Sustainability/Climate Tech/Analysis/

Report: Investment in CEE climate tech on the rise but funding gap remains

Climate tech startups in the region are struggling with the lack of sufficient funding and uneven distribution of investment 

By Zosia Wanat

Climate tech investment in central and eastern Europe (CEE) had a record 2021, doubling year-on-year.  

Investment into the sector in CEE reached $502m in the first half of 2021 — more than $1bn in investment on an annualised basis. That compares to $398m for the whole of 2020, according to a new report from PwC, a consultancy, and Wolves Summit, a startup conference. The increase is even more startling when compared to 2013, when the amount was just $10.6m. 

But this is still a small fraction of the overall funding going to the sector across Europe, which reached $14.2bn in 2021, according to Dealroom. And despite the overall slowdown in tech, climate tech investment has held firm on the continent. 

The acceleration of climate innovation across CEE is crucial for Europe’s efforts to reduce its carbon footprint and dependence on fossil fuels like coal. Traditionally CEE, together with Germany, has been much more dependent on coal than western Europe — a lignite-fired power plant in Poland’s Bełchatów is still the biggest carbon emitter in the EU. The region has also been slower to adopt technologies such as electric vehicles or solar panels, and there’s the question of the region’s past dependence on Russian gas. 

Climate tech solutions might be an important tool when it comes to quicker and more efficient decarbonisation of the region. But the CEE edition of PwC’s Net Zero Future50 report suggests that the sector’s startups in the region are still struggling with a lack of sufficient funding and that investment isn’t evenly distributed across the sectors. 

Funding needs

Even though investment into regional climate tech startups in CEE is rapidly increasing, the funding rounds for those startups are much lower than those for their western peers — think €81m of new investment for Dutch solar-powered car startup Lightyear and a €35m Series A for German nuclear fusion startup Marvel Fusion. 

Even though the region has recently seen more substantive rounds — such as a €16.3m Series A for Czech startup Woltair, a platform that helps consumers install solar panels and heat pumps — the majority of investment is still at seed stage. 

The report identified 50 climate tech startups from the region that have a certain level of maturity, scalability and climate impact. Only 20% of this group raised a Series A and beyond — it includes Poland’s Deeplai, which tracks the carbon footprint and carbon credit of forestry products, Estonia’s Roofit.solar, the producer of rooftop integrated solar panels and Hungarian startup Platio, which makes solar pavements. 

The rest have either raised a seed round, received a grant or are completely bootstrapped. 

Investment mismatch

There is also the issue of even distribution of funds: investment coming into the region hasn’t been allocated to sectors that have the biggest impact on slashing emissions, according to the report.  

While the energy sector is responsible for 47% of greenhouse gas emissions globally, only 1.3% of investors’ money coming to the region backs energy solutions. 

At the same time, almost 60% of investment goes to mobility and transport startups and another 36% to startups that provide solutions for manufacturing and industry  — the sectors that are responsible for 15.8% and 18.1% of emissions, respectively. 

“We call it the carbon funding gap. In theory, we want to achieve decarbonisation across all sectors,” says José Miguel Salazar Hernandez, ESG Hub manager at PwC. “There should be a more even distribution of the investment. We also see it on the global level that the funds are unevenly distributed, but in the case of CEE it’s particularly more undistributed than on a global level”

The report also shows that 83% of the funds have gone to startups in Estonia and Lithuania, while the region’s largest economy, Poland, has only attracted 4.6% of investment. 

Knowledge gap

According to the study, startups from the region don’t have complete knowledge of how exactly their technology helps to reduce carbon emissions: 40% of surveyed companies from the batch said that they simply don’t know their impact on emissions reduction. 

“It’s a loss of opportunity from their side,” adds Salazar Hernandez. “If they were able to capture the information, the impact assessment and put it as part of their value proposition, that should actually be a big part of their story. Especially because for so many climate tech related investors, that’s a huge area that they’re looking at.” 

Zosia Wanat is Sifted’s central and eastern Europe reporter. She tweets from @zosiawanat

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