The collapse of Silicon Valley Bank (SVB) may have a short-term impact on climate tech startups, slowing down innovation and making it difficult for companies to secure funding. The long-term prospects for the industry remain strong as other investors step up to fill the void left by the SVB, writes Loes van Dijk, founder and chief executive of LoudLaw.
- The collapse of SVB, a major player in financing and supporting climate tech startups, has raised concerns about its impact on the industry’s development and progress in the fight against climate change.
- There will likely be a short-term impact on climate tech startups, slowing down the pace of innovation in the industry.
- The industry may be forced to turn to seek financing resources that prioritise short-term profit maximisation over long-term sustainability, which could lead to negative outcomes for the climate tech industry and the planet as a whole.
The recent collapse of the SVB bank has sparked concerns about its potential impact on climate change. SVB had been a key player in financing and supporting startups in the climate tech sector, and their exit has left many wondering what the impact will be. The climate tech sector is crucial for achieving a sustainable future.
The world is currently facing a climate crisis, with rising temperatures, extreme weather events, and a loss of biodiversity. Climate tech companies are developing innovative solutions to these problems, such as renewable energy sources, energy storage, carbon capture, and sustainable agriculture.
In 2022, the SVB disclosed to the Carbon Disclosure Project (CDP), to be committed “to provide at least $5 billion by 2027 in loans, investments and other financing to support companies that are working to hasten the transition to a sustainable, low carbon, net zero emissions economy.”
Nevertheless, despite immediate attempts at politicisation of the SVB’s collapse by blaming the bank’s focus on environment, social, and governance (ESG) matters, the $5 billion commitment comprises only 7% of the bank’s current loan portfolio.
The short-term impact on climate tech
That being said, the collapse of SVB will likely have a short-term impact on climate tech startups. Without access to the same level of resources and support, these companies may struggle to secure funding and develop their technologies.
This is exacerbated by what has since been disclosed as SVB’s incredibly restrictive loan deals with start ps, which prevent the companies from holding deposits with another bank. Climate tech startups were therefore forced to subject to the concentrated risk in the SVB rather than being able to diversify their cash holdings.
This could slow down the pace of innovation in the industry, at least temporarily. A delay in the development of new climate tech solutions will slow down progress in the fight against climate change.
In addition, the SVB’s collapse could have a ripple effect throughout the investment community. Investors may become more cautious about investing in climate tech, particularly if they see it as a risky or volatile market. This could make it even more difficult for startups in these sectors to secure the funding they need to grow and succeed.
The SVB was especially heavily invested in solar energy projects, claiming that they were involved in more than 60% of community solar financing within the United States. With the loss of a major investor in renewable energy projects, there may be a reduction in the financing available for these projects, making them less economically viable. This could lead to an increase in the use of fossil fuels, which would exacerbate the climate crisis.
Opportunities and challenges ahead
It is important to note that SVB’s collapse does not mean the end of climate tech. As more and more businesses and governments prioritise sustainability, there will continue to be a growing demand for innovative solutions in these areas.
The climate tech industry has been gaining momentum in recent years, due to increasing interest from investors and growing demand for sustainable solutions. While the loss of a major player like SVB is certainly significant, there are other investors and banks that will step up to fill the void. In fact, some of the affected entrepreneurs are already reporting a slew of investment bankers and private equity firms offering to fill in the gap.
However, while this may seem a positive trend at first glance, private equity firms in particular are notorious for prioritising short-term profit maximisation over long-term sustainability, which can lead to a number of negative outcomes for the climate tech industry and the planet as a whole. The goal of the climate tech industry should be to create long-term, sustainable solutions that benefit both the planet and society as a whole, but they may now be forced to turn to financiers that engage in practices harmful to the environment in order to capitalise on their investment.
Ultimately, the impact of SVB’s collapse on climate tech remains to be seen. While there may be some short-term challenges, the long-term prospects for these industries are still strong.
As we continue to work towards a more sustainable future, it’s important that sustainable finance is made available to support and invest in the companies that are driving innovation in climate tech. Although the energy transition is undoubtedly one of the biggest investment opportunities nowadays, it is important that investors value long-term, sustainable solutions.
The opinions of guest authors are their own and do not necessarily represent those of SG Voice.