The Two Pillars of Climate Tech
At G2, we invest in companies that can drive material emissions reductions. On average, we are targeting millions of tons of CO2e reduction per company per year, within a decade. We find these impactful companies across industries and use cases, but they all fall within two overarching themes:
1. Decarbonization
2. Efficiency
Let’s explore why we consider these two themes to be the “Two Pillars of Climate Tech”.
Over the last ~150 years, we have grown the economy predominantly by burning more fossil fuels. As is shown in the chart below, the growth of emissions, total energy consumption, and GDP have all closely aligned since 1860.¹
To get to a Net Zero economy by 2050, we need to do two basic things over the next 25 years. First, we need to decarbonize the existing energy supply. Second, we need to hold energy demand roughly flat (actually reduce it slightly, per the IEA’s 2023 update² to their net zero roadmap). Even more challenging, according to the same report, we need to accomplish both of these things while more than doubling GDP.
These two monumental tasks, holding energy consumption flat while decarbonizing energy supply, are the core of the concept of ‘green growth’, which defines our investment mandate here at G2. Opening a gap between GDP and energy is “Efficiency”, and opening a gap between energy and carbon emissions is “Decarbonization”.
Within these “Two Pillars of Climate Tech”, we pursue many different investment areas:
Decarbonization:
To decarbonize energy, we invest in companies that are increasing the penetration of low-carbon power, electrifying equipment, or replacing carbon-based fuels with alternatives.
For example, our portfolio company Arcadia enables affordable access to community solar projects, while our portfolio company 1Komma5 has installed solar, storage, EV charging, and electric heating across thousands of homes in Europe. Our portfolio company Pivot Bio replaces fossil fuel derived fertilizers (responsible for >3% of annual emissions) with microbes.
And, we continue to search for winning companies across a list of ~175 (and growing!) decarbonization themes that we actively track. For example, in the last year we have spent time on topics ranging from microgrids, to electric vehicles of all sorts (bikes, boats, RVs), to batteries (grid-scale batteries, vehicle batteries, thermal batteries), to sustainable industrial alternatives (green steel, green cement).
Efficiency:
Where do we find significant efficiency opportunities? Well, we follow energy use! Most global energy use arises in the use of equipment within industry, buildings, and transportation. Operating manufacturing lines, furnaces, or trucks — these are areas where vast quantities of energy are used globally. Therefore, we invest in companies that enable work to be done more efficiently in these sectors. We collectively refer to these companies as “industrial technology”.
The most successful and impactful industrial technology companies are important climate tech companies, as the efficiency gains they drive in energy-intensive sectors are essential to meeting our net zero goals. In the past, we have invested in industrial technology companies such as:
- OSIsoft: who published that its data management efforts saved a single customer 15M tons per year³
- AssetWatch: whose predictive maintenance programs can help save customers 5–10% of energy while extending the life of equipment
- Motive: whose sensors and software enable more efficient trucking, driving 10%+ reduction in fuel use
We continue to search for winning companies across a list of ~180 efficiency themes that we actively track.
In summary, at G2 we are focused on investing in businesses that enable green growth, or the decoupling of emissions and energy consumption growth from continued economic growth. Our work focuses on finding and investing in businesses that deliver material impact across a broad spectrum of the economy as we believe that future green growth will be the result of both direct decarbonization and game-changing efficiency.
¹ Measuring Worth, Our World in Data — Emissions, Our World in Data — Energy
³ https://cdn.osisoft.com/corp/en/docs/brochures/Microsoft-OSIsoft_Sustainability.pdf