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Formerly the 16th largest bank in the United States, providing financing for almost half of US venture-backed technology and healthcare companies, SVB faced a sudden run last week and a capital crisis that forced regulators to intervene and shut it down.
In an effort to shore up confidence in the US banking system, the California-based lender has since received a lifeline from the country’s government with the assurance that all depositors can access their money quickly.
Although a fire sale of the bank over the weekend did not materialize, negotiations are continuing, and a buyer could still emerge.
Regardless of the fate of SVB, the situation marks a turning point for companies active in the emerging battery, wind and solar energy technologies required to meet global targets for net-zero carbon emissions by 2050.
Climate tech firms had already struggled to raise capital because they experience the so-called “valley of death”, a make-or-break phase in the development of their technologies where products are being refined but have not yet seen any revenue. Yet despite climate tech start-ups being viewed as riskier, net-zero targets and regulations like the Inflation Reduction Act have all added impetus to investments focused on the energy transition sector.
The demise of SVB will change that. Going forward, investors and lenders are now likely to want much greater surety of returns and improved visibility into the development of projects. These commitments are difficult to provide and will in turn make it significantly more difficult for climate start-ups to raise funding going forward.
That’s particularly the case in an era of rising interest rates, which US Federal Reserve chairman Jerome Powell has already said are likely to head higher than central bank policymakers had expected.
According to SVB, US venture capital investment in climate tech companies increased by 80% between 2020 and 2021, reaching $56 billion. The energy and power technology sector experienced the fastest growth, increasing 180% year on year. Many of these technologies are moonshots, requiring immense capital – and patience – to develop.
If the billions of capital previously available for climate tech firms begins to dry up – and taxpayers bewail the prospect of bailouts – then many of the firms that had been reliant on financing will find themselves struggling to survive.
Climate tech isn’t just about batteries for electric vehicles and energy storage, which require immense amounts of lithium, cobalt, phosphate, copper, nickel and other critical minerals.
SVB was a major lender to companies developing the carbon, capture, utilization and storage (CCUS) technologies used by steel companies. It was also a major lender to start-ups and investors in green hydrogen, as well as to agri-technology solutions focused on reducing greenhouse gas emissions and conserving limited resources.
While the direction of travel toward net-zero is unstoppable, it has hit a proverbial bump in the road. What it will mean for natural resources like metals will be determined in the coming days – after all, derailing climate tech projects has an inevitable knock-on effect on the raw materials they drive the consumption of.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.