Heatwaves Been F[re]aking Me Out; Let’s Talk Climate

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You’re not the only one with an extra layer of sweat this week so don’t feel too self-conscious in that crowded subway car. Temperatures around the world are soaring to uncomfortable levels, resulting in worsening fires, droughts, and crop failures. 200 million Americans across 28 states are receiving extreme heat warnings for temperatures above 90°F+ (32°C+), with states like Texas and Oklahoma hitting 115°F+ (46°C+). Wildfires are raging across the U.S., including unprecedented ones in Alaska and a wildfire outside of Yosemite National Park that threatens the iconic 2,000 year-old Sequoia trees. Temperatures in the U.K. hit 40°C (104°F) for the first time in recorded history and the rest of the continent is not faring much better, resulting in over a thousand deaths, wildfires across the continent, and melting airport runways. India and Pakistan are still reeling from heatwaves in May which forced temps between 113°F — 122°F (45°C — 50°C) with widespread consequences, including a 10–35% reduction in crop yields, in addition to loss of human life. Africa is also experiencing its worst drought in decades, its third in the last 10 years, furthering the famine crisis already being exacerbated by the Russa-Ukraine conflict (Russia has historically provided 90% of the wheat imported to the East Africa region).

The graphics below demonstrate the temperature anomalies in June of both 1976 — the summer in which U.K. had an iconic heatwave — and 2022. To see more time periods, check out the NASA site this data comes from. (warning: comparing early 20th century data to today’s may induce stress-sweat — avoid while on the subway).

These heatwaves are fueling climate anxiety, forcing an increasingly large swath of the population to ask what’s being done about it. While U.S. policymakers vacillate on meaningful climate action — during this most recent heat wave we’ve seen Senator Joe Manchin torpedo climate legislation (again) and the Supreme Court limit the EPA’s ability to regulate emissions (explained in more detail in FWP’s previous newsletter) — private markets continue to raise and deploy capital to companies with technologies and services that can meaningfully reduce carbon emissions.

Climate tech companies raised a whopping $19bn across ~500 deals in the first half of this year. While funding dropped 21% compared to H1 ’21, the space has actually outpaced fundraising for the broader market (which has experienced a 23% drop in the venture market from Q2 ’21 to Q2 ’22 alone) and is largely due to a decrease in IPO and M&A activity as companies take a defensive posture to weather the downturn.

Encouragingly, investors in the space are increasingly shifting their focuses to sectors with outsized decarbonization potentials but that have been underfunded from a climate impact perspective. As PWC highlighted in their State of Climate Tech 2021 report, mobility has hogged the majority of climate tech venture investment since 2013, but the sector only contributes 16% of total GHGs (see graphic below). This is a meaningful number to be sure, but other sectors need some love as well if we are going to decarbonize the economy and keep global temperatures from charging past the goal of 1.5°C of warming.

Fortunately, investors are waking up to this reality: the share of venture dollars being allocated to decarbonize industry and the built environment has grown significantly in 2022, and new funds have been launched to address these specific sectors — see, for example, 2150, a recent FWP recommendation, or FifthWall’s recently closed $500m property-focused climate tech fund. “Carbon” is a new and rapidly growing sector (8x growth from H1 ’21!) that covers carbon removal and storage, carbon utilization, and more. Twelve, a company that captures CO2 and converts it into chemicals, materials, and fuels (that crucial “utilization” piece) just landed a $130m Series B, demonstrating strong investor support for this growing segment.

On behalf of our clients, FWP continues to identify best-in-class climate-tech opportunities that generate both strong returns and meaningful GHG emissions reductions. Thankfully for our team, this work also eases our climate anxiety (well… somewhat) and shows us the exciting progress on the horizon.

Madelyn O’Farrell, Investment Analyst

The U.K. has resorted to wrapping its bridges in aluminum foil to prevent structural damage from the heat.

One idea that’s “always been 20 years away” but that may now be chipping into that timeline is nuclear fusion, the same reaction that takes place in the cores of stars such as the sun. The promise of nuclear fusion is a clean, essentially limitless energy source. There are over 20 private ventures globally trying to make fusion energy production a reality. Last week, TAE Technologies scored a $250m Series G to fund its next reactor after achieving temperatures of more than 75 million degrees Celsius with its current one.

Temperatures going up got you down? Check out Speed & Scale, authored by renowned investor John Doerr, for a straightforward plan to address the climate crisis. Yes, we recommended this book last newsletter, but it’s worth highlighting again!

This newsletter is intended solely for informational purposes, and should not be construed as investment/trading advice and are not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned. Any reproduction or distribution of this document, in whole or in part, or the disclosure of its contents, without the prior written consent of Flat World Partners is prohibited

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