Addressing the climate crisis and limiting warming to 1.5°C requires system-wide transformation; involving technology, infrastructure, governance and climate finance.

Surveying global endeavors to tackle the climate crisis during the past year since the publication of our report “Israel’s State of Climate Tech 2022 Update” reveals deepened global commitments and actions on all the above fronts, involving both private and public sectors. Nevertheless, it is apparent that these actions fall short and that change, although heading in the right direction, is occurring at insufficient speed. In order to attain the 1.5°C limit with no or limited overshoot, swift and significant efforts must be made to reduce greenhouse gas emissions by 43%1Emission reductions are relative to 2019. by 2030.2Synthesis report of the IPCC Sixth Assessment Report, March 2023.

The Synthesis Report of the IPCC Sixth Assessment Reports (AR6) emphasizes the need for finance, technology and international cooperation as critical enablers for deep emission reductions and climate resilience. The report outlines how emissions cuts can be achieved and establishes carbon dioxide removal (CDR) methods as unavoidable to achieve net zero CO2 or GHG emissions, as a proposed pathway to attaining the 1.5°C limit.

As the effectiveness of adaptation measures to reduce climate risk declines with increased warming, reducing adaptation gaps (the differences between what is being done and what is needed) and avoiding maladaptation must be given immediate priority.3 A major breakthrough at COP27 was the establishment of a Loss and Damage Fund to aid developing countries to respond to and recover from the devastating impacts of climate change, for which the scope and financing is to be finalized at COP28. Likewise, the Global Goal on Adaptation framework, intended to establish processes for evaluating the effectiveness of adaptation interventions, is due to be finalized by COP28.

According to the International Energy Agency, nearly half the low-carbon technologies required to reach net-zero by 2050 have yet to be developed or are unavailable commercially.3Net Zero by 2050, A Roadmap for the Global Energy Sector, IEA, October 2021. Both private and public funding are crucial to development and deployment of scalable technological solutions. In the US, federal spending programs, especially the Inflation Reduction Act (IRA), have accelerated private sector-led and government-enabled projects in energy and industry, as well as providing incentives for development and deployment of earlier-stage emerging climate technologies such as clean hydrogen, sustainable aviation fuel and direct air capture (DAC). Two commercial-scale DAC facilities were recently announced as part of the Department of Energy’s (DOE) Regional Direct Air Capture Hubs Program.4 – retrieved August 11, 2023. These federal programs provide a strong signal for increased allocations to support continued growth of emerging and mature climate technologies, and are expected to have far-reaching and substantial impact on both US and non-US emission reductions.5 – retrieved August 13, 2023.

The EU and member states have also accelerated programs for public and private financing to attain decarbonization targets, including innovation in industry, buildings, and clean energy – the latter given extra impetus following the outbreak of the Russia–Ukraine war, in response to the EU’s need to achieve energy independence and overcome supply disruptions and volatility.

In the private sector, the growth of climate tech innovations is facilitated by the anticipated continued strong growth of the climate tech market,6Pitchbook, Carbon & Emissions Tech Launch Report, September 2022. an increasing number of new players, and the diversification of finance across industries. In 2022, thousands of investors participated in at least one climate deal,7CTVC, Who are the climate tech VCs? May 5, 2023. and funds raised by climate-focused VCs continued to increase, although the VC dollars invested remained similar to 2021 – approximately $40B.8Pitchbook and CTVC. This stability demonstrated the resilience of climate tech during a slowdown in global investments in the wake of the post-Covid recession. In contrast, the first half of 2023 has shown a downturn in capital flow to climate tech. Interestingly, both funding and the number of early-stage deals increased in 2022 and in H1 2023 compared to previous years, and the turndown emanates from a slowing in growthstage capital and deal numbers (which have typically been dominated by Energy and EV startups). It will be interesting to see the funding outcomes for the second half of 2023 and to monitor, not only the funding stage of companies successfully raising capital, but also the strategies undertaken to facilitate growth capital to the broader set of mitigation and adaptation (non-energy/EV) technologies as these develop.

Alongside the climate crisis, the ecological crisis has also received more attention this past year. The Kunming- Montreal Global Biodiversity Framework (GBF), adopted at COP15, establishes a package of measures critical to addressing the loss of biodiversity and restoring natural ecosystems,9 the EU Parliament passed its Nature Restoration Law,10 and The Science-Based Targets Network is piloting the first formal framework to help companies set goals for preserving nature and biodiversity.11 These frameworks require scaling of nature-based solutions – involving not only financing but also, the development of nature technologies that can enable, accelerate, or scale-up nature-based solutions. This is a still nascent domain, with VC investment of approximately $2B in 2022, a figure that is expected to grow to $6B by 2030.12The Nature Tech Market, Nov 2022, Capital for Climate and Nature4Climate.

Amidst these global developments and financing opportunities related to climate and nature goals, this report continues the tradition of our 2021 and 2022 “Israel’s State of Climate Tech” reports in providing an up-to-date analysis of developments in Israeli climate tech. Israel is acknowledged as an emerging global climate tech hub,13Scaling Climate Tech, A Global Study of Entrepreneurs and Networks, Endeavor Insight and HSBC, October 2022. with an ecosystem consisting of government, startups, and investors as well as a surge of newly-founded accelerators, incubators, and programs designed to support startups at different stages of their growth. This 2023 review of “Israel’s State of Climate Tech” will, like our previous reports, undoubtedly play a crucial role in driving awareness, knowledge, and strategic decision-making towards the continued growth and success of Israel’s climate tech industry.