For investors in North America, the challenges of climate change are creating correspondingly large opportunities for value creation. New technologies are emerging that, if funded, could contribute significantly to achieving climate and sustainability goals. At the same time, government policies are unlocking significant capital and changing the return profile. For investors, the biggest hurdle is making sense of these opportunities.
Vinay Shandal, Tariq Nanji, Mark Harris, Laura Borland, and William Lubega
Demand for climate investments is growing. Fundraising for climate funds nearly tripled in 2022, despite a 12% drop in private equity fundraising overall. That growth trend will accelerate. Between now and 2030, North America will require $6 trillion in additional capital if it is to stay on track to reach net zero by 2050. We estimate that private investors will commit up to eight times as much capital to the low-carbon economy by 2030 as they currently deploy. Government policies are a factor as well. The US has allocated $479 billion for climate and energy measures through the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act. Similarly, Canada has allocated over $109 billion in federal incentives for climate transition technologies, in addition to adopting several province-level measures.
Despite their clear potential, these segments pose challenges to investors. Some companies are start-ups looking to fund first-of-a-kind commercial-scale facilities. Others are pursuing partnerships with corporates that need balance-sheet capital. Consequently, investors must weigh the risks related to new projects and technologies, higher capital intensity, and uncertain demand—often in the same opportunity. Traditional definitions of asset classes must expand in order for investors to pursue opportunities in this increasingly attractive space.
We analyzed eight climate subsectors that we believe can generate both climate impact and financial impact. (A similar BCG analysis looked at the climate opportunity for private capital firms in Europe.) Our findings are summarized in the following interactive exhibits, which let investors explore all eight subsectors in detail—including key opportunities along the entire value chain.
Our analysis of subsectors includes the following highlights:
Most of the climate-related opportunities discussed here present new technology, policy, and counterparty risks for investors to navigate. In that way, they may test the boundaries of asset classes and fund mandates. Yet investors that understand the range of opportunities across the eight subsectors we have identified—and their attendant risks—can accomplish the dual goal of slowing global warming while also generating a significant financial return.
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