Contributed by Michele Demers, CEO and founder of Boundless Impact

Public support for cleantech investment is as high as ever. Roughly four out of five Americans support both funding research for renewable energy, and investing in renewable infrastructure on public land.

Buoyed by promises in Washington to unlock hundreds of billions in funding for energy transition –  which came to fruition via the 2021 Bipartisan Infrastructure Law and the 2022 Inflation Reduction Act  – venture investment soared during those years. But venture and growth equity investment fell by 30% in 2023, and the contraction continued in the first half of 2024. Series A and B investment fell by 10% and 24%, respectively, and the average time to raise Series B rounds has ballooned from 11 to 26 months, leaving many to wonder if growth in sustainability would itself be sustainable over the long term. 

All indications suggest that the recent pullback is temporary, and likely related both to economic factors and to investors becoming more selective. High interest rates and increased supply chain costs have predictably impacted cleantech companies, many of which engage in some form of manufacturing. Meanwhile, persistent greenwashing and exaggerated emissions reduction claims have flooded the market and increased investor concern. 

But promising signs of a rebound are emerging. Seed investment in climate deals hit an all-time high in 2023, both in terms of volume and activity, queuing up the most robust pipeline in history for later-stage venture funding. Climate investors are holding a record amount of dry powder, which must either be invested within the next few years or returned to investors, creating a significant incentive to invest in the near term.

Climate concerns by Gen Z and Millennials exceed national averages across the political spectrum, all but ensuring that public support for investment will continue to grow, and Life Cycle-based diligence that leverages Life Cycle Assessment (LCA) and Techno-Economic Analysis (TEA) is providing a way for cleantech investors to cut through the persistent greenwashing. LCA and TEA are quickly becoming shorthand for smart due diligence that validates emissions reduction claims.  

Life-cycle-based diligence – A better methodology 

Investors across the cleantech venture ecosystem increasingly turn to LCA and TEA. The Department of Energy’s Office of Advanced Manufacturing has created an online library and video series dedicated to these two methods. LCA is a robust methodology, used for several decades by environmental engineers, to assess a company’s environmental impact by analyzing each component of its supply chain. This includes everything from extraction of raw materials to product manufacturing, transportation, product use, and final disposal (or recycling, if applicable). 

LCA has numerous benefits. It is thorough enough to identify and prevent occurrences of burden-shifting; that is, fixing problems within the supply chain only to externalize them elsewhere. Insights derived from LCA also extend well beyond carbon tracking. Rather, it accounts for metrics such as cumulative energy demand, resource depletion, and a wide range of environmentally harmful emissions in addition to greenhouse gasses. The bespoke and accountability-based methodology behind LCA provides a high degree of accuracy, unlike competing methodologies that rely on self-reported data, cost-based emissions estimations, abstract methods, or dubious claims that miss a company’s complete environmental impact – aka greenwashing. 

TEA analyzes a new technology’s overall value by assessing market competitiveness. In addition to understanding the unit economics of a product development process, TEA takes the additional step of comparing new technologies to existing solutions to create levelized cost analyses. The results can take considerable friction out of investment diligence or customer purchasing process. 

To be trustworthy, both LCA and TEA should follow certain protocols. They should be performed by independent, third-party researchers to avoid bias. Key researchers or reviewers should be bonafide industry experts and adhere to standard peer review processes. 

A versatile due diligence tool 

Startups and investors are more frequently turning to Life Cycle diligence during venture rounds because its bespoke and thorough assessments more accurately identify and quantify risks.

The cleantech industry is here to stay. Storied programs and funding agencies, such as ARPA-E, the DOE, SBIR, STTR, and others, are well funded and likely will be for the foreseeable future, especially if public support for them continues to grow as forecast. Cleantech has grown at a 23% CAGR since 2020, despite the recent slowdown, far exceeding the 17% CAGR seen in biotech, an adjacent and comparable sector, over a similar timespan. However, greenwashing camouflages risk and increases market friction, slowing potential growth.

Life Cycle assessments help founders not only identify and improve supply chain inefficiencies but also increase investor confidence and bridge the “valley of death” by accelerating their fundraising timelines between Series A and C rounds.

Likewise, including Life Cycle as a standard part of diligence allows all venture investors to more accurately identify and quantify risk. Just as third-party engineering assessments have facilitated investment in mechanical, electrical, and software applications across the cleantech ecosystem for decades, Life Cycle diligence can identify and quantify environmental and regulatory risks.

Although economic uncertainty and greenwashing may contribute to short-term disruption, cleantech is poised to rebound and Life Cycle assessments will play a significant role in advancing the industry.