After experiencing some fantastic years, the climatetech space (including greentech and cleantech) has seen some real tragedies in recent times.

One of Europe’s best funded startups in the climatetech sphere, Northvolt, the Swedish electric vehicle battery developer and manufacturer, filed for bankruptcy in November 2024. This comes off the back of Northvolt closing some of the biggest funding rounds within climatetech. Similarly, Grünfin, the green investment platform startup that offered investors the chance to build an investment portfolio of sustainable companies, closed its doors at the end of 2024.

Looking at the electric mobility market tells an even bleaker story. Arrival, the British EV manufacturer that planned on building lightweight commercial vehicles, filed for administration in February 2024 for the UK arm of the company. German-based zero-emission flying airtaxi startup Lilium announced its insolvency and received notice of delisting from the Nasdaq in October 2024 (however not all hope has been lost, at the time of writing, Lilium was in talks to be acquired by Mobile Uplift Corporation.) Swedish startup Vässla, that produced e-bikes and e-mopeds, also went bankrupt, and Swedish company Ever Engineering acquired its bankruptcy estate for €370,000.

Looking at the industry, it’s easy to see why startups within the sector might be worried about the year ahead. However, with sustainability targets looming, and general consumer consciousness when it comes to the products they buy and consume growing, not all is bad for the industry.

It is likely that after this most recent drop in activity, the industry will steady out, and continue at a sustainable pace.

Investing in climatetech

The climatetech industry has seen its highs and lows. 2021 saw the peak of investment in the sector, with $76 billion invested into the sector in that single year alone, according to Dealroom.

Since then, investors and startups have found it tougher to secure deals. In the 12 months leading up to September 2024, capital flows and transaction volume continued to trend downwards, even dropping below levels that were recorded in 2019, before the market had even taken off. This is according to PwC’s State of Climate Tech 2024 report, which claims that climatetech investment still remains strong in the United States due to policy measures like the Inflation Reduction Act.

The report also highlighted that the distribution of climatetech investment across sectors has changed, so every sector under the umbrella of climatetech is being impacted differently. During the first three quarters of 2024, energy-related startups took in a slightly greater share of climatetech funding (nearly 35%) than they did in 2023 (30%), which shows a greater interest in this sector than before. The number of mid-stage deals in energy-related startups almost equalled the number of late-stage deals, a shift that tracked the broader market.

AI-centred climate ventures raised $1 billion more in the first three quarters of 2024 than they did in all of 2023, tracking with investors’ recognition of AI’s power to drive productivity and efficiency improvements. Technology for climate adaptation and resilience stood out as a theme in 2024 too, which features in 28%, over one-quarter, of climatetech deals.

Things are looking up in the sector. Whilst funding may be in a rocky spot, there are initiatives aimed at investing in more technologies in the climatetech/greentech space. The European Commission has launched

€4.6 billion in funding under the Innovation Fund to accelerate decarbonisation and enhance Europe's green technologies. Niche funds that specialise in greentech funding are also reporting strong results. EIR InnoEnergy announced that in 2024, its portfolio of cleantech startups and scaleups has closed 56 fundraising rounds, totalling €4.3 billion raised.

It's early in the year, but it’s looking a bit brighter out there for sustainability driven startups.

AI: the shining light for innovation

Whilst the industry is having a hard time right now, with some of the big players having filed for bankruptcy in 2024, AI might be the shining light for climatetech innovators. As businesses are racing to embed AI into their products and services, the environmental impact that this is having can no longer be ignored. Most crucially, the carbon footprint of AI isn’t just in the training of models, but also the continuous inference needed to process requests and generate responses.

The top GenAI models, such as ChatGPT and Copilot, are needing ever- increasing computational power for training and operation, with these demands doubling approximately every six months, according to the Centre for the Governance of AI. In early 2024, it was estimated that a single ChatGPT search query consumed 15 times more energy than a regular Google search. According to a report by Friends of the Earth in early 2024, it was predicted that AI could lead to an 80% increase in global carbon emissions, and experts have warned that the AI industry’s huge power demands could threaten global energy supplies.

Within this issue of environmental impact that AI is causing, there has become a gap in the market, perfect for the next generation of climatetech innovators. These startups are working on ways to make the technology more energy-efficient.

Some examples include NexGen Cloud, a startup that builds data centres entirely powered by renewable hydroelectric energy, Lumai, a startup developing new chips using photonics to build processors specifically for AI development which use less energy than a GPU, and Oriole Networks, a company that uses light, via advanced photonics, to create networks of AI chips and combine their processing power, to dramatically reduce the energy consumption of data centres as a whole.

It won’t come as a surprise that an ever-increasing number of innovators will be appearing in the industry as the impact of AI becomes a larger problem.

This article originally appeared in the January/February 2025 issue of Startups Magazine. Click here to subscribe