Climate Intelligence: The Digital Fabric for Climate Action
By: Jessica Eastling
Tags: Venture Capital, Climate Action, Climatetech, Better Ventures News, Impact Investing

The Looming Crisis and Awakening Opportunity

2020 was a brutal year and 2021 has been off to a rough start. While there’s reason to have hope for the future with multiple vaccines promising the end of the pandemic, we unfortunately have an arguably larger global crisis looming. If you’re in the US, your 2020 likely included living through record-breaking temperatures, hurricanes, and/or wildfires, as the academic warnings of climate change quickly became a reality (my personal experience was Blade Runner in SF). With these recent events only being a precursor for what is to come, I would say our future actually looks pretty bleak unless we start taking large-scale action.

Fortunately, leading actors in both the public and private sectors seem to be catching on. Larry Fink’s 2020 Letter to CEOs, where he explicitly named climate risk as a “defining factor in companies’ long-term prospects,” was followed by an avalanche of climate commitments across industries throughout the year (see Microsoft, Shell, Unilever, and on). The trend only looks to be intensifying in 2021 with Larry reinforcing his message and companies like General Motors, the largest US automaker, planning to phase out vehicles with internal combustion engines by 2035.

Our new administration has also taken a literal 180, rejoining the Paris climate accord we previously withdrew from and working to reinstate many reversed environmental regulations. Even during the past administration, state- and local-level climate pledges across the country continued to grow, with two-thirds of Americans (across party lines!) believing the government was doing too little to reduce the effects of climate change. With all of these signals, it is becoming increasingly difficult to deny an awakening to our looming crisis (finally!) and a growing appetite for the solutions to do something about it.

As always, the venture community is eager to participate in the blooming opportunity this demand represents. According to recent reports, VCs invested $60B in climate tech between 2013–2019 with an 84% CAGR in capital deployed, with no signs of slowing in 2020 (see below). Brand name venture funds including Sequoia, Union Square Ventures, and Y Combinator have also publicly shared their interest in backing these solutions and/or have raised specific funds to back climate companies.

At Better Ventures, sustainability has been a core pillar of our investment thesis from the beginning. With a focus on outsized impact and returns, we recognize the incredible opportunity climate tech presents: to invest in solutions that will help avoid (or at least temper) our looming crisis. Thus far we have made investments towards reducing the climate impact of our food, industrial production, and energy systems, and we are eager to make more.

As the window for meaningful climate action narrows, we can no longer afford for our efforts to be uninformed, uncoordinated, or unquantified. This is why we are particularly interested in backing Climate Intelligence companies — those building the digital fabric to effectively inform and direct climate action. Startups in this space, across Data Generation, Insight Engines, and Applications, make it possible to level up our mitigation and adaptation efforts, while also creating opportunities for impactful venture investment. We believe this category is an excellent fit for the venture model and absolutely essential to building our new carbon economy.

What is ‘Climate Intelligence’?

Business Intelligence is the use of historical and current data to provide actionable insights to drive immediate and future business decisions. Along those same lines, Climate Intelligence (CI) is the historical, current, and predictive information on our natural and built systems to power insights for climate mitigation and adaptation. In other words, CI can be defined as the data analysis of climate information to understand what affects climate, how climate is changing, and how those changes affect our society and economy.

Climate Intelligence companies are typically focused on one or more of the following: generating data on our natural and built systems (e.g. Planet); deriving insights from climate data (e.g. Descartes Labs); or, building climate mitigation or adaptation solutions by applying insights from climate data (e.g. Silviaterra). These companies can serve nearly any sector of our economy because, simply put, every sector impacts and is affected by climate. Any decision-maker looking to abate their climate impact and/or minimize their risk to climate change is a potential customer. (More on the CI landscape and market opportunity below.)

Why Climate Intelligence?

Some of you may recall the boom-and-bust cycle of clean tech from 2006–2011. It is well documented and well remembered by the investment community. There has been a lot of discussion about if and how the recent climate tech hype will be any different (see here, here, here, or here to start). In short, present climate tech solutions are just a better fit for the venture model compared to clean tech solutions of the past, particularly when it comes to Climate Intelligence.

VCs are great at investing in capital-efficient, highly scalable, high margin businesses. Technological advancements in the past decade, funded with some amount of venture dollars, have given birth to a new generation of climate companies that now fit this VC mold, especially true in the realm of Climate Intelligence.

The first enabler for CI has been the availability of data. Through developments in remote sensing technologies such as drones, micro- and nano-satellites, as well as ground truth sensors for land, air, and water, an unimaginable amount of data is being captured on our natural and built environment every day. Costs for collecting this data have also plummeted thanks to sensor hardware innovation, making the data more accessible than ever.

However, these raw data are not particularly useful for the average customer. The real value of this information comes from the insights, the generation of which is made possible by artificial intelligence and machine learning. Through recent computational advancements, enormous amounts of data can be aggregated, combined, and analyzed to produce useful insights faster than ever before. With the ability of ML to bring large scale datasets down to the local- and asset-level, as well as use historical data to build predictive models for the near- and long-term future, previously ambiguous generalized information can now be targeted and relevant.

Image credit: LANDinfo

This is the burgeoning Climate Intelligence opportunity — a new layer of high-quality, high-granularity understanding built upon key technology innovations of the past decade. And instead of being limited to capital intensive decarbonization hardware, companies building this digital fabric for our new carbon economy are offering the capital-efficient, highly-scalable, high-margin climate solutions venture investors have been waiting for.

The Climate Intelligence Landscape