CALGARY⁠ — While investment in companies in other innovative parts of Canada’s economy has fallen off dramatically, cleantech companies have so far bucked the trend, propelled by tightening green investment standards and worries over climate change. 

While cleantech deal velocity has come down from its peak in the fourth quarter of 2021, venture capital activity has remained robust compared with other sectors like fintech, e-commerce and artificial intelligence, according to The Logic’s analysis of PitchBook data.

Cleantech companies globally raised $10.1 billion in venture capital in the second quarter of 2022, two per cent higher than in the first quarter, according to PitchBook. In Canada, VC funding for cleantech grew to $342.4 million, 21.6 per cent more than in the first quarter and a 223 per cent increase year over year. 

Meanwhile, global fintech investments fell to $23.9 billion in the second quarter of 2022, a 20 per cent drop both year over year and quarter over quarter. (Investment in Canadian fintech increased eight per cent to $477 million.) Global venture capital inflows into artificial intelligence and machine learning fell 25 per cent quarter to quarter, down to $19.1 billion, and 43 per cent year over year. Canadian QoQ investment fell 26 per cent. E-commerce globally fell 36 per cent from the first to second quarter, down to $9.5 billion. 

Some cleantech investors view the trend as a sort of counter-argument to the ongoing carnage in financial markets, saying technologies like solar power, battery storage and carbon capture will remain a relatively formidable investment destination. U.S. President Joe Biden’s climate change bill, which includes US$369 billion for climate and energy provisions, is expected to be a boon for clean technology, potentially adding another leg up over other sectors.  

“My sense is that it’s performing better than other asset classes,” said Zoltan Tompa, managing director of BDC Capital’s cleantech division. 

Tompa said BDC, which has one of Canada’s largest dedicated cleantech funds with over $500 million invested since 2018, is bullish on the sector as valuations come down from their inflated “stratospheric” highs of the last few years. 

The sector will continue to benefit from numerous global forces supportive of cleantech development, he said, including corporate net-zero targets, the growth of carbon-offset markets, government policies like carbon taxes and the energy crisis in Ukraine. Cleantech companies, which offer anything from solar panels to environmental IT services, are almost certain to see robust demand over the longer term. 

“All of those things help establish a floor for the downcycle in climate-tech investing, and this is something that didn’t exist in the first wave of climate investing in the early 2000s,” Tompa said. 

Managers at Evok Innovations, a venture capital fund investing on behalf of Calgary oil-sands companies Suncor Energy and Cenovus Energy, as well as BDC Capital, RBC, TD Bank and others, see a similar trend. Evok recently launched a US$300-million second fund, after closing its $100-million inaugural fund. 

“We’re just seeing continued investment to support this energy transition,” said Marty Reed, partner at Evok. 

That’s not to say cleantech hasn’t felt the bite in recent months. While VC deal value increased in the second quarter, velocity slumped. Companies completed a total of 526 deals globally, down from 633 in the prior quarter and 571 deals in the second quarter of 2021. 

The Invesco WilderHill Clean Energy ETF is down 32.9 per cent on the year, as tech and other stocks plummeted following the global pandemic. Private equity investment in cleantech is down by nearly half in the second quarter of 2022 compared to a year earlier, according to PitchBook, with the total number of deals falling from 106 to 72.

Still, the recent market downturn looks more like a mere return to normalcy when viewed over the longer term, ending an era of sky-high valuations. A sudden dearth of cheap capital and lower cash flows are likely to weed out the weakest companies and spur widespread consolidation, according to observers. 

“For now, the days of cheap money chasing expensive dreams are over,” ARC Energy Research Institute director Peter Tertzakian wrote in a recent column for the Financial Post. 

Evok’s Reed said carbon capture and storage and electrification are a few areas of potential for investors. A number of operators in Alberta, including Evok backers Suncor and Cenovus, have proposed major carbon-capture and -storage projects in the province in an effort to drive down emissions. 

While Reed said the scale of development is massive, the commercialization of carbon-capture technology will happen over an extended timeline. 

“I’m bullish on carbon capture as it relates to large-scale industrial decarbonization, particularly in Alberta. But don’t underestimate just how big, long, complex and challenging these projects are in a supply chain like we are living in today,” he said.  

“Even if the technology were fully ready to go today, just deploying at that scale, I’m not sure we have the materials and labour we would even need to do that.”