The US’s clean tech finance advantage is looking vulnerable 

Welcome back. The UK capital is abuzz with green chatter this week, with thousands of international visitors descending for London Climate Action Week. It’s only the seventh of these annual initiatives, and by far the biggest, with more than 700 events taking place across the city on a vast range of climate-related topics.

There’s a strikingly strong presence from the US — and a sense among many people here that London is now a more natural place for this kind of gathering than Donald Trump’s hometown, where New York Climate Week has been a major annual event since 2009.

We’ll find out in September whether Trump’s anti-green lurch has succeeded in putting a chill on NYCW. But it already appears to have had a marked effect on investment flows, as I explain below.

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Is the US losing its edge in clean tech finance?

I’m old enough to remember the summer of 2022, when the passage of Joe Biden’s clean energy-focused Inflation Reduction Act sparked alarm among European policymakers. Government officials fretted about a flood of green investment heading west across the Atlantic, drawn by the lavish fiscal incentives offered by the US legislative framework.

Nearly three years on, the IRA is in the process of being gutted by Republican lawmakers on Capitol Hill. Clean energy projects worth billions of dollars have been cancelled, as high-profile green tech companies like Sunnova and Wolfspeed lurch into bankruptcy. And investors in the sector, who have long been heavily focused on the US, are moving their money elsewhere at a striking pace — with Europe the chief beneficiary.

That’s according to new data from Rumi Mahmood and Linda-Eling Lee at the MSCI Sustainability Institute, who studied the holdings of 1,528 global climate-themed funds managing about $600bn. Since the start of the data series in 2018, US assets consistently accounted for at least 65 per cent of these funds’ holdings, rising to 69 per cent last year.

This year, however, the proportion of these assets invested in the US has dipped sharply to 61 per cent at the end of May, while Europe’s share ticked up to 25 per cent from 19 per cent last year. The Asia-Pacific region’s share has reached 13 per cent, up from 9 per cent last year.

This can be explained partly by a fall in the share prices of many US clean power companies amid an adverse shift in government energy policy (as well as Trump’s tariff drive, which has hit this sector notably hard). Market movements explain nearly half the shift, Mahmood and Lee reckon.

But most of it is driven by fund managers selling US assets and investing the proceeds elsewhere. On the clean energy policy front, Europe’s relative consistency must look like a refreshing contrast to the Trump turmoil. While it has sparked controversy by moving to weaken corporate sustainability disclosure rules, and remains under industry pressure to dilute other regulations, the European Commission has broadly stuck by the core objectives of its long-term decarbonisation strategy.

These numbers, a US bull might object, mainly reflect allocation and valuation shifts in the secondary markets, rather than how much finance is actually flowing to clean tech companies. In the primary markets, there’s not yet such a clear sign of a Trump effect.

A useful database run by Net Zero Insights tracks funding raised by global companies focused on climate tech, ranging from renewable energy to alternative protein. So far this year, total debt and equity finance raised by US climate tech companies amounts to $22bn: 110 per cent of the combined figure for Europe and Asia.

That’s actually up from last year’s ratio of 86 per cent — though it does suggest an erosion of the US’s dominance in this field since 2021, when the ratio stood at 169 per cent.

National capital market figures have always given a somewhat distorted picture of countries’ relative strength in clean tech. That’s largely because Chinese companies have relied heavily on bank finance as they’ve built a powerful position in many key areas of low-carbon technology. Asia’s rising share in the numbers cited above is partly a reflection of the gradual diversification of these companies’ funding sources.

But the US’s long-standing strength in these climate tech investment flows has been important — reflecting a world-leading ecosystem for developing and commercialising new technological advances, and boding well for the country’s long-term prospects in the future low-carbon economy.

Policymakers and companies in Europe, Asia and elsewhere now have a clear opportunity to attract much greater shares of these capital flows. The US remains a fearsomely potent player in clean tech, particularly in many of its most cutting-edge advances. But thanks largely to Donald Trump, its competitive position is looking more vulnerable.

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