Yahoo Finance 83% of Canadian climate tech investment flows abroad: report
Only 7% of Canadian funding rounds were over US$50 million, compared with 12% in the U.S.
More than 80 per cent of Canadian investment in climate technology is flowing outside the country, according to new research describing a "valley of death" for green companies attempting to grow beyond startups.
Boston Consulting Group (BCG) analyzed public disclosures of private equity investors as well as debt financing by venture capital and private equity firms in early, growth, and late-stage funding rounds. The results showed Canadian investors deployed roughly four-fifths (83 per cent) of their capital outside Canada.
"Institutional investors, which make up the majority of climate tech capital flows, have largely been focused on segments where technology and policy are de-risked, such as wind and solar," BCG researchers told Yahoo Finance Canada. "Most of these projects are happening outside of Canada."
Meanwhile, about 55 per cent of climate technology investment in Canada came from abroad, according to BCG. Only seven per cent of Canadian funding rounds were over US$50 million, compared with 12 per cent in the United States.
"If risk parameters are mitigated, there are large pools of capital that would be available and could be deployed in other segments where Canada has more opportunities," the researchers added. "Ways to de-risk investment include policy signals from government and R&D, or go-to-market partnerships with corporations."
Potential opportunities
BCG says Canadian companies currently face "real valleys of death," with the country ranking second-last among 15 peers when it comes to research and development activity, securing a lower share of larger deals, and launching few at-scale projects with major corporations.
It's not all bad news though. BCG says over the past five years, Canadian firms attracted roughly US$7.5 billion out of US$300 billion invested globally in climate tech. It says that's more than Canada's fair share given the country's ratio of global GDP.
"Many of these investments have been concentrated in carbon capture, hydrogen, sustainable fuels, small modular reactors/fusion and climate intelligence," the researchers wrote. "This gives Canada a leading position in these sub-segments."
According to the International Energy Agency's Net Zero by 2050 report, almost half of required emissions reductions will come from technologies currently in the demonstration or prototype phase. BCG says it's critical for Canada to get innovations from the lab to the real world quickly. For the country to hit its net zero by 2050 target, product development times must outpace even the fastest energy technology developments of the past by at least 20 per cent, according to the research.
"Canada does not have time to wait for technologies to be fully proven elsewhere," BCG wrote in its report. "Enabling rapid acceleration in climate tech development will require increased flows of climate capital as well as corporate champions."
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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