To achieve net zero carbon emissions by 2030, we need to increase the amount of investment in climate tech by 590 percent, says Daria Sakharova, managing partner of VC World Fund, a European venture capital firm specializing in climate tech. Capital is a firm. While European funds, including the UK’s, have €19.6 trillion ($21.1 trillion) under management — and have invested €19.6 billion in 2022 — that is not enough. We need to invest at least €1 trillion every year.

good news? “Europe leads the world in patent applications for climate technology,” she says. “Twenty-eight percent of all patents in this field originate in Europe, so about a third of the technology needed is created here.”

Sakharova warns that the problem is a misalignment between outsourcing and venture capital. Forty-eight percent of VC investment in 2022 was in mobility technology, such as e-scooters. Transportation accounts for only 15 percent of emissions, while high-polluting industries such as manufacturing, food and agriculture, and the built environment are underfunded. According to Sakharova, “Eighty-five percent of emissions receive only 52 percent funding.”

She points out that this matters, because changes in personal behavior will only reduce emissions by 4.3 percent. Technologies already in the market will account for 49.8 percent, meaning technologies under development and requiring investment will need to fill the rest. “Forty-six percent of emissions will be reduced by technology that has yet to be developed, and that’s technology that we desperately need,” she says. “And we need venture capital.”

She points out that venture capital has dipped its toes in this area before. “Between 2008 and 2013 there was a lot of investment and a lot of failures. So right now, R&D is 35 percent of investment, private equity is 37 percent, and venture capital is only 13 percent of climate tech funding.

There’s a huge opportunity for VCs — as late-stage private equity shows grow exponentially. The return on new investment in climate technology between 2015 and 2019 is about 22 percent. But how do VCs choose the right areas to invest in when they often lack skills?

“We need to look at tech product sales, the target market, the tech’s influence on that market, its climate impact, and the correlation with other solutions — specifically, some serious climate science,” she explains. “It’s a long list.”

The World Fund has developed a benchmarking system called Climate Performance Potential, or CPP, which is slowly filtering through academia. It is a combination of comparing a startup’s chances of avoiding or reducing exits, the startup’s willingness to ignore its forecasts, and the ability to look at the total addressable market (TAM), which The World Fund says Total Avoidable Emissions. It combines a team’s ability to process a climate-efficient technology bucket with an almost competitive product so you can get multiple.

“This model focuses on the technology rather than the company, so it can be applied to large organizations as well,” she explains. “It allows us to measure the carbon market for the technology until 2040 compared to others. We need more private capital and public capital, and this model makes it easier to predict success for them.”

This article appears in the March/April 2024 issue. Wired UK Magazine.