The Emerging Trend of Climate-tech Startups in Africa

The Emerging Trend of Climate-tech Startups in Africa

Climate change is a serious issue that is impacting numerous lives globally. Warmer temperatures, sea level rise and extreme weather have already led to damaged property and critical infrastructure. In addition, the well-being and economic sectors, including agriculture, forestry, fisheries, and tourism, have suffered adverse consequences. All these have led to the development of a climate-tech start-up ecosystem.

Numerous initiatives have been undertaken to mitigate climate change, focusing on practices like reuse, repair, and recycling. While these efforts have addressed environmental concerns to some extent, their overall effectiveness remains modest.

Nevertheless, climate-tech start-ups have emerged as significant players, leveraging innovative technology to address environmental challenges. The growing prominence of the climate-tech ecosystem is a testament to the valuable solutions it can provide.

Investing in Climate-tech

In the past 15 years, a multitude of startups have emerged in Africa, offering climate-smart technologies and solutions to address environmental challenges. According to Briter Bridges’ 2022 report, titled “Adapt, Migrate, and Grow,” there are over 500 startups in Africa’s climate-tech sector. These startups operate in various industries including agriculture, clean energy, sustainable materials, e-mobility, transportation, and nature-based solutions.

Out of the 500 climate-tech startups identified, 147 have successfully secured funding from venture capital investors since 2015. Over the period leading up to the second quarter of 2022, these startups collectively raised $2.1 billion. Specifically, in 2021, they raised $440 million, as reported by Briter Bridges.

According to the Partech State of Tech in Africa 2022 report, the climate-tech sector raised $863 million in equity funding. This accounted for 18% of the total funds raised across all tech sectors. This amount nearly doubles the figure reported in Briter Bridges’ findings.

The significant year-on-year increase of 347% underscores the growing prominence and investment potential of climate-tech in Africa. It indicates that venture capital investors are recognizing climate-tech startups as a viable solution for combating inflation over the long term. This trend reflects the confidence in the ability of climate-tech to address environmental challenges while offering sustainable business opportunities.

In 2022, 25% of startup funds were allocated to the climate-tech sector, particularly renewable energy solutions, according to The Big Deal 2023 report. However, the report also highlights the challenges associated with engaging in the sector. Primarily due to the overlapping and interchangeable use of terminologies within the field.

“The Climate Tech scene for sure will grow. All into one sector because not all agriculture startups are necessarily climate and not all energy startups are climate. So it’s a bit tricky, but I would say it’s about 25% in 2022, the total investment that went to overall climate or environment-type stuff. Whether it’s solar energy, waste management, access to waste management, resilient agriculture, and carbon edits. That’s roughly 25% perfect. Not far from FinTech,” said Max Cuvellier Co-founder of the Big Deal.

According to Briter Bridges’ reports 75% of venture capital investments in the climate-tech sector were directed towards renewable energy startups focused on solar power. Additionally, 14% of the investment fund was allocated to climate-tech startups in the agri-tech field in Africa.

Clean alternatives and low carbon emissions technologies, along with e-mobility, constitute the remaining noticeable technology product sectors. Both accounted for 6.8% and 2.3% of the funds raised, respectively. As a result, the African climate tech market is primarily characterized by clean-tech and agri-tech solutions and innovations.

The emergence of climate tech in Africa

The emergence of climate-tech start-ups in Africa provides a major chance for the continent to lead in the field of sustainable technologies. This presents an opportunity for Africa to drive innovation and make a meaningful contribution to addressing climate change through sustainable solutions. By capitalizing on the potential of climate-tech start-ups, Africa can play a crucial role in shaping a more sustainable and resilient future.

AfricArena identifies three primary sectors of impact within climate-tech. They are; actively reducing or eliminating emissions, aiding in adapting to climate change impacts, and advancing our understanding of the climate. This emphasizes the wide range of areas where climate-tech innovations can have a beneficial impact.

Typically, these climate-tech products and services are found in sectors like agri-tech, geo-engineering, bio-tech, and others. Nevertheless, numerous climate-tech start-ups in Africa are actively contributing to a better world through the implementation of sustainable technologies.

M-Kopa Solar, a Kenyan start-up, offers affordable and clean energy solutions to off-grid communities. Similarly, Solar Freeze, also based in Kenya, provides off-grid solar-powered refrigeration to support smallholder farmers in Africa. These innovative ventures are addressing the energy challenges faced by rural populations with limited access to reliable electricity.

The significance of climate tech

Climate technologies have the overarching goal of enhancing our capacity to both mitigate and adapt to the impacts of climate change. They encompass a range of innovations, including renewable energy systems and carbon capture/storage technologies. These innovations contribute to reducing CO2 levels in the atmosphere.

While certain climate-tech like wind power have been in existence for several decades, there are also newer advancements in the field. These include technologies such as artificial intelligence, satellite imagery, and data science, which have gained prominence in recent years.

These modern tools enable us to gather and analyze data more effectively, enhance predictive modelling, and improve decision-making processes for climate-related issues. The combination of traditional and contemporary climate technologies offers a comprehensive approach to addressing the challenges of climate change.

Studies indicate that the majority, approximately 60%, of the required emissions reduction by 2050 can be achieved through established and advanced technology. However, the remaining emissions reduction will depend on emerging or yet-to-be-developed technologies.

Encouragingly, advancements in utilizing innovative technologies like AI, machine learning, and blockchain are transforming climate change. In a way that challenges that can be addressed through data-driven approaches, in addition to its environmental aspects.

These groundbreaking innovations provide us with climate management and accounting platforms that enable companies to precisely measure their carbon footprint. Additionally, they enhance the capabilities of existing renewable energy technologies and weather forecasting systems.

When combined with more traditional climate technologies like wind and solar power, these advancements offer effective solutions. Which helps to mitigate the severe consequences of climate change, moving us closer to achieving a net-zero emissions future.

Climate tech funding

According to a report by PwC, global investments in climate-tech experienced a significant surge in 2021. This reached the sum of $87.5 billion, compared to a low of $28 billion in the second half of 2020.  African climate-tech startups are starting to gain traction in the region and are already introducing sustainable solutions across Africa. Although they have only made a little contribution to this figure.

“The continent’s climate tech start-ups secured over $860 million in equity funding last year, representing 3.5x growth from their previous figures. Investors are increasingly focused on funding startups and organizations that demonstrate a clear path to profitability,” said Federico Cristoforoni, co-founder of Net Zero Insights. “This underscores the need for climate tech companies to develop sustainable business models that balance growth with financial stability.”

Venture capital firms and investors have shown interest in supporting the growth of established climate-tech businesses, such as Northvolt, TeraWatt, TerraPower, etc. HoloniQ’s Climate Tech 2022 report reveals that 80% funding was captured by 83 unicorns operating in the climate-tech sector. This highlights the focus on investing in promising and successful climate-tech companies.

Beyond climate-tech

The emergence of climate-tech has put pressure on established energy, environmental, infrastructure, and mobility companies to innovate and prioritize sustainability.

This has led to a shift in focus from “Climatech” to the core principles of sustainability. As the world transitions to cleaner energy, governments are expected to implement stronger policies and provide more financial support. Renewable energy and mobility will continue to attract a significant portion of investment in the coming years.

Green hydrogen and carbon capture technologies are anticipated to gain momentum and attract substantial investment in the future. It is crucial for African governments, businesses, and individuals to collaborate in adopting and implementing innovative solutions that effectively tackle the multifaceted challenges of climate change.

By embracing these technologies and working together, Africa can make significant progress in mitigating the impacts of climate change and transitioning to a more sustainable future.