Canadian cleantech investment has dropped sharply from its 2022 peak, leaving many companies in the sector struggling to find money they need to scale at home, new data shows. 

Cleantech investments from Canadian VCs both domestically and internationally fell to $590 million last year, down from $1.65 billion three years earlier, a new report from Queen’s University’s Institute for Sustainable Finance found. Investment dollars in disclosed deals were down 43 per cent compared to 2024, even as global cleantech venture investments jumped eight per cent last year.

Yrjö Koskinen, the institute’s director of research, said the decline partly reflects a market bubble in 2021 and 2022, when enthusiasm for cleantech attracted new investors to the sector and pushed valuations higher than they ought to have been. “Perhaps too much money was flowing in 2022 and the VC market couldn’t handle it,” Koskinen said, adding that some investments have since underperformed expectations.

Canada’s broader venture capital industry has also declined in recent years. Investors plowed $14.8 billion into VC at the peak of the market in 2021, with investments falling to $7 billion two years later. Overall VC investment rebounded somewhat since then, reaching $8.6 billion in 2024 and $8 billion in 2025. Cleantech investing in Canada, however, hasn’t recovered.

Weak cleantech investment reflects a long-standing problem many Canadian companies face as they grow, said Koskinen. The report found early-stage investment became a major driver of cleantech funding after 2021, while later-stage and growth financing remained sporadic and dominated by a handful of large deals.

That problem is particularly acute in cleantech because many companies need far more capital to generate returns than the software startups that most of Canada’s VC dollars back. “That kind of money is very hard to get in Canada,” Koskinen said. “It could be much easier to get in the United States or Europe.”

Koskinen said Canada’s lagging cleantech investments may also be a symptom of the ESG backlash that swept through U.S. businesses over the past few years. PitchBook data shows cleantech and climate-tech investing in the U.S. declined about 18 per cent from 2022 to 2025. “Cleantech is becoming more important in Europe and Asia,” he said. “We are always influenced [by] what happens south of the border, and don’t realize that the rest of the world is not following the path of the United States.” 

The report also points to weak domestic demand for emerging technologies as another obstacle. Investors consulted for the report described Canadian corporate buyers as risk-averse and slow to adopt unproven technologies. Koskinen said that can push startups to find customers and eventually scale in the U.S. 

Public money already plays an outsized role in the sector. Government-backed investment institutions, including BDC Capital, Export Development Canada and Investissement Québec, participated in 33 per cent of domestic cleantech deals since 2016, accounting for 57 per cent of disclosed deal value. 

Koskinen said governments should continue supporting risky early-stage technologies and pointed to the Canada Growth Fund as a source of larger cheques for bigger companies. But he said the country needs more private capital, including from pension funds, to finance companies as they grow. 

There are some signs the steady decline in investment may be levelling off. Canadian cleantech companies raised $336 million across 18 deals in the first half of 2026. That’s up four per cent in value from the same period last year but still well below their peak, according to the Canadian Venture Capital and Private Equity Association. 

Koskinen said Canada has the research, technical expertise and startups needed for a strong cleantech sector. “We just need to get some more money in the later-stage venture capital financing and scaling up firms,” he said.