VC, PE companies expanding green efforts

Chinese venture capital and private equity firms are set to play a bigger role as the country accelerates its steps to peak carbon emissions and achieve carbon neutrality while pursuing higher-quality development, according to industry insiders.

"Achieving the goal of carbon neutrality may need trillions of yuan in investment and decades of continuous efforts. During the process, VC and PE firms, which are mostly market-oriented, can give full play to their driving role," said Zhang Lei, founder of global investment firm Hillhouse Capital.

"VC and PE firms have a relatively higher risk tolerance. Therefore, they are able to help early-stage innovative companies endure difficulties more smoothly. It is important as companies involved in achieving carbon neutrality need a large amount of resource investment in early stages," Zhang said.

On the other hand, for those companies that have achieved phased results, what they need is not only financial support, but also empowerment in things like business models and strategies, and this is exactly where VCs and PEs like Hillhouse can help, he added.

A Hillhouse report found that new green technologies and business models are constantly emerging in the fields of electricity, transportation, new materials, construction, agriculture, carbon emissions, information communication and digitalization.

"Compared to areas with mature technologies and large-scale industrial application scenarios, for companies from the above sectors, their technology is still in the early stage while they still need much financial support from VCs and PEs to gird their continued innovations," Zhang added.

Last year set a record for climate-tech startup investment with $17 billion invested globally. China and the United States are the most popular areas for climate-tech investment across funds, said strategic research provider BloombergNEF.

CVSource, an information service provider, said that in the first quarter, combined VC and PE investment into projects related to carbon neutrality in China hit over $4.5 billion, which was much higher than that of other sectors.

President Xi Jinping announced last year that China will peak its carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.

"This major strategic decision is made based on our sense of responsibility to build a community with a shared future for mankind and our own need to secure sustainable development," Xi said at the Leaders Summit on Climate via video link in April.

Xi added that China has committed to move from carbon peak to carbon neutrality in a much shorter time span than what it might take many developed countries, and "that requires extraordinarily hard efforts from China".

Xi said: "Faced with unprecedented challenges in global environmental governance, the international community needs to come up with unprecedented ambition and action. We need to act with a sense of responsibility and unity, and work together to foster a community of life for man and nature."

Aside from speeding up the building of a clean, low-carbon energy system, China will also prioritize its efforts to peak CO2 emissions in key industrial sectors－including steel, chemicals and cement－by setting specific targets, road maps, action plans and supportive measures.

Zhu Min, chairman of the National Institute of Financial Research at Tsinghua University in Beijing and a former deputy managing director of the International Monetary Fund, said at the Boao Forum last month that the country's commitment to achieve carbon neutrality by 2060 will lead to a restructuring of the economy, and the financial sector may play a big role in such a transition.

BloombergNEF categorizes climate-tech investment into six key technology themes: energy transition, transport and new mobility, agriculture and land-use, climate and forests, decarbonizing industry and buildings, and circular economy and new materials.

Another report launched by leading investment firm Sequoia Capital China predicted 10 technical directions that can accelerate commercialization of carbon neutrality, which include solid-state battery technology that breaks the endurance ceiling, integrated household energy storage with solar energy and lithium batteries, new materials technology to promote energy saving and emissions reduction as well as smart car-road collaboration technology to mitigate congestion and cut emissions.

Such technologies also include AI data collection and energy saving systems, high-efficient storage-computing integrated AI chips, low-carbon emissions technology, direct air carbon capture technology, carbon emissions quantification and audit technology as well as synthetic biotechnology that enhances environmental friendliness.

To support companies in the area, Hillhouse Capital set up a special climate change investment team and launched a special green fund, which was the first purely market-oriented investment fund focused on green industries.

Envision Technology Group and Sequoia Capital China have jointly established a carbon neutrality fund with a total investment of 10 billion yuan ($1.5 billion). GCL Energy also plans to cooperate with CICC Capital for an industrial fund focused on carbon neutrality.

"Carbon neutrality is a key topic of this era, and it is also a responsibility that everyone should bear. The essence of Sequoia's work is to discover innovators who create positive value for the society, including those in the field of carbon neutrality," said Neil Shen, founding partner of Sequoia Capital China.

"Sequoia will continue to deepen its investment in the field of green technology and continue to be a responsible investor. We hope to work with more peers to build a zero-carbon future," Shen said.

Industry insiders said that leading economies like the US and European nations have already been at the forefront of green investments. A group of VC and PE firms in Silicon Valley have been investing in clean energy and climate-themed companies for decades.

In January, TPG, a global private investment firm, announced an exclusively climate-related fund－TPG Rise Climate－focused on solar, mobility and agriculture. Investment firm Union Square Ventures announced the close of its $162 million climate fund after making another investment in a satellite company to protect forests.

According to an estimate from the Institute of Climate Change and Sustainable Development of Tsinghua University, new investment of approximately 138 trillion yuan is required to achieve the carbon neutrality transformation path.

Carbon neutrality efforts are expected to attract over 180 trillion yuan of green financial investment globally over the next 30 years, said Ma Jun, director of the Green Finance Commission under the China Society for Finance and Banking.

"Most of these green and low-carbon investments still need to rely on social capital. Therefore, the green financial system aimed at mobilizing and organizing social capital to carry out green investments will play a key role in the process of achieving carbon neutrality," Ma said.