Funding to help early-stage firms endure difficulties, meet carbon goals

Chinese venture capital and private equity firms are set to play a bigger role as the country accelerates its steps to peak carbon emissions and achieve carbon neutrality while pursuing higher-quality development, according to industry insiders.

"Achieving the goal of carbon neutrality may need trillions of yuan in investment and decades of continuous efforts. During the process, VC and PE firms, which are mostly market-oriented, can give full play to their driving role," said Zhang Lei, founder of global investment firm Hillhouse Capital.

"VC and PE firms have a relatively higher risk tolerance. Therefore, they are able to help early-stage innovative companies endure difficulties more smoothly. It is important as companies involved in achieving carbon neutrality need a large amount of resource investment in early stages," Zhang said.

On the other hand, for those companies that have achieved phased results, what they need is not only financial support, but also empowerment in things like business models and strategies, and this is exactly where VCs and PEs like Hillhouse can help, he added.

A Hillhouse report found that new green technologies and business models are constantly emerging in the fields of electricity, transportation, new materials, construction, agriculture, carbon emissions, information communication and digitalization.

"Compared to areas with mature technologies and large-scale industrial application scenarios, for companies from the above sectors, their technology is still in the early stage while they still need much financial support from VCs and PEs to gird their continued innovations," Zhang added.

Last year set a record for climate-tech startup investment with $17 billion invested globally. China and the United States are the most popular areas for climate-tech investment across funds, said strategic research provider BloombergNEF.

CVSource, an information service provider, said that in the first quarter, combined VC and PE investment into projects related to carbon neutrality in China hit over $4.5 billion, which was much higher than that of other sectors.

President Xi Jinping announced last year that China will peak its carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.

"This major strategic decision is made based on our sense of responsibility to build a community with a shared future for mankind and our own need to secure sustainable development," Xi said at the Leaders Summit on Climate via video link in April.

Xi added that China has committed to move from carbon peak to carbon neutrality in a much shorter time span than what it might take many developed countries, and "that requires extraordinarily hard efforts from China".

Xi said: "Faced with unprecedented challenges in global environmental governance, the international community needs to come up with unprecedented ambition and action. We need to act with a sense of responsibility and unity, and work together to foster a community of life for man and nature."

Aside from speeding up the building of a clean, low-carbon energy system, China will also prioritize its efforts to peak CO2 emissions in key industrial sectors－including steel, chemicals and cement－by setting specific targets, road maps, action plans and supportive measures.

Zhu Min, chairman of the National Institute of Financial Research at Tsinghua University in Beijing and a former deputy managing director of the International Monetary Fund, said at the Boao Forum last month that the country's commitment to achieve carbon neutrality by 2060 will lead to a restructuring of the economy, and the financial sector may play a big role in such a transition.