Globally, investments in start-ups and companies focused on climate solutions have been cooling down but the Middle East has been an exception. A report analysing the region’s climate tech scene found total investment by Middle East players tripling, from US$1.8 billion in 2022 to US$5 billion last year.
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The report by professional services firm PricewaterhouseCoopers (PwC) on the Middle East’s climate tech scene – the second such study for the region – also found that most of the funds were invested in start-ups across the United States, China, other Asian countries and in Europe, as of end September last year. It said that there remains a funding gap for climate tech entrepreneurs within the Middle East itself.
Funding for the region’s climate tech start-ups dropped from nearly US$1 billion in 2022, to US$152 million by 2023. Data shows Middle East investors contributing just US$69 million of that total – less than 2 per cent of the amount they spend on climate tech globally.
“While Middle East players are ramping up climate tech spending, they can do much more to fund local entrepreneurs, who are now the missing link in their strategy,” said the report.
The report listed the three most active Middle East countries investing in climate tech as Saudi Arabia, which accounted for US$3.7 billion in funds, followed by the United Arab Emirates at US$1 billion, and Qatar with US$225 million.
An overall look into where Middle East investors are investing in climate technology by region. Image: 2023 Middle East Climate Tech Report, PwC
No reasons were given as to why Middle East climate tech start-ups drew the short straw on investments compared to other regions.
However, in a separate report by the same authors, when discussing challenges faced by regional energy start-ups, PwC noted that traditional sources of financing may be “more inclined to invest” in established energy projects, leaving start-ups “struggling to secure funding”.
Since 2018, the authors stated, US$1.85 billion had been invested in companies with their main headquarters in the Middle East. Over 75 per cent of these funds (US$1.4 billion) went to companies working on energy and mobility solutions – the two main sources of carbon emissions.
Government help needed to reduce risk
In its Middle East climate tech analysis, PwC recommended that governments help regional start-ups scale up and accelerate their innovation. Measures could include creating mission-oriented or sector-specific funds or off-take arrangements that can stimulate demand for their goods and services.
“This would encourage private capital to play a larger role in developing the regional climate tech entrepreneurial ecosystem,” the report said, adding that it would persuade risk-averse investors to give local start-ups a leg-up.
With the conclusion of the COP28 climate summit held in Dubai last year, increased international attention on the opportunities in the Middle East could also spur investments in the region’s climate tech start-ups. In recent months, high-profile green accelerator programmes have targeted Middle East start-ups focused advancing the circular economy and helping the region transition to clean energy, among other endeavours.
In June this year, US venture capital firm Princeville Capital backed by Hollywood actor Leonardo DiCarprio announced that it plans to invest US$50 million in climate-tech start-ups in the Middle East and North Africa over the next five years. It will focus on helping mature start-ups.
Princeville Capital has invested in companies including German solar firm Enpal, China’s Cainiao, Chile’s food tech company NotCo and electric vehicle charging company Volta.
