Climate investors turn back to Europe for stable returns - (2025)

Climate tech investors are turning their focus back to Europe as the Trump administration’s pause on government clean energy funding creates instability in the US market.

“Europe is more stable for climate tech,” says Markus Moor, senior partner at Emerald, a climate tech venture capital firm that has corporate limited partners.

Other climate funds point to Europe as well as other markets outside the US that are still investing heavily in the energy transition.

Marc van der Berg, global managing director of ventures for Climate Investment, a fund with several oil and gas company limited partners, said at the GCVI Summit last month that the firm plans to launch a climate tech fund in April.

“Alright, we have a new administration in the US, but the problem is global. We have investments in Scandinavia, the UK, EU, South America and north of the border. We don’t underwrite to legislation or regulatory tailwinds,” said van der Berg during an on-stage discussion.

The possible rollback of US government funding for clean tech has highlighted the need for climate investors to have a diversified portfolio that is not solely dependent on US startups. Moor says the firm invests in US startups that sell globally as well as European companies that sell to the US.

“We will be more careful with some investments. We have seen some valuations coming down. We have been doing this for 25 years and we’ve seenseveralups and downs. This is yet another cycle that we need to adapt to,” says Moor.

The poor outlook for climate tech investing in the US under the Trump administration marks a sharp turnaround in fortunes for the sector, which received a boost from the passage of the Inflation Reduction Act, a landmark climate bill signed by former US president Joe Biden in 2022.

The legislation provided billions of dollars of support for renewable energy manufacturing and production in the US. Its generous provisions covered a range of sectors including hydrogen, electric vehicles, residential energy efficiency and carbon capture and storage.

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The passage of the bill caused jitters in Europe as the large size of the tax credits created concerns among European policymakers that it would pull investment away from its clean tech sector. The bill drew startups to the US as a result of the subsidies and also pushed up clean tech startup valuations.

But the new Trump administration has put the funding from the Inflation Reduction Act in doubt. President Donald Trump said he wants to withdraw the legislation and has put a temporary pause on tax credits included in the act.

Trump’s public pronouncements that global warming is a hoax and his call for the US to increase oil and gas drilling have contributed to the overall uncertainty for climate tech investing in the US.

The rollback of federal funding highlights the danger of investing in startups that are highly dependent on government subsidies, say investors.

“The Inflation Reduction Act was a huge boost to the climate tech sector. But it was extreme. There was so much money flowing into some technology segments that it pushed up prices. Now we are in another unstable situation,” says Moor.

“We stay away from deals that are dependent on single government programme and where changes to those programmes can have a substantial impact. We also try to stay away from companies that are substantially dependent on subsidies and government support, such as some of the hydrogen companies, which have gone from boom to bust,” he says.

Climate investors concur that startups relying heavily of government subsidies to survive are the most vulnerable to the change in the US administration. Murat Arcan, managing director of Sabanci Climate Technologies, an investment arm of the Turkish energy group, says the funds it invests in have diverse portfolios that do not rely solely on US tax credits. Forty percent of Sabanci’s $200m CVC fund invests in other funds while the other 60% is for direct investing.

“The climate funds that we invest in have built an ecosystem that is larger than the US. They have never relied on the Inflation Reduction Act or credits that make startups go wild and then back down whenever there is a change in a US administration,” says Arcan.

He adds that many climate funds are not focused on the short-term investment cycles that last the same time as the four-year US election cycles. “Just to go from seed to series B takes approximately four years,” says Arcan. “There is a maturity level of many climate investment funds. They are not looking at the next four years. There is a focus on 2050.”

While certain clean tech sectors have seen instability because of uncertainty over US policy, other sectors remain relatively stable.

Alternative energy sources for data centres, for example, will continue to be attractive climate tech investments because of the rise of AI applications, which require large amounts of energy to operate.

“There are other deals like energy efficiency for data centres, where there is an inherent need for data centre operators. The need for that technology won’t go away,” says Moor.

Others point out that the change in the US administration does not impede broader macro-economic trends that point to renewables becoming cheaper and more sustainable than fossil-fuel based energy.

“Our economy is moving greener faster than anyone anticipates,” said Steve Westly, founder of decarbonisation investment firm The Westly Group, who spoke on stage at the GCVI Summit.

Ninety percent of new energy added in the US last year was renewable, said Westly, whose firm has multiple corporate partners. “That is because the costs are, simply put, lower,” he said, pointing to the drop in battery and electric vehicle costs, in particular.

Back in Europe, the increased government spending on defence over concerns that the US will not ultimately step in to protect the continent against attack from Russia has had a knock-on impact on the prospects for climate tech investing.

The increased military spending has opened up opportunities for dual use defence tech that has applications in the clean energy sector for sectors such as batteries and autonomous systems.

“There is a sea change in defence spending in Europe. We will see some uptick in defence spending. You couldfurthermake the argument that energy independence is part ofa defence strategy in Europe,” says Moor.