vehicle manufacturers but may also encompass other modes of transportation like rail, long haul trucking, public transport, and air travel. While the technological risks for passenger EV’s have been largely mitigated due to decreasing battery prices and government stimulus, some forms of transport likely require decades of innovation before alternative forms of climate friendly travel are likely. Greenhouse gas emissions from hard to abate industries like aviation are uniquely challenged. New entrants in this sector are currently experimenting with electric powered aircraft but ranges are limited, and complete fleet replacement of the global aviation complex will be dependent on entirely new engines capable of running on carbon free fuel sources like hydrogen.

Industry can be best characterized by its underlying verticals like metals, mining, cement, steel & chemicals. Innovation within this sector offers the global economy significant opportunities for disruption. However, challenges do arise within this sector as traditional manufacturing or industrial processes are chemically dependent on fossil fuels or require significant energy inputs. Decarbonization of this sector requires novel solutions and there are a fair number of startups focusing their research on alternative manufacturing or material science methodologies. Regulation also poses a barrier for this segment especially. For example, most cement customers will only purchase “Portland Cement” which has certain physical properties. Startups like Sublime Systems will have to engage industry associations to ensure commercial success.

The buildings sector includes emissions from energy consumption as well as embodied carbon associated with building construction, including those that arise from extracting, transporting, manufacturing, and installing buildings on-site as well as end-of-life emissions. Exciting decarbonization opportunities within the built environment offer several pathways for startups to reduce emissions within this sector. For example, many startups have begun to focus on smart-building software and sensors to increase energy consumption while other startups have focused on developing new construction techniques and materials utilizing lower carbon inputs.

The agriculture sector accounts for close to 25% global greenhouse gases and offers significant opportunities for decarbonization. Deforestation and livestock management are key contributors for these sectoral emissions. Key innovations within agtech like precision agriculture, regenerative agriculture, sustainable crop farming and livestock management offer promising climate technologies to reduce environmental impacts.