These moves, especially as they are enacted by the largest economy in the world and could be interpreted to represent the start of larger trend, have sent ripples across the cleantech market, raising concerns for sustainability startups.

While this shift in climate policies in the US may initially cause some concern, its impact is likely to be limited both in time and in geographical scope. For starters, opportunities in other regions may actually increase as cities, nations and specific areas rally to become incubators for environmental startups. Specifically, existing environmental capital investment is likely to flow towards markets that have historically shown more stability in their approach to sustainability and cleantech. This could favour startups in the UK and Europe, where there is broad consensus across parties on climate action. The Nordics and the UK for example are already home to various cleantech incubators and accelerators. Knowing that the broad policy towards environmental, social, and governance (ESG) principles is not likely to change with each new government, provides a much more stable humus for investors.

That said, the outlook is not all negative for environmental startups in the US. In fact, policy changes concerning the environment have been known to be cyclical. Consider for example the Paris Agreement: President Trump withdrew from the Agreement in 2017 in his first term, but President Joe Biden rejoined in 2021. In addition to this, a spate of dramatic climate-related disasters that range from frequent and more devastating forest fires to flash flooding, have increased public awareness of the need for more sustainable alternatives. Whether a direct effect of climate change or a byproduct, the devastating LA fires this year were certainly aided by unusually hot, dry conditions.

In addition to this, regardless of policy changes, the overall global trend is for a low-carbon future. Contributing to this trend is the need to contrast the depletion of fossil fuels and limited mineral resources through technology that makes renewable energy ever more affordable. Specifically, a number of technologies have now reached grid party which occurs when an alternative energy source can generate power at a levelised cost of electricity that is less than or equal to the price of power from the electric grid. Wind, solar, and other renewable energy sources are now some of the cheapest forms of power generation globally,  making them appealing investment opportunities in an increasingly energy-hungry world. As global demand for electricity is set to continue grow in 2025, the share of renewables in the global electricity supply is also projected to increase.

Cleantech startups attracting the lion’s share of VC investment are currently in AI-led climate ventures, which raised $1 billion more in the first three quarters of 2024 than they did in all of 2023, and technology for climate adaptation and resilience which accounted for 28% of climate tech deals in 2024. As VC’s interest in sustainable startups starts to rise again, businesses that are able to reach scaling point and market competitiveness without government subsidies are likely to stand out. Investors looking to invest in cleantech are likely to focus on companies with sound business models that are not overly dependent on government incentives. Specifically, startups with technologies that compete with traditional solutions and those in breakthrough technologies are going to continue to lead the pack.

The industry has reached a level of maturity where federal subsidies should no longer hold such importance. Breaking free from these dynamics will be critical to attracting further investment. Despite short-term uncertainty, long-term market dynamics continue to favour sustainable businesses. Consumer awareness, depleted mineral and energy resources and technological advancements form a solid foundation for sustainable startups to continue to innovate with confidence. Exploring new opportunities and geographies that have shown lasting commitment to sustainability will also support these startups as they weather this short-term shock.

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