Measuring Climate Impact Amid Unproven Technologies and Unpredictable Event Risk

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Climate tech investment is having a moment of reckoning.

After a strong run in 2022 and 2023, global climate tech equity investment reported by BloombergNEF (BNEF) fell by 40% in 2024 – from $84 billion to $51 billion.

The decline comes amidst a positive outlook for overall energy transition finance, which increased to more than $2 trillion globally.

With venture funding headed for AI at the expense of companies focusing on decarbonization, and even within the climate tech space, BNEF pointed out that funding for Energy startups surpassed investment in electric vehicles and batteries as demand for AI pushes investors to focus on technologies that can power data centers with lower emissions.

DeepSeek’s recent domination of headlines based on its announcement of lower-energy usage relative to OpenAI – and the resulting flurry of market activity  – is a signal of what lies ahead.

And, President Trump’s announcement of an “energy emergency” endorsing more drilling to support new data centers, reinforces the bid for energy demand, albeit from the opposite end of the emissions spectrum.

Despite the US administration’s support for fossil fuels, there is still a strong focus on energy transition, underlying the need for frameworks to analyze investment returns on a risk-adjusted basis.

The definition of Climate Tech – renewable energy, nuclear power, green hydrogen, electric vehicles and batteries, industrial decarbonization including green cement and steel, AFOLU (agriculture, forestry and land use), carbon removal and DAC (direct air capture) – will continue to evolve as the sector matures.

However, unproven technologies come with high information asymmetries and little transparency, exacerbated by the reality that there is no standardized methodology to estimate ROI or calibrate risk.

Climate risk metrics are characterized within carbon accounting frameworks measuring an existing company’s Scope 1, 2 and 3 emissions, and Life Cycle Analysis – both of which are inadequate for start-ups operating in nascent markets.