The Rise of Climate Tech and NYC’s Developing Climate Hubs

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The Rise of Climate Tech and NYC’s Developing Climate Hubs

February 14, 2024
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New York City is the nation’s epicenter for the financial, real estate, and media industries. In recent years, climate technology has also become a growing new sector for which the Big Apple is known. The San Francisco Bay Area is dubbed a magical place for software, and in due time, NYC may be the foremost hub of activity for climate technology entrepreneurs.

Bloomberg Law recently detailed New York City’s rise as a national center for climate tech. Unsurprisingly, the Bay Area’s climate tech sector is bigger, but NYC’s is catching up quickly. According to Climate Tech VC, a market research firm, about $3.5 billion in venture capital funding has flooded New York City’s climate tech sector since 2021. That’s a 250% increase compared to the $1 billion in investment between 2011 and 2016.

Another eye-popping stat: About 100 climate tech startups have been founded in NYC over the past four years, and 159 New York City-based climate startups have secured VC funding since 2021. While there are various reasons for New York City’s climate tech success, the main culprit may be the city’s government-backed financing of “climate hubs.”

Growing climate test labs

New York City’s Economic Development Corporation is opening 280,000 square feet at the Brooklyn Army Terminal for startups to develop products like advanced solar panels and heat pumps in the coming years. That square footage is in addition to the 3.7 million square feet of usable space the Brooklyn Army Terminal already has.

New York City is also inviting private firms to use the Brooklyn Army Terminal’s plumbing, electrical, and rooftop systems as a test bed. The city will issue a request for proposal this year to develop prototyping labs and testing platforms.

Several companies have already moved in, including:

  • Conservation Labs, which will pilot their AI-powered water leak sensor and electricity consumption monitoring products
  • Trakref (recently acquired by facilities management software firm Fexa) will use the Brooklyn Army Terminal to pilot its refrigerant management software.

The Brooklyn Army Terminal isn’t the only climate test lab in New York City. The Trust for Governors Island and Stony Brook University are building a $700 million climate tech hub on Governors Island in New York Harbor that’s expected to create 7,000 jobs and generate $1 billion in economic impact.

The Brooklyn Navy Yard is another bright spot. The Navy Yard complex has between 30 and 40 companies working on projects ranging from ammonia as an energy source for long-haul transport to telecom equipment that doesn’t require constant cooling. These firms are joined in the Navy Yard by about 500 companies in other sectors like robotics, furniture, and food.

Jared Day, co-founder of SolarMelts, says his firm opened shop in the Brooklyn Navy Yard because of easy access to NYC’s financial center, a chance to be around like-minded investors, and rental prices about 20% lower than the city average. The Navy Yard is now fully leased, and like the Army Terminal, New York City plans to expand to property, adding 5.1 million of advanced manufacturing space.

A boom or bust ahead?

Some investment into NYC’s climate tech sector is driven by the city’s Local Law 97, which requires roughly 50,000 buildings citywide to cut carbon emissions. The rules have powered demand for building decarbonization hardware, software, and other technologies. Climate tech firms in New York City and outside the city have swooped in to help real estate owners who must address their properties’ carbon emissions.

A new law signed by Gov. Kathy Hochul in May that requires nearly all new buildings to be all-electric starting in 2026 could also trigger more climate tech innovation. While New York’s real estate industry may not be thrilled at the regulatory requirements, the rules are proof that stringent requirements can stimulate economic growth.

The picture isn’t all rosy for NYC climate tech. Funding for climate tech startups fell by 40.5% in 2023 compared to 2022, according to a report from professional services organization PwC. In New York City, climate tech funding decreased from roughly $1.55 billion in 2022 to $663.8 million last year. The drop in funding was seen across the private equity and venture capital investment world, fuelled by inflation, rising interest rates, and geopolitical turmoil.

Some investors remember the climate tech boom that fizzled out in the early 2010s, so they’re understandably wary. According to Boston Consulting Group, the “Climate Tech 1.0” bust saw VC firms invest about $25 billion into various cleantech startups, but 90% of the Series A investments failed to deliver a return. A potent mix of insufficient customer demand, Chinese competition, and overenthusiasm for energy and biofuels led to the bust.

Driving innovation in NYC

Will the current climate tech boom lead to another bust? Perhaps. But some say the new climate tech market is more diversified. More startups are trying a more comprehensive array of products, and firms are heavily subsidized by infrastructure and climate bills, such as the Inflation Reduction Act. 

Observers say many limited partnerships need to learn how climate tech firms typically grow slower than traditional software companies. Climate entrepreneurs may also need to beef up their business and management skills and not just rely on being scientists with tech developed in a lab.

With so much money flowing into climate tech, some Proptech firms may even change how they market themselves to capitalize on the movement. The failure rate of all these startups is bound to rise, but many are cautiously optimistic.

New York City’s role as a developing center of the climate tech industry should draw more funding into a city with an already well-established Proptech scene. Local Law 97 and other regulations are expected to drive more innovation. New York City’s funding of climate tech hubs in the Brooklyn Army Terminal and the Navy Yard, among others, should also continue to entice more climate tech firms to plant roots in the Big Apple.

For now, it’s an excellent time to be a climate tech startup as the urgency to decarbonize real estate heats up. San Francisco’s Bay Area may be the top destination for climate tech firms, but New York is another major city where climate startups feel increasingly welcome.