If you spend any time reading about investment trends, you’re likely to have come across the terms “cleantech” and “climate tech.” The reasons behind that aren’t hard to infer; there is considerable economic opportunity in developing products and services that promise solutions for environmental challenges. But while these terms are sometimes used interchangeably, there are important distinctions between the two. And if you’re among the sizable number of Duke students interested in pursuing investing-related careers, you’re going to want to understand them.
Google search terms like “climate tech vs cleantech” yield results full of explainer articles originating from a variety of sources, from venture capital firms to journalistic outlets. In the aptly titled “Climate tech v. cleantech: what’s the difference?”, Clean Energy Ventures COO Ted Dillon neatly defines each category: cleantech is “any new business model or technology that increases the performance, productivity and/or efficiency of production while minimizing negative impact on the environment.” Climate tech is more specifically focused on “[mitigating] the impacts and drivers of global greenhouse gas emissions,” which are the primary cause of climate change.
There is significant overlap between the two. Dillon cites examples related to transportation and buildings, in which new technologies may yield the increased performance and efficiency characteristic of cleantech while also reducing greenhouse gas emissions in the way that climate tech is meant to do. But greenhouse gases “only cover a portion of humanity’s overall effects on the environment,” as Dillon points out, so technologies that address other effects might fit the definition of cleantech, but not climate tech. He offers the example of clean drinking water—it’s an extraordinarily valuable thing to have, but clean water doesn’t reduce emissions.
A technology that contributed to cleaner drinking water would thus not be climate tech. Conversely, some climate technologies may reduce the emissions impact of a given industry while leaving other significant environmental impacts intact, a fact which is especially true of “agtech” solutions.
Aside from these categorical differences, there are other important reasons for investors to distinguish cleantech from climate tech. “Cleantech” is an era-specific term that grew in popularity after the dot-com bubble burst at the turn of the century as venture capital began to pour into the sector. The financial crisis of 2008 brought that flow to an abrupt halt. In some ways, then, “climate tech” is an effort to re-brand and gain distance from any negative associations stemming from the market’s (temporary) collapse.
These industries have rebounded, but there’s still plenty of room to grow. NASDAQ cites a Silicon Valley Bank estimate that the total of annual financing for the energy transition across the world sits at around $3.5 trillion; about $5.6 trillion annually would be necessary to limit global warming to 1.5 ℃. So expect these sectors to continue to expand—and maybe there’s a place for you in them?
