The climate tech funding boom of the early 2020s may be hobbling investors in 2025.
Hans Kobler, founder of Energy Impact Partners, says the climate investment sector is in the midst of a necessary course correction — one that could ultimately help balance out current political and cultural headwinds.
“We just went through a hype cycle of over-enthusiasm fueled by too much desire to do good, and too little foundation in reality,” Kobler said. “When things were good people got too excited, and now interest rates went up, we had unprecedented turmoil, and now it’s really the other direction, almost a culture war against climate.”
The current backlash, he argued, is a “counter-reaction” to a period of “excesses” in climate investing. “It had gone [a little bit] too far, and now it swings back in the other direction,” he explained. “Our view is it will ultimately swing back into a pragmatic middle sooner or later.”
It’s a take that echoes a broader debate across the clean energy world: whether, in the midst of a second Trump term that’s even less friendly to the sector than the first, it’s time to rethink the tone and tactics of the energy transition. Is it the moment, as New Energy Finance founder Michael Liebreich calls it in his provocative op-ed, for “a pragmatic climate reset”?
For EIP, pragmatism means not getting too caught up in what any one administration has prioritized. “Our preference is to find technology companies that make economic sense…and can profitably be the better solution in the market,” Kobler said. “That’s by far the best.”
In some ways, Kobler believes the “reset” of climate finance that Liebreich calls for is already underway, driven by market economics: higher interest rates are hurting capital-intensive businesses, particularly “pure climate” sectors like renewables and hydrogen, he explained.
After years of abundant capital and generous federal subsidies, many companies became accustomed to the relative ease. Now, they’re not necessarily equipped to adapt as financing costs go up and political support fades. “Once you’re used to getting a lot of money, you generally spend a lot of money,” Kobler said. “It’s very difficult to slim down afterwards.”
But the reset isn’t just underway for climate startups; it’s a particularly challenging time for venture firms to be raising money as well, Kobler acknowledged.
In September 2023, as the climate “hype cycle” crested, EIP set out to raise $1.5 billion for its third flagship fund. The firm closed that round earlier this month at $1.36 billion, after two years in which the climate tech sector — and the wider economy — experienced a massive pendulum swing.
Kobler declined to comment on whether EIP could have reached its $1.5 billion cap if the fund had been left open longer. Instead, he said, the firm chose to stop raising and start deploying capital, in order to take advantage of low valuations and massive energy needs.
Buying the downturn
In addition to the climate-specific headwinds, there are a few key macro trends dampening investment more broadly, Kobler said.
One issue is that many of the big financial institutions are currently over-allocated in private capital. That’s “one big push down” across all sectors, and stems from the freeze on the IPO and M&A markets: “If you don’t exit, you don’t get the money back to your LPs, and they say ‘I’ve got to wait until you send me the money back,’” he said.
What little money those institutions do have left for private capital, they’re now “really throwing at AI” in the same way they were funding climate three years ago.
At the same time, now armed with $1.36 billion dollars, Kobler said EIP is in a prime position to make money at the convergence of low valuations, regulatory turmoil, and massive pressure to get speed to power. “You put [those] together in a box, and somebody will make money,” he explained.
Kobler pushed back against the suggestion that EIP’s third fund — $140 million short of its goal — was disappointing, pointing to its relative size (nearly 40% larger than the firm’s last fund) against the backdrop of significantly dampened fundraising environment for all stages of capital. On top of that, he added, “valuations are down 40% or 50%, and competition is down 70%, so I think that’s plenty to work with!”
EIP is pretty sure the market is at the beginning of a “long, long expansion,” regardless of whether the AI boom turns out to be a hype cycle. “Never, in 25 years in this sector, has there been anything close to the growth that we are seeing here across the board,” Kobler said. “We’ve never seen as much new innovation coming into the market.”
That said, the U.S.’s role in that expansion may be limited by the political context, in scope if not in impact. There are certainly technologies that will have a very hard time getting over the “profitability hurdle” without government support, which is something that China is doing “really well” and the U.S. is currently pulling back from.
“The U.S. is an incredible think tank, an innovation think tank, but it’s not necessarily the workbench to scale the manufacturing,” Kobler said.
