New Climate Tech Report Highlights Israel’s Dominance – And Room For Improvement

The Israel Innovation Authority (IIA) in collaboration with PLANETech, a recently established joint venture of the Israel Innovation Institute (III) and the Consensus Business Group, released a report on “Israel’s State of Climate Tech in 2021,” which deals with the status of the Israeli innovation industry and how it relates to the challenges posed by the global climate situation.

The 33-page report highlights a number of critical areas – from the innovative technological companies striving to find solutions to some pressing problems, to the successes and challenges that Israeli firms have experienced in the ecosystem.

“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. 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,” IIA CEO Dror Bin said in a statement highlighting the report.

With the latest round of United Nations-hosted climate talks taking place this week in New York and Glasgow, the words of the Special Adviser to the UN Secretary-General on Climate Action, Selwin Hart, are ringing loudly, “Last year, 30 million people were displaced by climate-related disasters, three times more than by violence and conflict. We have a significant global threat on our hands.

Israeli companies are in many respects in an enviable position to make a significant contribution to the fight for climate stability, there are structural challenges, however, that also need to be overcome. The report identifies the innovative, technological companies that are finding solutions to one or more of the climate challenges facing the world.

The report showed that in the last few years – and with a peak in 2016 – there has been an appreciable spike in the number of new startups dealing with climate issues in Israel. The proportion of these new climate companies out of the total number of new high-tech companies increased considerably, reaching nine percent of the total companies established in 2020.

Mapping the climate tech ecosystem, the report identified 637 startups and growth companies within the sector, the majority of which are less than seven years old, and who have 10 or fewer employees.

Challenges and opportunities

Challenge areas with the largest number of companies, are Climate Smart Agriculture, Clean Energy Systems, and Sustainable Mobility & Transport, and are comprised of both mature and startup companies. Domains that display the most rapid growth of startups in the last three years are Alternative Proteins and Green Construction while emerging domains showing a significant increase in the number of new startups are Transparent & Agile Supply Chains, Novel Materials, Circularity and Food Loss & Waste.

In total, 560 investment groups – two-thirds of which are headquartered abroad – have invested in Israel’s climate tech startups. Between 2018- 2020, total investments in climate tech reached approximately $3 billion. Less than one percent of investments were from dedicated late-stage funds.

Indeed, a specially commissioned survey that accompanied the report – in which close to 200 Israeli climate companies participated – revealed that the overwhelming majority (72 percent of those surveyed) identified that securing funding and access to capital was the main challenge to their growth. To make up for some of the gap, the Israeli government provided financial support between 2018-2020 amounting to some $280 million. It also seems that perhaps things are beginning to change as the report cites that the investments in the first half of 2021 amounted to 40 percent of the total investments over the three years previously.

Despite this particular difficulty, Israel does exhibit global dominance in specific climate tech areas. It was shown to hold absolute global leadership in the areas of cultivated meat, irrigation systems, and water desalination. Two of the leading startups associated with clean meat are MeaTech and Aleph Farms, both of which recently reported investments from two Hollywood A-listers Ashton Kutcher and Leonardo DiCaprio, respectively.

Israel’s successes in drip irrigation systems and water desalination have somewhat been born out of obsession and necessity. Even Israeli children born as recently as the 1990s recall that they were told not to waste water and that it was a precious commodity of which there was a limited supply. That is not to say that even younger generations today think that due to advances in water tech it means that it can now be wasted with abandon, but it does show how necessity can be the mother of invention and can indeed cause a water-poor country such as Israel to lead the world in this sector.

When normalizing the results by GDP spending on R&D, Israel also holds a position of global leadership in the
entire alternative proteins domain as well as in precision agriculture, sustainable mobility, and solar power. In fact, Israel fared positively against OECD countries with regard to investment in R&D as a percentage of GDP – with more than double the investment.

Unrealized potential in a growing ecosystem

Crucially, the report showed that despite these advances, a comparison between success rate for Israeli Green Deal (broadly along the same lines as the EU Green Deal, which seeks to make the EU climate neutral by 2050) submissions with that for all Horizon programs, indicates that Israel is far from realizing its global potential in Europe’s largest climate funding program. Despite demonstrating a growing ecosystem, Israel has yet to exhaust its potential for innovation, commercialization, and scaling up of climate tech solutions. Horizon Europe is the EU’s key funding program for research and innovation with a budget of €95.5 billion (US$111 billion).

Several recommendations were suggested in the report as to how to overcome the specific challenges associated with Israel’s climate tech ecosystem. These included, further facilitating the growth of companies tackling the issues related to climate change, clearing pathways to increased access to private and public capital, increasing commitment of government and regulators, and showing leadership by pushing hard for a carbon-neutral Israel.

“The report we compiled positions Israel as a global leader in climate tech and throws a spotlight on the areas that have unique potential in Israel,” said PLANETech CEO, Uriel Klar. “Israeli entrepreneurs who will develop climate solutions and technologies will build a new generation of unicorns in Israel and will help in coping with the biggest challenge for humanity. The vision of PLANETech and its partners is to transform Israel into a global center for climate technologies that helps reduce greenhouse gas emissions in Israel and around the world,” he concluded.

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