In CEE, sustainability goals have become security goals

Solving our planet’s carbon issues requires upscaling an array of nascent technologies, making it critical that we accelerate innovation.

Europe experienced its warmest summer ever in 2022, with temperatures increasing by more than twice the global average over the past three decades, faster than any other continent. Economic losses due to climate-related extremes during 1980-2020 are estimated to be as much as 487 billion euros across EU member states.

And increasingly, the green transition is being viewed as both an imperative and opportunity – strong climate action will help Europe’s economy grow, provide new employment opportunities and play a vital role in helping avert a climate tipping point.

Europe has become a global leader in many aspects of climate innovation, and is cultivating a growing and vibrant climate technology industry.

According to Agnieszka Gajewska, global government and public services leader, and CEE clients and markets leader at PwC, in Central and Eastern Europe sustainability goals have become energy security goals – and climate technology will have a key role to play.

“We have even more motivation to work toward the goals set out by the European Green Deal: reducing CO2 emissions by at least 55 per cent by 2030, and achieving climate neutrality by 2050,” she says.

“Net zero obligations and the need for energy independence and security will not be met by business as usual. One of the most exciting ways of making progress is to scale up the impact of climate tech solutions – and to match investor funding with climate tech entrepreneurs.”

More than one quarter of all venture capital funding is now going to climate technology, with increased focus on decarbonisation solutions. Climate tech investment in CEE had a record 2021, attracting 502 million US dollars in its first six months alone, a remarkable increase when compared to just 10.6 million US dollars invested back in 2013.

“In the face of their first real test over the past decade, climate tech markets have shown encouraging resilience,” says Will Jackson-Moore, global ESG leader at PwC UK.

“With a background of Russia’s invasion of Ukraine, inflation, and a sharp correction in the capital markets, there was all the potential for investor confidence to crumble. The task is to build on momentum, with more attention on early-stage funding and further boosting technologies with the highest potential for reducing emissions.”

Nevertheless, while CEE accounts for 3.73 per cent of global greenhouse gas (GHG) emissions it has only attracted 0.79 per cent of global climate tech start-up investment. None of the region’s climate tech start-ups have reached unicorn status (a valuation of one billion US dollars). Furthermore, the sectors which collectively are responsible for 66 per cent of emissions only receive four per cent of funding, according to the CEE edition of PwC’s Net Zero Future 50 report.

Reasons to be cheerful

There are bright spots across the region which offer hope. Poland, for example, offers a strong network of investors with hungry capital ready to deploy: three of the five most active VC firms in CEE are based in Poland and Polish VCs have conducted the greatest number of climate tech deals (39), with Estonia (28) as its closest follower, according to PwC’s report, which adds that Tallinn and Vilnius are the two most active climate tech hubs in CEE.

“Historically, founders in CEE lacked the networks, funding and connections that entrepreneurs in Western Europe and the US could otherwise easily tap into,” says Michael Chaffe, CEO of Wolves Summit, a global platform that connects start-ups, investors and partners.

“We are now starting to witness more specialised accelerator programmes and impact funds designed to speed up the maturation of climate tech start-ups in this region. It’s clear that the best days for Central Eastern Europe remain ahead of us.”

“To be fit for 2055, financial markets need to come in with their monetary resources (such as pension funds) to invest in sustainable innovation across fields of cleantech. Green procurements also help, especially in the built environment category,” adds Triinu Lukas, CEO of Estonia-based Beamline Accelerator.

Microsoft, which is investing one billion US dollars over four years into new technologies and to expand access to capital around the world to people working on challenges such as carbon removal, and which has committed to investing 185 million dollars over five years in its AI for Good initiative, believes that Europe is a global leader in many aspects of climate innovation, and is cultivating a growing and vibrant climate technology industry.

“It’s in everyone’s interest to see start-ups succeed,” says Alfredo Giannattasio, regional director of enterprise sales, Microsoft Central Europe. “They drive innovation and progress across every part of the economy; they power digital transformation of traditional industries, pushing incumbents to innovate in turn; and they create a virtuous circle of talent development. Now apply that reasoning to climate tech start-ups, and the importance of cultivating the growth of these organisations becomes even clearer.”

‘Amplifier of intent’

Not that technology should be viewed as a panacea, says Leo Johnson, head of disruption and innovation at PwC in the United Kingdom, but as the “amplifier of intent”.

“Climate tech is now emerging as an asset class that offers the potential to drive both climate impact and commercial returns,” he suggests.

Among the region’s start-ups contributing to fight against climate change is Clouds on Mars, a Polish firm using Microsoft’s AI for Earth to aggregate public information about pollution and predict future spikes, allowing cities to plan pollution-minimising strategies that enhance quality of life.

“By using AI we were able to first predict what the pollution levels would be in the coming days and then analyse what is driving them in cities. Based on that, we started building a solution that identifies current and predicts future pollution levels,” says Dominik Kaczmarek, Founder of Clouds on Mars.

Through support from the Microsoft for Startups programme, Hungary’s Parkl primarily provides office buildings with digital parking and electric car charging in one solution. The system supports efficient property management, increases satisfaction of tenants and contributes to increasing the property’s ESG index. The Parkl application also aids more than 200,000 Hungarian drivers quickly locate, find, and pay for parking spaces, EV chargers and other services, encouraging greener mobility, reducing their carbon footprint through innovative solutions.

Through the Microsoft for Startups programme, Parkl received Azure credits, technical support, and mentoring from the Microsoft team.

The company sought a shift to the cloud to improve its workflow. “At the start, we had a hybrid system—we used Microsoft as well as other software with self-developed protocols. But we soon realized that Azure offered us all the functions we needed,” says Zsolt Somogyi, founder and CEO of Parkl.

The company started to use IoT Hub to establish network connections and protocols that connected with its various IoT devices. “It’s made it possible for us to grow from 30 devices to more than 300. We can also update more than 100 devices through the solution, making maintenance so much easier,” adds Somogyi.

With the improved offering, Parkl has seen an increase in the usage of its services. “The number of transactions has increased by 20 times,” says Toth proudly. “We no longer have any stability or performance issues. Even during rush hours, we are always ready to serve our customers.”

Public and private investment

Given the deep tech nature of most climate tech ventures, it takes significant funding and time to reach business readiness for such products – not that funding is the only issue. Support to access global markets without needing to leave the country of origin, and strategic collaborations with larger, more established players are also challenges they are seeking to overcome.

“Many of the climate tech start-ups we speak with see access to funding to develop their products as their primary concern, and there are established ways to address this need. Our analysis suggests that currently, early-stage venture capitalists are the most suitable class of investor who could support bootstrapped founders ,” says Microsoft’s Giannattasio.

“This should be entirely possible in our increasingly interconnected world but is often easier said than done, but it’s where we can really help. The right partners and networks can make all the difference, especially as start-ups seek to grow, scale their global presence and attract new investment in larger markets beyond Central and Eastern Europe.”

Maciej Majewski, CEO and head of acceleration at Accelpoint in Poland, a smart tech accelerator operating in the CEE region since 2018, suggests that to increase the adoption of climate tech solutions “we should combine private and public funding”.

“Public funding primarily provided at the early stage of development can boost innovation and at some later stage help mitigate the risk of suffering from the valley of death,” he says.

“Then comes the private funding, which in the case of CEE VCs is still not ready to provide enough capital on a sufficient scale. That is why improving investors’ ecosystems in the CEE region and building links with their Western and US counterparts seems a must.

“More advanced start-up ecosystems in the West were able to raise more funds and build institutional capacity and expertise that can add value to the CEE deals. Plus, non-CEE deep tech-focused VCs are more open to obvious risks and more extended payback periods.”

It takes a village

“Innovation needs support – having these ecosystems encourages creativity and allows the strongest ideas to travel far. No single stakeholder can provide all the support that climate start-ups need, so we need to encourage an approach rooted in collaboration and partnerships,” says Evangelos Chrysafidis, public sector lead for Microsoft Central and Eastern Europe, Middle East and Africa.

“At a policy level, governments can and should play an important role. This includes unlocking dedicated public funding, reducing red tape and administrative burdens, and incentivising small business development and innovation. Large businesses have invaluable expertise, resources and connections that can help start-ups mature.

“For Microsoft, our most important contribution to carbon reduction will come by helping organizations reduce their environmental footprint through the power of data science, AI and digital technology and enabling climate innovation.

“Together we have a unique opportunity to witness their rise first-hand and to play a fundamental role in helping them shine in the region and beyond.”

For Darius Maikštėnas, chair of the Management Board and the CEO of Ignitis Group, the largest supplier of electricity and gas in Lithuania, the scalability of climate positive tech is now a question of ‘when’ rather than ‘if’, and government certainly has a role to play.

“Strong government and private investment is required more than ever to empower R&D and new commercially successful applications as early as possible,” he says.

“The energy sector transformation in the coming decade will undoubtedly create an unprecedented scale of opportunities and provide the impulse for a new era of energy technology and innovation.”

This article is part of Digital Future of CEE, a regional discussion series, powered by Emerging Europe, Microsoft and PwC.

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