Recommendations for Co-Development and Underwriting Pilots

To accelerate the institutionalization of climate tech, collaboration is key. Here are recommendations on who to reach out to and how to engage in pilot projects or co-development of underwriting standards:

• Partner with Specialist Underwriters for Risk Mitigation: To get comfortable with unfamiliar risks, mainstream investors should partner with those who specialize in those risks. For instance, engage an insurer like Munich Re or AXA XL to jointly develop an insurance product for a first-of-a-kind project. Insurers have teams now devoted to climate tech – working with them in a pilot (say, insuring the performance of a new carbon capture plant) can provide the loss protection that makes the investment viable. Brokers such as Marsh have innovation units (e.g. Marsh’s New Energy Risk team) that helped create performance insurance for battery projects​. By involving them early, an investor can significantly lower downside risk. As the EDF’s Market Forces blog noted, “insured solutions” can offload specific risks and make projects easier to finance​. A recommendation is to form a working group with a leading insurer to identify 1-2 portfolio companies or projects that could be test cases for new coverage (e.g. a warranty insurance for a novel industrial process). This not only de-risks those investments but also builds underwriting knowledge for future deals.

• Collaborate with Government and Green Banks: Reach out to the DOE Loan Programs Office and state-level green banks (such as NY Green Bank, California Infrastructure Bank, etc.) to co-finance pilot projects. These public entities are often eager to bring in institutional co-investors and can offer credit enhancements. For example, an institutional investor could propose a pilot fund alongside DOE LPO where the LPO provides a partial guarantee or first-loss piece on a portfolio of emerging climate infrastructure projects. This arrangement would let the investor deploy capital with protection, and in return LPO achieves more leverage of its guarantees. Similarly, the new Greenhouse Gas Reduction Fund (GGRF) administered by the EPA (part of IRA 2022) is capitalizing nonprofit green banks – many of which will be looking for private capital partners to amplify impact​. By engaging with these programs, investors can shape underwriting criteria that balance public and private needs. Climate Policy Initiative experts have even advocated developing “shared underwriting criteria” among GGRF recipients and private co-investors to streamline deal evaluation​. Being at that table can ensure an institutional perspective is built into the standards from the start.

• Join Forces with Prime Coalition and Impact Investors: For early-stage climate tech, institutional investors could set up a co-investment or sidecar fund with organizations like Prime Coalition, Elemental Excelerator, or other impact-oriented accelerators. This allows exposure to breakthrough innovations with the comfort that a seasoned impact investor is conducting mission-aligned diligence. For example, a large foundation or a university endowment could partner with Prime on an “impact-first” pocket of capital – possibly structured as recoverable grants or subordinated loans – to support a cluster of high-impact startups. The learnings from these pilots (e.g. how to assess gigaton-scale impact vs. commercial viability) can then inform the investor’s broader portfolio. Prime and others also often seek “follow-on” partners: once a startup graduates from their portfolio, they want mainstream capital to take over. By staying close to Prime’s network, investors can be first in line when an opportunity is de-risked enough to invest on commercial terms. This kind of pipeline partnership is a win-win: the climate startups get continued funding, and the institutional investor gets vetted dealflow and the imprimatur of Prime’s impact stamp. Additionally, collaborating on impact measurement frameworks (like piloting the use of Impact-Weighted Accounting for climate impact) with these players can help develop tools that later scale to the whole industry.

• Engage Asset Managers and Fund-of-Funds with Climate Expertise: If an institution is not ready to directly underwrite individual climate tech projects, a good approach is to allocate to fund-of-funds or multi-manager platforms that focus on climate. Firms like Cambridge Associates have been increasingly building mission-related portfolios for endowments that include climate tech funds. There are also new platforms (for example, Carbon Direct or Carbon Equity in Europe) that let investors get exposure to a basket of climate tech funds. By working with these intermediaries in a pilot program, investors can outsource some of the due diligence while still shaping the strategy. For instance, an asset owner could commit a small amount to a climate tech fund-of-funds and request detailed quarterly reports, thus learning what data points are most relevant across managers (IRRs, but also carbon metrics, tech milestones, etc.). They could even ask the FoF manager to simulate a dedicated climate allocationusing historical data to address internal questions about risk/return. The recommendation is to start with a small pilot allocation – say 0.5% of the portfolio to a climate tech multi-manager product – then increase to 2% once comfort and governance processes are established.

• Coordinate with Industry Initiatives and Peers: There is strength in numbers when convincing mainstream capital to enter a new field. Reaching out to consortiums like Ceres Investor Network on Climate Risk, the Institutional Investors Group on Climate Change (IIGCC), or GIIN’s Investors’ Council can provide a forum for co-developing best practices. For example, a group of pension funds could launch a joint task force to define a “Climate Tech Investment Framework” that sets out common due diligence questions, expected return ranges by sub-strategy, and standardized impact metrics. This could be analogous to how ILPA (Institutional Limited Partners Association) creates standards for private equity due diligence – here it would be for climate tech funds. By sharing resources, they reduce each investor’s burden to research from scratch. Pilot projects could include doing a mock portfolio allocation exercise among a few pensions to see how 2% climate tech would affect their outcomes, then publishing the results. Also, engaging with GFANZ (Glasgow Financial Alliance for Net Zero) sub-committees that are exploring portfolio alignment solutions can keep investors updated on broader climate finance trends that affect climate tech attractiveness. The recommendation is to not go it alone: build a coalition with a few like-minded asset owners to learn and perhaps invest together (e.g. via a club deal into a climate infrastructure project, to gain direct experience).

• Leverage Corporate Offtakers and First-Loss Capital in Pilots: To directly underwrite a first-of-kind climate project, consider structuring a pilot where a corporate or public entity takes some risk. For example, a university endowment could back a new geothermal heating system on campus as a pilot investment – the university (as offtaker of the energy) commits to purchase the energy, ensuring a revenue stream, and perhaps takes a first-loss equity piece; the endowment provides the majority of capital as debt or preferred equity. This way the endowment is effectively investing in its own decarbonization infrastructure, learning by doing, and creating a template that can be shown to other campuses or companies. Corporate-sourced deals (like Amazon’s Climate Pledge Fund investing in tech that Amazon will use, or Google signing offtake agreements for clean energy) often make great pilots because the demand risk is mitigated by the corporation’s involvement​. Institutional investors can tie up with such corporate initiatives – for instance, co-invest alongside First Movers Coalition companies who are buying low-carbon products (steel, cement, fuels) from startups. This arrangement provides real-world validation and reduces risk, making it easier to underwrite. So a recommendation is: identify a sector where your portfolio has exposure (say, aviation) and partner with companies in that sector to invest in a climate tech pilot (like sustainable aviation fuel production), with the company signing a contract to buy the output. This aligns interests and is a prudent way to test the waters.

In conclusion, moving climate tech into a core portfolio allocation will require iterative learning and partnership. By starting with pilot investments and collaborations – whether through insured risk-sharing deals, public-private co-investments, or multi-manager funds – institutional investors can build up the information base and confidence needed. Every pilot is an opportunity to refine underwriting criteria, demonstrate success, and create the track record that climate tech presently lacks. The recommendations above aim to both de-risk the first steps and accelerate knowledge transfer from climate finance pioneers to the broader market. With the right information and tools in hand – robust data on risk/return, standardized frameworks, and credible partners – mainstream capital allocators will be empowered to treat climate tech not as an outlier or a charity case, but as a strategic, core component of their portfolios positioned for the economy of the future.

Sources: 

Climate tech financing interview (Barclays/Environmental-Finance)​ environmental-finance.com

EDF Market Forces blog on insurance for climate tech​ blogs.edf.org

AXA XL on insurability frameworks​ axaxl.com

DOE Loan Programs Office guidance​ grantmanagementassoc.com

Barclays climate tech risk mitigation (offtake, validation)​ ib.barclays

Columbia Climate Allocation Compass (multi-asset strategy)​ ccsi.columbia.edu

Prime Coalition briefing​ primecoalition.org

Breakthrough Energy criteria​ businessabc.net

SEC climate disclosure rule​​ sec.gov

GIIN IRIS+ taxonomy​ s3.amazonaws.com and additional cited references throughout.

Notable U.S.-Based Players Driving Climate Tech Underwriting

Several organizations and initiatives are actively working to define, de-risk, and mainstream climate tech investing. These players can be valuable references or partners for institutional investors looking to allocate to this space:

• Prime Coalition: Prime is a nonprofit catalytic capital investor focused on early-stage climate tech. Since 2014, Prime has been mobilizing philanthropic and impact-first capital to support climate solutions that can slash greenhouse gas emissions but struggle to attract conventional financing​. Prime’s model is to absorb outsize risks (long technology timelines, binary technical risks) that profit-driven investors can’t​, with the aim of “graduating” these companies to mainstream investment. They have developed rigorous climate impact criteria – each investment must target at least gigaton-scale CO₂ reduction if successful – and they publish an annual Climate Impact Audit verifying outcomes. Prime also convenes discussions to bridge gaps between venture funding and project finance for climate tech​. For example, their Trellis program is exploring how to finance first-of-a-kind climate infrastructure by blending philanthropic funds with commercial co-investment​. Institutional investors can look to Prime for frameworks on impact assessment and can co-invest alongside Prime to leverage their technical diligence. Essentially, Prime is defining the due diligence playbook for high-impact, high-risk climate ventures – useful information for any underwriter stepping into this arena.

• Breakthrough Energy Ventures (BEV): Backed by Bill Gates and other prominent investors, BEV is a $2+ billion fund specifically investing in climate tech companies that can reduce at least ½ gigaton of GHGs per year at scale​. BEV’s investment criteria and long-horizon approach have set a benchmark for climate tech venture investing. They operate on a 20-year fund life (much longer than traditional VC) to accommodate the time needed to commercialize tough technologies. They also emphasize scientific rigor and collaboration – BEV will only invest if it sees a clear scientific pathway to the claimed climate impact and if it believes its network can help the company succeed​. Importantly, BEV looks for companies that can attract other investors – leveraging additional capital into the climate space​. Their portfolio includes innovations in areas like green hydrogen, energy storage, sustainable steel, etc., many of which have since drawn follow-on funding from mainstream VCs and corporates. For institutional allocators, BEV serves as proof that competitive returns and climate impact can go hand-in-hand; they have publicly stated they target market-level VC returns while insisting on climate impact as a prerequisite. BEV also shares knowledge through reports (like their annual State of the Climate Transition report) which detail progress in various climate tech sectors​. They are a prime example of a “crossover” investor blending policy insight, patient capital, and traditional venture discipline – offering a model that others are now emulating (e.g. other large venture funds launching climate-focused vehicles).

• U.S. Department of Energy Loan Programs Office (DOE LPO): The DOE’s LPO is a government underwriting entity that provides loans and loan guarantees for innovative energy projects and advanced technology vehicle manufacturing. It has been instrumental in financing seminal climate tech projects (Tesla’s early factory loan, utility-scale solar farms, the first nuclear reactors in decades, etc.). With fresh authority and funding from the 2022 Inflation Reduction Act, the LPO is scaling up to support many more climate-related projects. The LPO effectively sets underwriting benchmarks for first-of-kind projects – its thorough due diligence process (technical, financial, environmental) often becomes the standard that private co-lenders follow. For example, LPO requires detailed techno-economic analyses and third-party engineering reviews (as mentioned, ~1000+ hours of demonstration run-time for new tech)​. It also structures deals with covenants and monitoring that manage the risks of new technologies. Institutional investors can piggyback on LPO deals (many projects are financed with an LPO loan plus private lender participation). Notably, the LPO has a portfolio approach to risk – it can take more risk on one deal knowing the broader portfolio is balanced – similar to how an institutional investor might think of a 2% high-risk allocation in context of the total fund. The LPO also publishes guidance (“10 Questions to Ask Before Applying”​, etc.) that essentially highlight what information any underwriter should seek from a climate project. With the LPO’s track record (over $35 billion in loans issued and a very low default rate aside from a few cases like Solyndra), it stands as a de-risking partner. Some institutional investors are already partnering with LPO via its co-lending programs or considering credit-wrapped bonds that are backed by LPO guarantees. In short, DOE LPO is a cornerstone player making climate tech projects bankable in the U.S., and a rich source of underwriting know-how for others.

• Climate Finance Leadership Initiative (CFLI): CFLI is a coalition of major financial institutions (led by Mike Bloomberg as UN Special Envoy) aimed at mobilizing private capital for climate solutions, especially in emerging markets. Members include large asset managers, banks, and insurers. CFLI produces reports and frameworks on how to overcome barriers to investment. For example, their reports on “Unlocking Private Climate Finance in Emerging Markets” outline policy and market changes needed to attract institutional investors​. While a lot of CFLI’s focus is global (working with countries like India or Indonesia to develop pipelines of bankable projects), it also informs U.S. investors about best practices in climate finance. CFLI has working groups on things like climate-related financial products (e.g. designing yieldcos or green bonds) and risk-sharing facilities. For institutional investors considering climate tech, CFLI’s findings provide guidance on structuring deals with development banks, using public incentives, and aggregating projects to scale. Essentially, CFLI is defining the market architecture needed for climate tech to move from niche to mainstream. Engaging with CFLI or its publications can connect investors to a network of peers tackling similar allocation questions. It also frequently highlights successful case studies of large-scale climate investments, which can help convince investment committees.

• Other Notable Players: In the insurance space, companies like AXA XL and the Geneva Association of insurersare pioneering insurance solutions for climate tech (as noted, AXA XL helped develop an Insurability Framework for climate tech deployments​). Marsh McLennan and Zurich Insurance have units focusing on underwriting renewable energy and new climate tech risks​– they are good contacts for any investor looking to insure aspects of a deal. Among asset managers, BlackRockand Goldman Sachs have launched dedicated climate infrastructure or climate private equity funds (e.g. BlackRock’s Climate Finance Partnership), which are setting market standards for returns and structures. On the philanthropic side, groups like the Grantham Foundation and Rockefeller Brothers Fund have been active in climate tech investing and often publish insights on integrating mission and returns. Impact investors such as Generate Capital (which finances sustainable infrastructure with creative debt/equity hybrids) and Spring Lane Capital (which funds small-scale sustainable projects via project finance) are demonstrating new financing models for climate solutions. These players are effectively “learning by doing” and creating templates that others can replicate. Finally, industry consortia like the Mission Possible Partnership (focused on decarbonizing heavy industries) and the First Movers Coalition (corporate buyers club for clean technologies) are influencing the demand side – which indirectly de-risks climate tech for investors by assuring future markets.

All these actors contribute pieces of the puzzle: from early-stage philanthropy and venture (Prime, BEV) to government risk absorption (LPO) to big capital deployment and standard-setting (CFLI, BlackRock). An institutional investor can leverage their work – by co-investing in funds, adopting their criteria (e.g. BEV’s gigaton threshold as a way to screen for truly transformative tech), or simply following the trails they’ve blazed in underwriting novel deals.

Standards and Taxonomies for Climate Tech Investments

Several existing standards and classification systems can guide investors in defining and assessing climate tech as an asset class. Key ones include:

• U.S. Department of Energy (DOE) Guidelines: The DOE has developed frameworks like Technology Readiness Levels (TRLs) and the new Adoption Readiness Level (ARL) to evaluate clean energy technologies’ maturity and deployment readiness​. These help underwriters gauge how far a climate tech is from commercial viability. For instance, TRL 9 means fully commercial – a project at this level can be judged by normal project finance standards – whereas TRL 5 means lab prototype, which would be venture-oriented. The DOE’s Loan Programs Office (LPO) has its own criteria which effectively act as underwriting standards: projects must avoid significant greenhouse gases, use innovative technology, have a high likelihood of repayment under given structures, etc. The Title 17 program criteria (as per the Energy Act) require “significant emissions reduction” and technology innovation, which helps define what “climate project” means in practice​. By following DOE’s definitions (for example, what constitutes an “Innovative Energy Project” eligible for a loan guarantee), private investors can align on a common taxonomy of climate tech projects.

• SEC Climate Disclosure Rules: In March 2024, the U.S. SEC adopted landmark rules mandating that public companies disclose their climate-related risks, financial impacts, and greenhouse gas emissions in a standardized way​. For institutional investors, this is a game changer for data availability. It means any public company involved in climate tech (or any company with climate risks/opportunities) will be providing decision-useful information on how climate factors affect their business​. Additionally, the SEC has been refining fund naming and ESG disclosure rules – a fund marketed as “Climate Tech Fund” will likely be required to invest a high percentage in assets that meet a defined climate criteria. These regulations push towards a de facto taxonomy of environmentally sustainable investments in the U.S., akin to the EU’s taxonomy. While the SEC rules don’t explicitly define “climate tech”, they define disclosure categories (physical risk, transition risk, emissions scopes, etc.) that investors can use to assess climate tech companies on apples-to-apples terms. For example, a climate tech firm going public will have to disclose material climate-related opportunities – validating that its technology contributes to mitigating climate risk – or a company in a portfolio might disclose how much of its revenue comes from low-carbon products. Such data helps institutionalize the notion of climate-aligned revenue.

• GRESB and Other ESG Performance Standards: GRESB (Global Real Estate Sustainability Benchmark)has extended its scope beyond real estate to infrastructure and could be applied to climate tech assets. GRESB provides a standardized scoring of ESG performance for real asset funds and projects​. A renewable energy infrastructure fund or a portfolio of EV charging assets, for instance, can get a GRESB Infrastructure score that investors use to compare it to peers. This is useful for underwriters and allocators to ensure that climate tech investments meet certain sustainability best practices (in governance, stakeholder engagement, etc.). Moreover, as climate tech becomes mainstream, we may see specialized rating systems – e.g. a rating agency might rate green infrastructure bonds factoring in climate impact, or a climate tech project might get certified (similar to how Green Bonds are certified under the Climate Bonds Standard). Investors are also referencing frameworks like the Greenhouse Gas Protocol and forthcoming ISSB (IFRS Sustainability Standards Board)guidelines to categorize investments. Notably, the ISSB’s IFRS S2 Climate-Related Disclosure Standard aligns with TCFD and requires reporting not just on risks but also on climate-related opportunities and metrics​. As companies and funds report under these standards, it becomes easier to identify which investments truly qualify as climate solutions.

• GIIN and Impact Investing Taxonomies: The Global Impact Investing Network (GIIN) has the IRIS+ taxonomy, which offers standardized definitions for impact themes and metrics. Within IRIS+, Climate is a major impact category, subdivided into Climate Change Mitigation and Climate Resilience and Adaptation​. It provides a library of core metrics (like tons of GHG reduced, renewable kWh generated, etc.) that climate tech investors can report. Institutional investors who are impact-oriented (such as foundations or family offices) often require that climate tech investments report through IRIS+ or a similar framework to ensure comparability. Even for more commercial investors, using GIIN’s taxonomy can help define the scope of climate tech: for example, it clarifies that improving energy efficiency, enabling clean energy, sustainable transport, industrial decarbonization, etc., all fall under Climate Change Mitigation theme. GIIN’s work harmonizes with the Sustainable Development Goals (SDG 7 Affordable Clean Energy and SDG 13 Climate Action are directly relevant). Additionally, organizations like the Impact Reporting and Investment Standards and Taskforce on Climate-related Financial Disclosures (TCFD) are converging; many climate tech funds voluntarily produce TCFD-aligned reports to show how their investments align with a 1.5°C scenario. Using these standards, an asset allocator can confidently say “Our climate tech allocation is defined by the GIIN/IRIS+ taxonomy and all underlying managers report on standard climate impact metrics” – giving legitimacy and consistency.

• Emerging Taxonomies (EU, etc.): While the question focuses on U.S.-based players, it’s worth noting that the EU Sustainable Finance Taxonomy explicitly defines what counts as a sustainable (including climate-mitigating) economic activity. Many U.S. institutions that operate globally are looking at the EU taxonomy to guide their own definitions. For instance, if an activity (like solar PV manufacturing or building retrofit technology) meets the EU’s criteria for substantial contribution to climate mitigation, a U.S. investor might likewise label it as “climate tech” in their portfolio. Additionally, initiatives like the Climate Bonds Initiative (CBI) provide taxonomy for climate-aligned assets which can be referenced for projects. The U.S. is also seeing state-level and industry-led taxonomies (e.g. the CalSTRS Low-Carbon Portfolio framework or the Ceres roadmap for integrating climate risk). All these standards create a more uniform language. Ultimately, having commonly accepted definitions and metrics lowers due diligence costs – underwriters and investors won’t each have to reinvent criteria for what “good” looks like; they can point to standards from DOE, SEC, IFRS, GIIN, etc. and require that climate tech opportunities furnish information in line with those.

Frameworks for Defining Climate Tech as an Investable Asset Class

To bring climate tech into the mainstream as a dedicated asset class, stakeholders are developing frameworks that mirror those of established classes like real estate, venture capital, or infrastructure. Some recommended approaches and comparisons include:

• Technology Readiness & Multi-Asset Approach: One framework segments climate tech opportunities by their technology readiness level (TRL) and assigns appropriate financing instruments to each stage​. This approach recognizes that “climate tech” is not monolithic – it spans early R&D (which behaves like venture capital or even grant funding) all the way to mature deployments (which behave like infrastructure or private equity). By adopting a multi-asset class strategy, an institutional investor can cover the spectrum: e.g. use venture allocation for low-TRL high-risk bets, private equity for mid-TRL scale-ups, and infrastructure debt/equity for high-TRL deployments​. This ensures a coherent cross-asset strategy where each climate investment is housed in the right bucket (rather than forcing a one-size-fits-all comparison). For instance, lower TRL projects (fusion energy startups) might be evaluated with metrics similar to biotech VC (high loss rate, high reward), whereas a portfolio of solar installations with battery storage can be evaluated like a core infrastructure fund (stable yields, asset-backed). The Columbia Climate Allocation Compass explicitly advocates matching TRLs to asset classes to accommodate the diverse risk/return profiles needed for decarbonization​. This framework helps committees see that climate tech isn’t an outlier; rather, each piece can be mapped to something familiar (like treating a new green hydrogen plant akin to a project-financed chemical plant, albeit with some additional policy considerations).

• Comparing to Real Estate/Infrastructure: Real estate became an institutional asset class when standards emerged for appraisals, indices (NCREIF), and risk metrics (cap rates, occupancy rates). Similarly, infrastructure investing matured with benchmarks and cash flow models (e.g. EDHEC Infrastructure Indices, GRESB Infrastructure scores). For climate tech, frameworks suggest developing analogous metrics. For example, an investor might evaluate a climate tech portfolio’s carbon-adjusted return, or use an **“Avoided Emissions” metric analogous to a yield, to compare different investments. One proposed concept is the Carbon Yield – tons of CO₂ avoided per $1000 invested – which could become a supplementary metric for climate investments (much as rental yield is for real estate). While financial return remains paramount, these new metrics help define the asset class’s unique value proposition. Additionally, risk mitigation structures in climate tech (e.g. contracts for difference ensuring a price floor for new tech outputs, or government off-take agreements for first plants) are being standardized, which makes them easier to underwrite just as standardized tenant leases support real estate underwriting​. In effect, the framework is to make novel climate projects look as much as possible like traditional investments in terms of contracts and data, so that allocators can plug them into existing asset class models.

• Blended Finance & Public-Private Partnership Models: Another framework acknowledges that to get climate tech to a core asset class, public and philanthropic capital often must pave the way (a concept known as catalytic capital). This is akin to how government often funds early infrastructure (roads, utilities) and then private capital takes over for ongoing investment. We see frameworks where a “stack” of capital is built for climate tech projects: first-loss tranches from mission-driven investors, mezzanine from development banks, and senior tranches from institutional investors​. This is not a typical approach in other asset classes, but for climate tech it may be interim necessary architecture. The information requirement here is clear delineation of risk layers and return expectations for each. Institutional investors can then allocate to the portion matching their mandate (usually the de-risked senior layers) while still contributing to the overall financing. Over time, as climate tech proves out, the need for heavy public co-investment should wane, and the asset class stands on its own. Frameworks like the Climate Finance Leadership Initiative (CFLI) emphasize such partnerships to mobilize private capital at scale, treating public incentives and guarantees as a bridge until climate tech has a long track record.

• Asset Classification and Governance: A practical aspect of defining any new asset class is determining how it’s governed internally. Some institutions have created dedicated climate or impact investment teams that span asset classes, ensuring the focus and expertise. Others slot climate tech deals into existing teams (e.g. infrastructure team handles renewable projects, VC team handles climate startups). A recommended practice is to establish a Climate Investment Committee or sub-committee that develops an overarching strategy and ensures knowledge sharing between venture, credit, and infrastructure specialists. This mirrors what some large insurers have done by creating “climate transition portfolios” cutting across fixed income and equity. The framework should outline investment guidelines specific to climate tech – for example, concentration limits (not too much in one technology type), minimum ESG safeguards (no solutions that cause unintended harm), and criteria for what qualifies (to avoid greenwashing, perhaps require each investment to demonstrate a measurable climate benefit). These guidelines make the asset class real in an institutional context, similar to how real estate teams have guidelines on property types or geographies.

In summary, frameworks for climate tech investing borrow elements from multiple traditional asset classes and add climate-specific lenses. They encourage a flexible, multi-asset view – recognizing that achieving portfolio exposure to climate solutions may require investing via venture and infrastructure vehicles – while developing common standards to evaluate performance. Over time, as more data on climate tech investment outcomes becomes available, these frameworks will solidify, complete with benchmark indices and rating systems (we’re already seeing moves toward “climate impact scores” and specialized indices). The goal is that an institutional investor in the 2030s can treat climate tech just as they treat, say, private equity: with decades of historical benchmarks, defined sub-strategies, and a clear place in the portfolio’s risk/return spectrum.

Early-Stage vs. Growth-Stage Climate Tech: Risk Profiles

It’s important to distinguish information needs by stage of climate tech investment, as early and growth stages have very different risk profiles:

• Early-Stage Climate Tech (Seed to Series A/B): These are startups often founded on new science or engineering breakthroughs – e.g. a novel battery chemistry, fusion energy prototype, or carbon capture process. The risk profile is akin to early venture capital plus additional technology risk. There is significant technical uncertainty: will the invention actually work at scale and at competitive cost? There’s also market and regulatory risk: even if it works, will there be a market (which might depend on regulations or carbon prices)? The failure probability is high, and timelines to success are long (often 7–10+ years to exit). Investors at this stage accept that many investments will fail, in hopes that a few become huge winners. Key risk mitigation for early-stage is often dilution-resistant funding (grants, incubators, catalytic capital) so the startup can hit critical technical milestones. From an underwriting standpoint, early-stage climate tech is speculative: underwriters focus on the caliber of the team and science, any prototype validation, and the size of the opportunity if it works. Information needed includes R&D results, patents, and independent expert reviews. The upside is that early-stage climate tech can achieve outsized returns (10-20x) if the technology becomes foundational to a new industry (e.g. an early investment in Tesla or QuantumScape). The risk profile here is comparable to biotech or frontier tech startups. Traditional underwriters might shy away without outside support – hence why philanthropic and government programs (like ARPA-E, Prime Coalition) often fund this stage to prove concepts that private capital finds too risky​.

• Growth-Stage Climate Tech (Late VC to Pre-IPO, or First Commercial Projects): This stage features companies that have graduated from R&D and proven their core tech, but now need to scale up – for example, building a first factory, ramping manufacturing, or deploying a full-scale plant. The risk shifts to scaling and execution risks: can the company deliver consistently at commercial scale? Can it bring down costs? Also, capital intensity is a defining trait – climate tech growth companies often need large amounts of capital (tens or hundreds of millions) to build facilities, which is 5-6× more than a typical software startup might need​. This “asset heaviness” means they don’t neatly fit the traditional VC or PE model​. The risk profile here is that the company might encounter engineering hurdles scaling up, or delays that burn cash, or external risks like commodity price swings (e.g. the cost of lithium or green hydrogen) impacting their economics. However, the tech risk is lower than in early-stage – we know it works in principle, now it’s about execution and market adoption. Growth-stage climate tech also faces policy risk: many are in industries like energy, transport, or heavy industry where regulations and incentives (or lack thereof) can make or break the business case​. Investors at this stage expect more moderate returns than seed investors (perhaps aiming for 3–5× over a longer period), but with a higher probability of at least getting their capital back if things go moderately well (since the company might have assets to sell). Underwriters and investors focus on commercial validation: they want to see customer agreements, strategic partners, or revenue growth if applicable. Risk mitigants like offtake agreements or government loan guarantees come heavily into play now, to make these scale-up projects financeable​. The “valley of death” often cited for climate tech is exactly this stage – too large for venture capital alone, too risky for banks​. Thus, the information needed to catalyze investment at growth stage often revolves around de-risking plans: project plans, engineering studies, cost reduction roadmaps, and any insurance or guarantee that can cover downside scenarios​. If early-stage risk is about technology viability, growth-stage risk is about scalability and commercialization. Both have different risk/return profiles, and institutional portfolios may choose to allocate to one or both depending on their mandate. A mainstream allocator might be more comfortable in late-stage/growth climate tech (with infrastructure-like risk mitigations) than in the venture fringe – but as frameworks show, a bit of both is often needed to fully capture the climate tech opportunity​.

Asset Allocators and Fund-of-Funds Managers

Key Information & Criteria: Asset allocators (consultants, fund-of-funds, OCIOs) who construct multi-asset portfolios face the task of defining climate tech as a distinct category and determining how to slot it into portfolio models. They require:

• Definition and Taxonomy Clarity: A clear framework defining what qualifies as “climate tech” is needed so they can filter investment options. This means information aligning with established taxonomies: e.g. does “climate tech” include only climate mitigation technologies (clean energy, storage, EVs, etc.), or also adaptation and resilience solutions? Allocators will reference standards like the IFRS/ISSB climate-related definitions or the SEC’s guidance on environmental investment criteria to ensure they use consistent terminology. They might define climate tech in line with the GIIN’s IRIS+ Impact Categories, where Climate is an impact theme encompassing mitigation and adaptation solutions​. Having a solid definition allows them to communicate to investment committees what this asset class covers (and avoids accusations of “greenwashing”).

• Strategic Asset Allocation Framework: Information to decide how a climate tech allocation interacts with traditional asset classes. An allocator will ask: do we fund this 2% from our equity allocation, our private equity bucket, our real assets bucket, or truly create a new bucket? To answer that, they gather data on climate tech’s financial profile relative to each category. For instance, they may compare it to venture capital (in terms of return volatility and liquidity), and to infrastructure (in terms of long-term yield and inflation hedging). One recommended approach is a multi-asset strategy that spans the technology readiness spectrum: lower-TRL (Technology Readiness Level) investments via VC and higher-TRL via infrastructure debt​. Indeed, frameworks now suggest matching climate solutions with the right financing: high risk, unproven tech -> venture or even grant funding; proven, scalable tech -> project finance and infrastructure funds​. Asset allocators need information to implement such a framework – e.g. data on which sectors of climate tech are at TRL 7-9 and can be treated as infrastructure versus which are TRL 4-6 and require venture-style capital. Table 5 below provides an example mapping of TRLs to asset classes, which allocators can use as a guide:

 Mapping technology readiness to asset class: Lower TRLs (1–3) involve lab-stage innovations suited to grants/seed VC, mid TRLs (4–6) attract venture capital and early growth funding, TRLs 7–8 (demonstration) may involve corporate venture or strategic partnerships, and TRL 9+ (full commercialization) can be financed via traditional project debt, infrastructure funds, or public markets​.

• Historical and Peer Allocations: Asset allocators will look for information on how peers are allocating to climate tech. For example, are other large pension funds carving out a target percentage? Data from surveys or coalitions (like the Glasgow Financial Alliance for Net Zero or other climate finance initiatives) can show what leading institutions are doing. A recent survey might show that X% of institutional investors plan to increase allocation to climate-related opportunities. This helps in making the case that a 2% allocation is within norm. They also examine any existing performance indices – e.g. “climate tech” funds index – to use in modeling. If none exist, they may use proxies such as a blend of NASDAQ Clean Edge Green Energy Index (for public clean tech) and Cambridge Associates Clean Energy PE index for private. In short, they need enough market data to simulate how a dedicated climate tech allocation would have performed historically (recognizing limitations).

• Risk Management Tools: To satisfy their investment committees, allocators gather information on tools to monitor and manage climate tech portfolio risks. This includes frameworks for ongoing valuation (how to benchmark a climate tech fund’s interim valuations), ESG risk monitoring (using something like GRESB for infrastructure or TCFD-aligned reporting for private companies), and exit/liquidity planning (will secondary markets or continuation funds provide liquidity if needed?). Allocators might adopt existing standards – e.g. requiring that any climate tech fund managers report under the Task Force on Climate-Related Financial Disclosures (TCFD) framework or the upcoming SEC climate risk disclosure rules – to ensure consistent information flow​. They also might use GRESB scores for any infrastructure-like investments to compare them to traditional infrastructure holdings on ESG metrics. Essentially, they want to treat climate tech with the same rigor as other asset classes by applying known risk management frameworks.

Portfolio Fit: Fund-of-funds managers will articulate how climate tech fits into the broader portfolio construction. They often position it as a thematic subset of private markets that can enhance returns and provide long-term diversification. Compared to say, a real estate allocation, climate tech will be higher risk but also potentially uncorrelated to property cycles and linked to megatrends (decarbonization). Compared to generic venture capital, climate tech may have longer horizons but also benefit from unprecedented government support (trillions in climate-related spending globally). Allocators need to convey that the opportunity is large and distinct enough to warrant dedicated attention. Frameworks like the Climate Allocation Compass (Columbia University) argue for multi-asset climate investing to fill financing gaps and align portfolios with net-zero goals​. Allocators will use such research to design their policy: for example, committing that “2% allocation to climate tech will be invested across venture (for innovation), growth equity (for scaling companies), and infrastructure (for steady cash flows)” – each with its own benchmarks and risk guardrails.

Pension Funds, Endowments, and Foundation Portfolio Managers

Key Information & Criteria: Institutional portfolio managers – at pension funds, university endowments, foundations, family offices, or sovereign wealth funds – are the asset owners deciding whether to allocate a portion of the portfolio to climate tech. To treat climate tech as a dedicated allocation (e.g. 2% of the portfolio), they need information that addresses both fiduciary metrics (risk, return, correlation) and mission/impact metrics (for those with ESG or climate goals). Typical requirements include:

• Risk-Return Profile and Benchmarks: Managers need to understand the expected return on climate tech investments relative to their risk. This involves historical data or proxies – for example, data on venture capital returns in climate tech funds versus general tech funds, or the performance of renewable infrastructure assets versus broader infrastructure indices. They will seek out benchmark indices or create internal benchmarks. (For instance, Cambridge Associates and PitchBook have tracked “cleantech” venture returns in the past; those showed that the first cleantech VC wave had subpar returns, which portfolio committees remember. Managers will want updated evidence that modern climate tech funds can meet target returns.) In 2024, climate tech represented roughly 8–10% of VC/PE investment flows​, but the long-term IRRs are still being proven. Portfolio managers will likely request model portfolios or case studies showing that a 2% allocation to climate tech (spread across early-stage, growth, and infrastructure) could yield, say, an attractive blended return with diversification benefits. Essentially, they need to justify that climate tech fits within the portfolio’s risk budget – whether as part of the alternatives bucket or a new category.

• Volatility and Liquidity Analysis: Information on the liquidity profile of climate tech investments (most will be in private markets with long lock-ups) is required. Pension funds, for example, might compare it to their private equity or real asset allocations, which also have low liquidity. They will analyze J-curve effects (slow returns early, potential high payoff later) similar to venture capital. They also need to gauge valuation uncertainty – climate tech involves emerging technologies that could be subject to hype cycles, so how volatile might valuations or exit prospects be? Any data on past drawdowns or failure rates in climate tech is useful. If not available, proxies from VC or infrastructure can be used. Risk managers may require scenario analyses: e.g. what happens to these investments under a carbon tax scenario vs. a status quo scenario.

• Alignment with Investment Policy and Mission: Many endowments and foundations have sustainable investing mandates or at least are considering climate impact alongside financial return. Managers will gather information on how a climate tech allocation aligns with these mandates. This includes using taxonomy definitions (see standards below) to ensure the investments qualify as climate solutions. They may reference frameworks like the GIIN’s IRIS+ taxonomy for impact themes or the UN Sustainable Development Goals, to classify climate tech investments as contributing to Climate Action. For instance, if the institution has a target to reach net-zero by 2050 in its portfolio, managers will note that investing in climate tech solutions is both a hedge against transition risk and a way to drive real-world impact. They will still require metrics: e.g. projected CO2 emissions avoided per dollar invested, or the GRESB score of any infrastructure funds they invest in, to report on ESG outcomes​. Thus, they often need impact data from fund managers (tonnes CO₂ reduced, clean energy generated, etc.) to satisfy internal or stakeholder reporting.

• Manager Track Records & Pipeline: Since most institutions invest in climate tech via external fund managers or co-investments, they need information to perform due diligence on those managers. Key questions: Who are the specialist climate tech fund managers or generalist firms with climate-focused funds? What are their track records and team expertise? A pension fund IC (investment committee) will want to see that the selected managers have experience navigating the unique risks of climate tech. If climate tech is defined as a new asset class, the universe of investable opportunities should be mapped out. Portfolio managers will gather data on how big the pipeline is – e.g. number of viable climate tech startups or projects each year that could absorb their capital. They don’t want to create a 2% allocation only to find limited deal flow. Information from groups like Climate Tech VC (industry newsletters) or databases of climate startups can help illustrate the growing opportunity set.

Risk Profile (Early vs. Late Stage): Portfolio managers will differentiate early-stage climate tech (venture-type risk)vs. late-stage or asset-level climate investments (infrastructure-type risk). Early-stage climate tech is high risk/high reward – perhaps a 10x return potential but also a high loss rate, similar to venture capital. Growth-stage and infrastructure climate investments may offer steadier yields (like a solar farm yielding 8% or a battery leasing portfolio with contracted revenue). To institutionalize climate tech, managers often design a barbell strategy: a portion in venture-style funds (to capture innovation upside) and a portion in more mature climate assets (to provide yield and capital preservation). They will require information to model the combined risk. For example, an internal analysis might show that a 2% allocation composed of 1% in climate VC (estimated ~20%+ volatility) and 1% in climate infrastructure (estimated ~5–10% volatility) still keeps overall portfolio volatility within tolerance. They will also consider correlation: climate tech may have low correlation with traditional equities (especially the venture part), which is attractive for diversification. However, it could be correlated with certain commodities or policy events. So data or expert insights on how climate tech reacts to oil price changes, carbon price moves, or interest rate shifts are needed. Ultimately, institutional PMs need to articulate a strategic rationale: e.g. “Adding a dedicated climate tech allocation improves our portfolio’s long-term return potential and positions us for the low-carbon transition, without unduly increasing risk – the expected risk-adjusted return is comparable to other alternative assets.” To back such claims, they lean on both internal analysis and external frameworks (like climate scenario planning from TCFD, or consultant research).

Private Credit and Venture Debt Underwriters

Key Information & Criteria: Private credit funds and venture lenders provide debt to climate tech companies (as opposed to project-level finance). These underwriters evaluate a company’s creditworthiness and growth prospects, knowing these borrowers are often pre-profit and backed by venture equity. Important information includes:

• Company Financials & Unit Economics: Detailed info on the startup’s burn rate, revenue (if any), customer pipeline, and gross margins. Lenders will underwrite to a forward-looking debt service ability, so they scrutinize the borrower’s cash runway and plans to reach profitability or raise more equity. A venture debt underwriter typically requires the company to have recently raised a substantial equity round (e.g. Series A/B) so that it has cash on hand​. For climate tech ventures, which often have longer development cycles, lenders need to see a clear use of proceeds (e.g. to bridge to a milestone like a pilot plant or product launch) and a plan for follow-on funding.

• Collateral or Security Package: Many early-stage climate tech firms have limited tangible assets, but underwriters will still look for any collateral to secure the loan – for example, intellectual property, equipment, or even expected receivables from future customer contracts. With the Inflation Reduction Act, some climate startups can generate tradable tax credits (Investment Tax Credits or Production Tax Credits); these can be monetized or pledged to lenders as collateral​. Venture lenders view such transfers of tax credits as credit-enhancing, since a startup that can sell its tax credits has more liquidity​. Underwriters will evaluate any security interest in project SPVs, tax credit proceeds, or other assets that can improve recovery in a downside scenario.

• Investor Support & Warrants: Because cash flows are uncertain, private credit underwriters heavily weigh the quality of the equity investors/sponsors. Strong venture capital backers signal that the company can likely raise more funds if needed (reducing default risk). Lenders often require an equity kicker (warrants or convertible features) so they share in the upside if the company succeeds. Information on the cap table and investor commitments is needed to size these warrants and understand dilution. For instance, a climate tech startup backed by Breakthrough Energy Ventures or other reputable funds gives a lender confidence in both the technology and the likelihood of additional support.

• Key Contracts and Market Traction: Underwriters will request any MOUs, pre-orders, or partnership agreements the company has secured​. Even if early-stage, evidence of market demand (such as letters of intent from customers, JVs with industry players, or government grants) can significantly de-risk a climate tech loan. A venture lender will also consider the technology’s scalability and regulatory environment – e.g. if the startup relies on regulatory credits or future subsidies, how stable are those? They may factor in the company’s compliance with emerging standards (like UL certifications for a battery product, or EPA approvals).

Risk Profile: Venture debt and private credit to climate tech companies fall on the higher-risk end of the credit spectrum (often unrated, covenant-light loans). Lenders compensate by charging higher interest (often in the low-to-mid teens percent) plus obtaining warrants. The risk profile differs between early-stage vs. growth-stage ventures: Early-stage climate tech borrowers might have no revenue and high technical risk – loans to these are essentially bridge financingpredicated on hitting a technical milestone or the expectation of a next equity round. Growth-stage climate tech companies may have some revenues or pilot deployments, reducing technical risk but still facing scale-up risk. In both cases, underwriters assume the event risk that the company could fail or pivot if the tech doesn’t pan out. To manage this, they perform intensive due diligence on the technology’s viability and the team’s execution plan (akin to equity due diligence). They also set stricter conditions precedent (e.g. requiring that a prototype is proven before full drawdown). As a result, the information needs overlap with those of equity investors: venture lenders want to see third-party validationof the tech and a credible path to commercialization​. In practice, many venture debt deals in climate tech are done in tandem with equity raises – underwriters rely on the fresh equity as a cushion and often structure the loan term to end before that equity would run out. Overall, private credit underwriters require enough information to believe the company can survive and thrive through the loan term. If the climate startup’s risk profile is too high (e.g. science experiment stage), debt may not be available at all without credit supports. As climate tech ventures mature, however, their risk starts to resemble that of other growth companies, and lenders can underwrite based on customer contracts and unit economics, not just the technology promise.

Infrastructure & Project Finance Underwriters

Key Information & Criteria: Infrastructure and project finance underwriters (banks, project finance funds, etc.) treat climate tech projects like other capital projects, but with extra scrutiny if technology is newer. They require comprehensive due diligence packages, typically:

• Cash-Flow Projections & Offtake Contracts: Detailed financial models showing projected revenues, operating costs, and returns. Long-term contracts (e.g. power purchase agreements or offtake agreements for a new energy product) are crucial to demonstrate stable cash flow​. Underwriters will ask: is there a creditworthy buyer for the project’s output? Guaranteed offtake significantly lowers risk.

• Capital Structure & Credit Enhancements: Information on the proposed debt/equity mix and any credit support. Traditional project finance expects sponsors to contribute ~30-50% equity to absorb first losses​. Climate tech projects often secure loan guarantees or subordinated debt from government programs (e.g. DOE Loan Programs Office) to enhance creditworthiness. An underwriter will need to see that equity commitments are in place and any public incentives (tax credits, grants) are accounted for. The U.S. DOE LPO, for instance, typically finances up to 50–70% of project costs, requiring the rest as equity​ and looks for evidence of robust sponsor backing early in the application.

• Technical Feasibility & Independent Engineering: A third-party engineer’s report is usually required to vet the technology and design. Underwriters need to know the project’s technology is proven at sufficient scale to perform as expected. DOE LPO’s engineers generally look for 1,000–2,000 hours of pilot operation and at least one or two full operating cycles to prove the tech works reliably before financing a first commercial-scale plant​. Completed Front-End Engineering Design (FEED) studies and signed EPC (Engineering, Procurement, Construction) contracts are reviewed to ensure the project can be built on time and on budget​. Essentially, the project should be at Technology Readiness Level ~8+ (final demo or early commercial stage) before debt underwriters are comfortable​.

• Risk Mitigation Structures: Project financiers evaluate construction risk, operational risk, supply chain risk, offtake risk, policy risk, etc., and will ask what mitigants are in place for each​. They typically require: fixed-price date-certain construction contracts or contingency reserves (to manage construction risk), experienced operators or O&M agreements (to manage operational risk), diversified or local suppliers (supply chain risk), and supportive regulatory context (since many climate projects depend on policies like tax credits or carbon pricing). If a risk is significant, underwriters look for transfer mechanisms – e.g. political risk insurance for emerging-market projects, weather derivatives for renewable variability, or government/grant support for first-of-kind costs. In climate tech, policy uncertainty is a noted risk – e.g. hydrogen projects depend on future regulations and infrastructure, which underwriters factor into required return premiums​.

Risk/Return Profile: Infrastructure underwriters traditionally seek stable, long-term yields (often high single-digit % returns) and low default risk. Climate tech projects can eventually offer infrastructure-like profiles (once technology is proven and revenue contracts secured), but early deployments carry higher perceived risk than typical infrastructure (e.g. a novel carbon capture plant vs. a mature solar farm). This creates a financing gap: many capital-intensive climate tech companies graduating from venture stage aren’t yet de-risked enough for standard project finance​. Underwriters often deem them “too risky” for infrastructure capital without additional support. To bridge this, blended finance approaches are emerging – public entities or mission-driven investors take subordinate positions or insure certain risks to de-risk the deal for private lenders​. For example, the DOE LPO provides loan guarantees to help finance projects with innovative tech, effectively absorbing some risk that commercial banks won’t​. Underwriters also increasingly consider carbon credit revenues or contract-for-differences as new cash-flow sources to improve returns​. In summary, infrastructure underwriters need assurance that a climate tech project can achieve predictable, contracted cash flows post-construction and that all key risks are mitigated or backstopped – only then will they price the debt similar to conventional projects. Until then, they will demand higher returns or support from other stakeholders.

Insurance Underwriters (Risk Insurers)

Key Information & Criteria: Insurers that underwrite climate tech projects (e.g. insuring new energy technologies or facilities) need detailed risk data and technical validation. Because many climate innovations lack long loss histories, underwriters require as much performance and reliability data as possible to convert uncertainty into quantifiable risk​. This often means:

• Technical Performance Data: Proof from pilots or prototypes (e.g. failure rates, output efficiency, safety tests) to assess the likelihood of claims. Underwriting first-of-a-kind technology demands transparency from firms about test results and risks.

• Risk Mitigation Measures: Information on any warranties, safety certifications, or risk transfer structures in place. For example, insurers may look for performance guarantee insurance on renewable energy output or warranty agreements from equipment suppliers​. Specialized insurance products are emerging – e.g. policies covering hydrogen project hazards or geothermal drilling risk – which reduce uncertainty for investors by guaranteeing certain outcomes​.

• Pooling & Scale: Because large insurers are cautious with small or novel risks, they may require risk pooling (e.g. Aggregated data across multiple ventures and longer time series helps insurers price risk more confidently.

• Regulatory and Climate Risk Data: Insurers also consider external climate factors – e.g. location-based physical climate risks (flood, wildfire) to the project, and compliance with any emerging climate disclosure norms. As climate change progresses, insurers are intensely modeling catastrophe risks and may use new climate-tech to inform underwriting​.

Risk Profile Considerations: Insurance underwriters typically seek to avoid unquantifiable “unknown” risks. For nascent climate tech, lack of actuarial data is a hurdle. Thus, they often partner early with innovators to engineer out risk or involve government backstops. Early engagement is critical: surveys of insurance executives show 95% agree insurers can play a strategic role by getting involved at pre-commercial stages to advise on risk management​. New frameworks like an “Insurability Readiness Framework” have been proposed to evaluate emerging climate tech on factors important to insurers (supply-chain resilience, regulatory context, safety) and bring insurance capacity in sooner​. Ultimately, insurance underwriters need data-driven confidence that a climate tech project’s risks (whether technological failure, construction delays, or output variability) are understood and either mitigated or shared (via reinsurance or public co-insurance). When those conditions are met, insurance can significantly de-risk investments – for example, offering output insurance that guarantees a renewable project will produce a minimum energy output to secure its revenue​. This gives other capital providers greater comfort that downside risks are capped.