Climate tech is in a chicken-and-egg situation in Southeast Asia

When it comes to climate change, Southeast Asia, with its long coastlines and heavily populated low-lying areas, is among the most vulnerable regions. Extreme weather events, typhoons and floods are frequent in this part of Asia.

Sustainable development and living are the only way forward. Innovative tech solutions need to be developed to achieve sustainability and address this crisis.

New startups have emerged in climate tech of late, but their number is scarce (a large chunk of which is in the alternative food and electric vehicles domains). Predictably, the amount of investments flowing into the sector is also inadequate; as per a report, roughly 0.8 per cent (US$396 million) of the total funding invested globally came to SEA in 2021.

The reasons for this slow growth are many.

“In our experience, three things are holding back climate tech investments in Southeast Asia,” said Rob Kaplan, Founder and CEO of Circulate Capital.

Firstly, the pipeline isn’t perceived to be strong enough, he said; if you want to invest US$100 million in climate tech, you would like to see over a US$1 billion opportunity because you only want to invest in the top 10 per cent. There is no visible pipeline of that scale in SEA. As a result, investors are reluctant as they don’t have access to the information and tools they need.

The second reason is, Kaplan added, there’s not been a successful investment track record for investors to look at in climate tech in SEA. It is a chicken-and-egg problem. On the one hand, investors aren’t confident in evaluating the risk as they have no previous investment experience. On the other, they won’t get that experience until they start investing.

Also Read: There’s a mismatch of investment and entrepreneur focus in SEA’s climate tech: Steve Melhuish

Third, there haven’t been enough investment products focused on climate tech in SEA historically. “When we launched in 2018, finding investors and funds using the words’ impact’ and ‘ESG’ were few and far between. Today, so many folks are looking at the space that we have multiple WhatsApp groups!” Kaplan noted.

Circulate Capital, based in Singapore, invests in companies addressing plastic waste and climate change crises. The 4-year-old firm has invested more than US$50 million in over a dozen companies, including Tridi Oasis, ACE Green Recycling, and Reciki.

Amasia’s Managing Partner John Kim echoed Kaplan’s views and said the region lacks a robust and collaborative ecosystem for climate tech startups to thrive. “I would compare climate tech development to the development of the digital ecosystem.”

When Amasia started investing about a decade ago, said Kim, the ecosystem was still nascent. Certain key players, like Temasek, worked hard to demonstrate the potential of SEA’s digital ecosystem by providing funding and leveraging its network to make key connections in the space. “The Temasek Foundation is doing something similar with climate now: they are running the Liveability Challenge to generate interest and awareness of the potential for climate tech in Singapore and SEA more broadly.”

In Kim’s view, developing climate technologies requires a robust and collaborative ecosystem that includes top research institutes, significant VC investments, and capable entrepreneurs. SEA has a keen interest in fighting climate change, given how acute its effects will be here. All the ingredients for development are here; they need to be melded effectively.

All the climate tech VCs e27 spoke to for this story, including Earth Venture Capital’s General Partner Tien Nguyen and Aera VC’s Founding Partner Derek Handley, shared similar sentiments.

“Entrepreneurship and venture investment develop through the history of economy, education, and culture, which the US or Europe has longer tractions than SEA. The region needs more time not only to improve startup quality but also to attract more relevant capital. We have the potential of a large and young population, a growing source of tech talents and a supportive government in terms of climate change,” said Nguyen. Headquartered in Vietnam, Earth Venture Capital seeks to support pre-seed to Series A-stage climate tech companies with a potential to expand globally.

Alt-food, EVs attract the most capital

It is not just that the venture money being poured into the region’s climate tech is paltry, but a large chunk of it is consumed by alt-food (plant-based meat, milk, etc.) and EV players. VCs believe this is because these are the sectors that existing investors are more familiar with.

Also Read: How electric mobility startups are tackling climate change in Asia

“Foodtech (and fintech) are some of the strongest entrepreneur and VC communities in SEA. It’s only natural that as folks started looking at climate tech, they would start by digging deeper into the areas with strong networks, experience and interest,” stated Kaplan.

Further, these sectors [alt-food and fintech] have received significant support from the government over the past five years. There are tons of incubation and acceleration programmes and a robust support ecosystem.

“Most often, innovation and technology [in SEA] are considered synonymous with specific industries, such as fintech or e-commerce. But innovative materials, waste management technology, and advanced recycling techniques are critical for the circular economy ecosystem,” Kaplan pointed out.

Steve Melhuish, a distinguished entrepreneur-turned-climate tech-investor and Founding Partner of Wavemaker Impact, concurred with Kaplan’s views. “Alternative protein has attracted substantial investment over recent years globally including in SEA — given the meat industry contributes roughly 15 per cent of total greenhouse gas emissions and contributes massively to deforestation and poor animal welfare; for instance, TurtleTree Labs and Shiok Meats.”

TurtleTree is a cell-cultured dairy company that in November 2021 secured US$30 million in a Series A round of funding led by Verso Capital. Shiok Meats, a cell-based crustacean meat company, netted US$12.6 million in a Series A funding round led by Aqua-Spark, in mid-2021. Another key player is Next Gen Foods. This plant-based chicken startup recently raised US$100 million in Series to expand in the US.

However, Melhuish of Wavemaker Impact has a different experience to tell. “Over 80 per cent of the climate tech deals that I receive every month are non-alt-protein. They span energy, nature/land use, building & construction, manufacturing, and transport-related. Over the last three years and a half, only two of my 16 Asia climate tech investments have been in the alt protein space.”

Kaplan suggests that structured incubation mechanisms need to be created to attract new innovators into climate tech. His firm Circulate Capital has initiated specific programmes to make the sector more attractive. One such initiative is a partnership with The Incubation Network (TIN), which sources, supports and scales innovative solutions that tackle plastic pollution. Together with TIN and global impact innovation agency SecondMuse, Circulate Capital encourages more and better ventures to get involved in the circular economy.

Also Read: ‘Climate tech: SEA needs more time to improve startup quality, attract capital’, says Earth Venture Capital’s Tien Nguyen

“We encourage all investors to get off the sidelines of investing in this sector. Large, institutional investors have not been allocating Capital to ClimateTech or any related sectors. The more they can signal their demand and interest in the space, the more likely we will be able to start seeing the scale of investment needed to drive returns,” Kaplan pointed out.

Kaplan also maintains that there’s a significant opportunity to invest in the waste and recycling space in South and Southeast Asia. Solving the plastic waste issue and capturing the economic value of plastic waste will help lessen the pace of global warming.

“Geographically, Asia represents an enormous opportunity to deploy interventions as the largest volumes of mismanaged plastics over the 2020-2040 period are expected in this region. We see this as a tremendous opportunity to invest in infrastructure and innovation to get circularity as a default option in rapidly developing parts of Asia. We want to skip incremental change of outdated systems and drive straight to exponential impact. Asia can build the next-generation model, and we have started seeing it already,” said Kaplan

Singapore-based Amasia also is doing its bit for a flourishing climate tech ecosystem in the region. It has developed a ‘4Rs framework’ (Review, Renew, Rethink, Rebuild) that considers the climate crisis more broadly as a symptom of certain behaviours we have developed as a society. Given that these broader behaviours are the problem, the solutions are broader than people typically think.

“For example, our wasteful behaviours around food production and consumption have an immense impact on the climate. Six per cent of the world’s carbon emissions result from food waste (3x the emissions from aviation),” said Amasia’s Kim.

“Materials production is another place where more can be done to fight the climate crisis. At Amasia, we have an experimental bucket, including companies like Seppure in Singapore, making industrial processes more efficient. Companies such as Unravel Carbon that collect data are also essential to measuring and managing the problem. We see plenty of impactful startup activity here in Southeast Asia, but they are not of the air-into-diamonds variety yet,” Kim remarked.

The government role

To stimulate the growth of climate tech in the region, different stakeholders have different roles to play. “We certainly need to allocate funding for R&D, though VC is not always the place for that funding to originate. VCs also need to understand developments in climate technology and become comfortable investing in technologies that help the climate in many ways. Entrepreneurs need to recognise that their particular skill sets can impact the fight against climate change and leverage those strengths,” Kim said.

Also Read: Wavemaker Impact, Enterprise SG to groom 12+ climate-tech firms over the next 3 years

The governments in the region also have a role to play in accelerating adoption and providing individuals and companies with incentives for change. “This comes with the caveat that startups should not become too reliant on government subsidies to make their tech competitive, lest we repeat some of the failings of the late-2000s cleantech bubble,” Kim concluded.

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