Key Insights from Climate Week NYC 2024

An article by Alex Hokanson and Yoanna Lazarova

As the 79th United Nations General Assembly convened in New York last week, the city became an epicenter for climate action. Propelled by the energy transition wave - one of the biggest megatrends shaping the market today - Climate Week, a niche side event merely a few years ago, celebrated its 15th year by drawing more than 6,500 attendees from over 100 countries. Our team spent the week attending panels, engaging with industry leaders, and meeting with investment managers across themes and asset classes. A consistent message echoed in every room: climate action is on the rise.

While the conversations were wide-ranging, there were several topics which came up frequently throughout the week.

Navigating the role of AI in the energy transition

AI has proven to be both a powerful enabler and a potential challenge in advancing climate objectives. On one hand, AI is helping companies scale faster - whether through digital pilots, advanced language models, or self-service platforms - and it is pushing the energy transition forward. For example, Fervo Energy, a next-generation geothermal energy company, uses AI to identify optimal drilling locations, driving innovations in optical sensing. This approach is unlocking gigawatts of clean energy, while reshaping the job landscape for workers in traditional oil and gas industries.

Meanwhile, the rapid growth of data centers is placing unprecedented demand on electricity grids, with hyperscalers such as Microsoft, Google, Amazon and Facebook in the spotlight. The question looms: will this heightened demand cause a regression toward coal and natural gas reliance for power? Recent developments, like Microsoft's bold (and controversial) deal to restart Three Mile Island nuclear reactor, suggest otherwise. Despite inherent risks, key players are reinforcing their sustainability commitments during periods of hypergrowth. Hyperscalers seem determined to meet their energy needs in cleaner ways—whether it's by tapping into more renewable power, exploring alternative energy sources, investing in cutting-edge innovations and in nature-based solutions for carbon sequestration. Spoiler alert: they’re choosing all of the above.

Climate Week discussions underscored the growing consensus that AI, despite its challenges, will play a pivotal role in accelerating the energy transition and addressing the increasing complexity of global energy demands. 

Wall of worry for FOAK (first of a kind) development?

Over the past few years, thousands of promising climate technology startups have been created and then funded by venture capital. Following the peak in venture capital funding in 2021, the funding environment has softened, and worries have emerged as to who will fund the commercialization stage for these companies, and who will fund their first of a kind project development. This “commercial valley of death”, often at the Series B through Series D stage for venture backed “hard tech” companies, entails first time development risk which can be difficult for investors to price. On the other side of this valley, these companies can tap into essential lower cost project finance capital from infrastructure investors and from the Department of Energy (DOE) Loan Program Office. Climate Week discussions gave us evidence that private equity and strategic corporate partnerships are playing a key role in helping these companies navigate the new funding environment. Here are a few examples:

Twelve, a carbon transformation company, has emerged as a leader in the production of sustainable aviation fuel using captured carbon. The aviation industry is a meaningful contributor to greenhouse gas emissions, and it is under pressure to decarbonize its fuel combustion. Twelve has recently received $645 million in new capital in the form of equity and project finance led by Texas Pacific Group (TPG). The capital will be used for development of production facilities which will supply e-jet fuel to customers such as Alaska Airlines and International Aviation Group.

Unspun, a 3D weaving company, recently raised a significant Series B round and announced a pilot partnership with Walmart. Unspun builds micro-factory machines which produce apparel without the cutting and stitching of traditional production, which reduces lead times and wasted material. These small machines can function as local factories, removing carbon emissions from the clothing supply chain and removing failure points in the global supply chain.  

Scaling nature-based solutions

Amid their rapid growth fueled by the AI wave, hyperscalers are strategically addressing sustainability commitments by tapping into the planet’s natural capacity to absorb and sequester carbon dioxide. These companies are leveraging nature-based solutions (NBS) as critical means to offset emissions and work toward atmospheric equilibrium. NBS strategies span from more established approaches, like regenerative agriculture and sustainable timber management, to ocean and wetland strategies, which are still in the early stages on the project development learning curve.

While optimism surrounding NBS was palpable during Climate Week, it is clear that challenges remain. The structure of NBS opportunities can be complex, and carbon reporting lacks consistency, which presents hurdles for capital allocators. Without global standards and clear frameworks for deal structuring and reporting, it is unlikely we will see the necessary influx of capital into these solutions. Our team joined a panel with BTG Pactual Timberland Investment Group to underscore the importance of collaboration, communal learning, and a focus on bioregional solutions, all while developing replicable frameworks to scale NBS effectively.

The resurgence of fission and rise of fusion

One of the more unexpected topics during Climate Week conversations was the resurgence of interest in fission and fusion technologies. While large nuclear reactors continue to attract attention, investors see the real opportunity in the shift towards smaller, portable reactors. Companies like Radiant are pioneering the development of portable nuclear microreactors, designed to replace diesel generators. These reactors offer a mass-producible, easily transportable solution for generating electricity in remote areas, powering off-grid communities, and providing resilient backup for critical infrastructure like hospitals and data centers.

Fusion is also gaining momentum, driven by significant regulatory and funding tailwinds. The Nuclear Regulatory Commission has reclassified fusion reactors as inherently safer than fission reactors, allowing companies to bypass the decades-long permitting obstacles that have hindered fission technology. Bipartisan legislation is being advanced to further ease the fusion approval process, and the Department of Energy has already allocated $50 million in federal grants to support commercial fusion. Since Lawrence Livermore National Laboratory (LLNL) achieved net energy gain (Q>1) in December of 2022, government labs and venture capital backed startups have continued to make tangible advancements.

As Climate Week came to a close, the sense of urgency around climate action is palpable, but so is the optimism. The conversations and connections made over the past week make one thing clear: we are not just talking about change - we are actively shaping it.