The goal of transitioning to a net-zero and climate-positive economy has spurred multilateral collaborative endeavors, infrastructure planning, private and public funding, and promises of business opportunities worth trillions of dollars. The significant financial returns, together with the urgency of the climate crisis itself, means that climate tech is a rapidly maturing asset class, with increasing involvement of multiple stakeholders developing, financing, and deploying incremental and disruptive climate tech solutions.

Israel’s climate tech ecosystem mirrors the global climate tech acceleration and continues to grow and escalate. The number of Israel’s climate tech startups, mapped according to the PLANETech Climate Challenge Map, increased both in absolute numbers, reaching 784 startups, and as a growing proportion of all new startups founded each year, comprising 17% of these in 2022, meaning that 1 out of every 6 new startups is climate tech. Most of the startups, approximately 66%, are less than 7 years old. Over 55% of all funded startups are at the pre-seed or seed stage. Most – approximately 80% – have hardware at the core of their innovation (either exclusively hardware or combined with software).

The five most prolific climate challenges addressed by the startups founded since 2018 are Climate Smart Agriculture, Clean Energy Systems, Sustainable Mobility & Transport, Alternative Proteins, and Carbon Management, Risk & Finance. When relating to the larger and older full set of Israeli startups, the fifth most prolific challenge addressed is Eco-Efficient Water Infrastructure, highlighting that this challenge is typically addressed by more mature companies. The first four challenge areas are also those whose startups have collectively raised the highest investments each year since 2018.

Carbon Management, Risk & Finance and Carbon Capture and Storage are the two challenge areas with the highest fraction of new startups established in the last 3.5 years, although they are yet to raise significant funds. The challenge area that displays the most rapid growth, both in terms of the number of newly established startups and the funding raised is Alternative Proteins. Green Construction, a challenge that was classified in the rapid growth cluster in 2021 and 2022, now displays a dearth of new startups and, together with Clean Manufacturing and Sustainable Digital Infrastructure, is classified under stagnated growth – challenge areas with very few new startups yet well above the median of total investments per climate challenge. Compared to previous years, we see slight shifts in numbers and investments within the cluster of early growth; challenges such as Circularity, Food Loss & Waste and Novel Materials, all with less than 50 startups and a notable growth rate of newly established startups.

The total amount invested in Israeli climate tech startups between 2018 – H1 2023 totaled $8.2 billion, with $2.3 billion raised in 2022 alone. For every investment dollar raised in Israeli high tech in 2022, 14 cents went towards climate tech.

Investors originate in roughly equal proportions from Israel and other non-Israeli localities among which those from the US were predominant. Over 50% of the investments were raised from VC investors, followed by investments from CVC’s (16%), that are nearly entirely non-Israeli entities. The trends observed for investments in Israeli climate tech startups generally mirror the global trends. Between 2018-2021, Israeli climate tech investments followed the global trend of growth, although financing in Israel grew by 320% – outpacing global growth by a factor of 2.6. During the global economic slowdown of 2022, Israeli climate tech was highly resilient, raising investments at levels close to those of 2021, again similar to the global patterns, demonstrating stability in the total amounts of climate tech investments in 2021 & 2022. Climate tech was 400% more resilient than the general Israeli tech ecosystem where investments declined significantly in 2022. Again, similar to global trends, investments in the first half of 2023 dropped significantly compared to the parallel period in 2022. The mirroring of the global trends would seem to be a sign of the mainstreaming of Israeli climate tech ventures.

Government support from the Israeli Innovation Authority for climate tech ventures across all stages, from academic research to pilots and scale-up, totaled $71.4 million in 2022, comprising 16% of its annual budget. Other governmental ministries and agencies support climate tech in academic research, pilots, and technological developments.

A survey conducted among Israeli climate tech startups revealed that the main challenges faced by the startups are financing, market scaleup opportunities, and regulatory hurdles. Pre-seed and seed companies specifically point out the lack of pilot site opportunities. The capability of scale-up and regulatory hurdles were more dominant for startups at round B and beyond. A higher fraction of respondents cited scale up as a barrier compared to our survey in 2021 (40% vs. 28% in 2021), a finding that may demonstrate the maturing of the ecosystem.

Responses from the survey demonstrate that Israeli innovations are deployed worldwide, across all continents, and in well over 100 countries. Moreover, 20% of the startups do not deploy their innovation within Israel. Over 20% of the startups are active in at least 10 countries and over 75% are active in North America as well as in Europe. The leading North American market is the USA while the leading European markets are Germany, Italy, and Spain. In Latin America, Asia and Africa the leading markets are Mexico and Brazil, India, and South Africa respectively. The Australian market penetration is similar to that of the leading Latin America countries.

The collaborative approach to innovation in Israel that integrates multiple stakeholder types, especially within the climate tech ecosystem, has accelerated and amplified the ecosystem over these last years. The government’s focus on climate tech alongside new climate tech investment funds and verticals, the proliferation of new venture builders, accelerators and incubators, amplified focus in academia on technological solutions for climate and top talent moving into climate tech, will all undoubtably continue to drive the Israeli climate tech ecosystem to greater heights and success with growing global impact in the coming years.