Venture capitalists likely to continue pivoting away from climate in 2026

illuminem summarises for you the essential news of the day. Read the full piece on The Wall Street Journal or enjoy below:

🗞️ Driving the news: Climate tech investors head into 2026 under pressure, as policy rollbacks, weaker exits, and the rise of AI and defence spending reshape where capital flows — forcing the sector to adapt or shrink

🔭 The context: Climate investing faces a tougher market reality
• Political backlash and reduced policy support in the US have cooled appetite for climate-labelled funds
• Many investors are rebranding away from “climate” toward resilience, adaptation, energy security, or impact
• Fundraising for impact and climate funds has fallen sharply since its 2022 peak
• Venture capitalists report fewer IPOs and dried-up late-stage funding, making it harder for startups to scale

🌍 Why it matters for the planet: Capital is shifting from ideals to pragmatism
• Investment is pivoting from pure mitigation plays toward adaptation and transition technologies
• High-profile failures, such as battery maker Northvolt, have reduced risk tolerance
• Green premiums — paying more for low-carbon products — are losing appeal as costs and geopolitics dominate
• Technologies that retrofit existing systems, like carbon capture for heavy industry, are seen as more viable than full green replacements

⏭️ What’s next: Climate realism over climate moralism
• Investors expect more capital to flow into energy, geothermal, nuclear, AI-linked power demand, and defence-adjacent tech
• Adaptation sectors such as water management, wildfire recovery, and crop resilience are gaining attention
• Firms that can prove commercial value without relying on subsidies are most likely to attract funding

📈 One stat: Climate and impact fund fundraising fell from $156.9bn in 2022 to $36.7bn in the first nine months of 2025, according to PitchBook.

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