This article presents the key takeaways from the inaugural climate-focused innovation showcase at GIC Insights 2023, which took place on 31 October 2023 in Singapore.

Moderated by GIC’s Weylin Liew, Portfolio Manager and Head of Active Engagement, Public Equities, and Matthew Lim, Co-Head of the Sustainability Solutions Group, Private Equity, the session focused on what it takes to scale emerging climate technologies, accelerate transition pathways, and address common pitfalls encountered along the way.

Speakers for the showcase included:

• Tarun Mehta, Co-Founder and CEO, Ather Energy
• Mateo Jaramillo, Co-Founder and CEO, Form Energy
• Mahesh Kolli, Founder, President & Joint Managing Director, Greenko Group
• John O’Donnell, CEO, Rondo Energy
• Jason Tu, Co-Founder and CEO, MioTech
• Judy Marks, Chair, CEO & President, Otis Worldwide Corporation
• Torsten Lehnert, CEO, Railpool

Climate change is widely recognised as the existential crisis of our time. The World Meteorological Organization (WMO)1 predicts that 2023 could be the warmest year in history, while carbon emissions and sea level rise have also reached record highs in 2022.

The devastating socioeconomic impact of climate change is already being felt around the world, especially in developing economies. In Asia alone, the WMO recorded 81 weather-, climate-, and water-related disasters in 2022, with over 50 million people directly affected, including more than 5,000 fatalities. These events cost the region US$36 billion in economic damages2.

Decarbonising the global economy will be critical to combating the climate crisis and will require a wide range of solutions. These span mature and increasingly cost-competitive solutions such as renewables or electric vehicles (EVs) and emerging technologies such as green hydrogen, which has the potential to decarbonise some of the most hard-to-abate sectors but has yet to scale.

The opportunity is enormous for solution developers, investors, as well as companies that will use these technologies to accelerate their own sustainability transition. Research by GIC estimates that the incremental investment value of the climate solutions supply chain will reach between US$5-11 trillion by 20303. As the costs of conventional wind and solar continue to drop, the economic tailwinds for these new technologies will likewise continue to grow.

At the GIC Insights climate innovation showcase, entrepreneurs and industry leaders discussed some of the most promising decarbonisation solutions and how to overcome common challenges related to access to capital, industrialisation, regulation, as well as data and impact measurement.

Despite the rapid pace of technological innovation in the climate space, many emerging solutions face challenges in scaling up. The showcase speakers noted that climate tech founders must shift their focus from innovating alone to industrialising their processes, which is crucial to driving down costs and achieving scale.

Rather than attempting to overcome each new technical or business challenge alone, founders should consider forging partnerships with industry incumbents. Whether through investment dollars or joint development agreements, creating these relationships with players that have decades of experience can both speed up product development timelines and provide a commercial backbone for early deployments.

Two pioneering solutions in long-duration energy storage, heat batteries4 and iron-air batteries5, for example, are based on technologies that have been in use for over a century. While the technical innovations open new markets, the key competitive advantage for these companies will be their ability to scale to high-volume, high-quality, and low-cost operations. In the process, these firms must transform from research and development ventures to manufacturing companies capable of engineering and delivering products in a standardised, speedy, and cost-effective manner.

Developing standardised products which require minimal localisation or customisation is equally important in other capital-intensive industries, such as heavy transport. For example, shifting freight transport from road to rail is a key priority to mitigate transport-related carbon emissions in Europe. Standardising the assets and offering them as a ‘locomotive-as-a-service’ model to freight operators lowers barriers to entry for new train services, shared a showcase speaker. In addition, such an offering enables a more seamless reuse and refurbishment of spare parts, which help to further reduce waste and costs.

Meanwhile, legacy industries often view innovation as a means of increasing the efficiency of existing products while maintaining their proven business models. One example highlighted by a showcase presenter is the regenerative drive for elevators, which captures waste heat generated during braking and feeds it back to the building’s internal electric grid. The technology offers significant energy, emission, and cost savings to building owners and can be installed for new or existing lifts, without requiring large capital expenditures or a change in business model.

Industrialising these new technologies requires deployment at scale and capital is a key hurdle. A considerable gap remains between early-stage venture capital that can accept the risks associated with nascent technologies and low-cost project finance that funds conventional infrastructure. The returns expected by venture capital typically make energy projects uneconomical, while early-stage energy transition technologies tend to lack the track record required for infrastructure finance.

The panellists acknowledged that to bridge this financing gap, technology providers must demonstrate tangible customer demand and work with capital providers to create project bankability. Such projects must address ordinary project-related commercial risks, by securing offtake agreements such as take-or-pay contracts, to give an example, and find approaches to mitigate possible residual technology risks. Showcasing certainty of production, product reliability, and repeat execution, together with building long-term partnerships, are also important when sourcing capital.

Capital providers, in turn, need to adopt the creativity and technical capabilities that venture teams have to avoid taking risks with unproven technologies, as well as the structuring and financial strengths of infrastructure investors.

Navigating complex regulatory frameworks can be equally difficult, especially in markets where electoral cycles are short and abrupt changes in policy direction could either favour or impede the development of climate solutions.

While many climate solution providers and end users benefit from the manufacturing and investment tax credits offered by the US Inflation Reduction Act (IRA), others chose not to rely on government subsidy programmes and focus on creating value for customers that is not contingent on policy incentives.

In India, producers of wind, solar, or hydro had to demonstrate that renewables could achieve cost parity with coal, the country’s primary source of energy6, even without subsidies, shared one of the showcase speakers. This cost-related challenge is even more pronounced for those seeking to move beyond clean electrons to develop low-carbon molecules, such as green hydrogen or ammonia, because they involve higher-risk, more nascent technologies which require integration with existing infrastructure and industrial assets.

Transport electrification remains equally challenging in India, where two-wheelers make up the majority of road vehicles7. The absence of a versatile charging system and lack of standards for light electric vehicles (LEVs) have hindered the country’s transition from internal combustion engines (ICEs) to EVs, according to another presenter. Collaboration between the Indian government and industry stakeholders has thus been crucial in launching the Light Electric Combined Charging System (LECCS), an AC-DC charging system tailored for LEVs. This model could also be replicated in Southeast Asia, parts of Europe and Africa and South America where the shift to EVs is driven by two- and three-wheelers.

Regardless of the industry or market these firms serve, proactive engagement with regulators and an in-depth understanding of the country’s policy direction are essential to the success of climate innovators.

To gain more stakeholder buy-in, businesses should also demonstrate the societal impact of their ventures, such as the employment opportunities and other economic benefits a new manufacturing facility would create in the local community. Conversely, companies must be equally transparent about any potential adverse impact, including the effects on local biodiversity, for example, and outline how they plan to mitigate these risks.

Some climate tech companies have even expanded to provide tertiary education on a range of sustainability issues, from photovoltaic technology to sustainable mobility8. Skills-based training could help build more awareness on the importance of climate solutions while developing a wider pool of talent for these ventures.

By measuring their climate data consistently, companies are able to set more informed emission reduction targets and roadmaps and fulfil their regulatory or investor reporting requirements more effectively.

However, access to quality, comparable, and financially material ESG data remains challenging, particularly in regions such as Asia with relatively less developed sustainability reporting frameworks, according to one of the speakers. Data scarcity is especially prevalent in private markets which are not subject to the same level of disclosure requirements as listed companies. Additionally, standardisation remains challenging, even as we see increased convergence in reporting frameworks. Climate data providers that can help companies and investors to address these data and quality gaps stand to gain significantly.

The speakers offered some practical advice to conclude, including giving more credit to and listening to customers, moving and executing at speed, and focusing on bankability and scale rather than excessive innovation. Most importantly, unlocking the climate solutions of the future requires collaboration among all actors in the climate ecosystem, including technology firms, companies undergoing their own transition, investors, regulators, and local communities.