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Israel’s ‘vibrant’ climate tech sector shows promise amid challenges

New report maps landscape of companies tackling environmental issues, highlights obstacles like access to funding, ability to scale

Ricky Ben-David is The Times of Israel’s Startups and Business editor and reporter.

View of the Ashalim solar power station in the Negev desert, southern Israel, on August 21, 2020 (Yonatan Sindel/Flash90)
View of the Ashalim solar power station in the Negev desert, southern Israel, on August 21, 2020 (Yonatan Sindel/Flash90)

Israel has a vibrant and growing climate tech sector, but startups and companies in this space face acute challenges such as regulatory barriers and venture funding obstacles, according to a new report published Thursday by the Israel Innovation Authority (IIA) and PLANETech, an Israeli nonprofit innovation community focused on climate change technologies.

The first-of-its-kind, comprehensive report called “Israel’s State of Climate Tech 2021” maps the climate tech landscape in Israel, identifying 637 companies in the sector, the majority of which were founded in the past seven years.

“There is a very vibrant climate tech ecosystem in Israel with nearly 650 startups, with funding of almost $3 billion between 2018 and 2020,” said Uriel Klar, director of PLANETech, in an interview with The Times of Israel prior to the release of the report.

“Just in the first half of 2021, climate tech startups have raised $1.2 billion in areas like green construction, alternative proteins, and clean energy, which are seeing rapid growth,” he said. This marked a 40 percent in funding compared to the total amount invested during the previous three years, Klar noted.

One of the major funding rounds in the sector in 2021 was a $105 million investment in cultivated meat startup Aleph Farms (in which actor and environmental activist Leonardo DiCaprio participated).

The report surveyed some 2,000 companies in the Israeli tech ecosystem based on the challenges they are looking to solve and not necessarily the sector with which they identify, Klar said. In doing so, the researchers were able to tap into companies that weren’t the “usual suspects,” he explained.

“People don’t need to come up with a new type of solar panel, for example. There are so many technologies that already exist that can be used in the climate sector for smart agriculture, supply chain processes, the circular economy, food waste, and so on,” said Klar.

The report noted that Israel has long been highly regarded for its thriving innovation ecosystem and its population’s entrepreneurial capabilities, and the country could position itself as a leading player in climate tech. “Israeli technology has historically been a key player in fighting a variety of global challenges,” the researchers wrote.

Emissions rise from the smokestacks at the Jeffrey Energy Center coal power plant as the suns sets, near Emmett, Kansas, United States, on September 18, 2021. (Charlie Riedel/AP)

Climate change is indeed one of the biggest challenges facing humanity. A recent major report from the United Nations’ Intergovernmental Panel on Climate Change, published in August, sounded the alarm on the devastating consequences of climate change and made clear that humans were “unequivocally” responsible for the warming of the climate, which the report said was happening faster than previously thought.

“The climate crisis is the most significant global threat facing humanity. While a number of activities are taking place at an international level, the eyes of the entire world are looking to the technology sector to produce innovative and ground-breaking solutions to reduce greenhouse gas emissions and deal with the consequences of the crisis,” said Dror Bin, CEO of the Israel Innovation Authority, in a statement. “Climate innovation is not just an important stage in the war against the climate crisis, but also a significant business opportunity for the growth of an innovative, diverse and sustainable technological industry.”

Israel could leverage its strengths in “academic research, the knowledge and expertise of R&D centers, and the umbrella of a supporting government,” to tackle these important issues, according to the report.

But the sector faces important issues. A survey conducted among the Israeli climate tech companies in the report revealed that the main challenges to growth are “access to capital, regulatory hurdles, and the difficulties of market scale-up opportunities.”

Over 70 percent of the surveyed companies noted that today, access to capital is the main challenge to their growth.

Ari Siegmann, chief of staff of the CEO of the Israeli Innovation Authority, told the Times of Israel that there was not enough private capital in climate tech companies and that such operations were often heavily supported by the government.

Birds fly over a man taking photos of the exposed riverbed of the Old Parana River, a tributary of the Parana River during a drought in Rosario, Argentina, on July 29, 2021. (AP Photo/Victor Caivano, File)

Between 2018 and 2020, the IIA has supported 290 Israeli ventures with a total budget of $250 million, which amounted to 16% of its annual budget, Siegmann said. The IIA has also launched a number of initiatives to back ideation and early-stage ventures via incubators and innovation labs, and participated in some $60 million in backing, with other government ministries, for projects in their later-phase R&D pilot testing and implementation.

According to the report, Israeli climate tech companies attracted over 550 investment groups and private investors, but need “dedicated funds for climate tech here,” Siegmann said. “These funds operate on a global level but Israeli companies don’t appear to have access and that needs to change.”

“Of the 20 investment groups that have invested the highest total amounts in Israeli climate tech startups — none are dedicated climate funds,” the report said.

The government has an important role to play in raising Israel’s profile in climate tech, he said. “We need to work together with the regulators, within ministries to push Israeli climate tech forward. Startups need to be connected to the relevant government authorities early on to build solutions. In many cases, the technologies they develop are used in national infrastructure industries [which are usually government-owned].”

“We also need to connect the tech ecosystem to academic institutions and academics need connections to entrepreneurs. Basically, we need to connect all these dots,” said Siegmann.

And even with key programs, Israeli companies appear to be underperforming. The report found that while Israeli technologies were at the top of the list of G-20 countries operating in fields like cultivated meat, irrigation systems, precision agriculture, and water desalination, “Israel is far from fulfilling its potential as reflected in its relatively low rate of participation and success in the Horizon Program,” the European Union’s key funding program for research and innovation, in which Israel first participated starting in 1996.

In the European Green Deal Call, a Horizon program launched last year with a €1 billion ($1.16 billion) call for research and innovation projects that respond to the climate crisis, Israel has performed “below average both in the level of overall participation as well as in success rates,” according to the report.

Overall, “Israel is far from realizing its potential in Europe’s largest climate funding program.” it said.

Unlike other sectors, “climate tech is cross-sectorial and deeply complicated,” said Klar.

“We need to explain the technologies but also the opportunities and position Israel as a leader in climate tech,” he concluded.

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