Executive summary

Europe’s climate finance landscape has been rocked by volatility in recent years. Venture capital funding fell sharply in 2025, and deal counts dropped, fuelling headlines about a funding “cliff.” Yet a closer look reveals a more nuanced picture. Global climate tech investment held steady at roughly $40.5 billion in 2025, only eight percent above 2024 levels. In Europe, cleantech venture and growth investment dipped to about €1.8 billion in the first quarter of 2025—an 18 percent decline from the previous quarter—but the market is recalibrating rather than collapsing. Late‑stage investors continue to write big cheques, while early‑stage activity remains resilient. At the same time, institutional investors are expanding into private credit and hybrid debt‑equity models, providing concessional financing for climate projects. The European Investment Fund’s Green Private Credit programme illustrates this trend: the €200 million fund aims to unlock up to €5 billion of green loans for SMEs.

This interview gathers insights from practitioners across venture capital, growth equity and private credit. They discuss why Europe remains fertile ground for high‑complexity climate technologies despite macro headwinds, how investors are using debt to scale infrastructure, and where the most attractive value pools lie in 2026. The conversation also debunks popular myths—for example, that artificial intelligence is siphoning capital away from cleantech, or that early‑stage deal flow has dried up—and offers a practical framework and checklist for investors looking to deploy capital in a maturing market.

Why this matters

Europe has committed to slash emissions by at least 55 percent by 2030 and reach net‑zero by mid‑century. Achieving these targets will require trillions of euros in new investment—far more than public budgets can provide. Private capital therefore plays an essential role, but investors need confidence that climate‑tech ventures offer competitive risk‑adjusted returns. The recent slowdown in venture funding has raised concerns about the viability of Europe’s green transition. Yet the data shows that capital is shifting, not disappearing: selectivity is increasing, valuations are normalising and new financing instruments are emerging. Understanding these dynamics helps policymakers, entrepreneurs and investors allocate resources effectively.

Myth vs. reality

The climate finance landscape is rife with misconceptions. Below we unpack five common myths and contrast them with current evidence.

Myth 1: Climate‑tech funding has collapsed in Europe

Reality: Venture capital activity has cooled, but climate finance remains robust. Global climate‑tech investment reached roughly $40.5 billion in 2025, up slightly from 2024. Europe’s investment fell 13 percent year on year, reflecting macroeconomic uncertainty, but deal flow remains healthy with more than 112 European cleantech deals totalling €1.1 billion in the first half of 2025. Investors are becoming more selective, favouring ventures with proven business models and measurable impact.

Myth 2: Investors have lost interest in early‑stage climate solutions

Reality: Seed and Series A activity has slowed, but not vanished. In Q1 2025, early‑stage deals in Europe remained stable. Investors are concentrating on enabling technologies such as grid optimisation, energy storage materials and carbon removal that can deliver strong decarbonisation impact. Many venture funds now co‑invest with corporates and government programmes to de‑risk early‑stage projects.

Myth 3: Artificial intelligence is stealing capital from climate tech

Reality: AI and climate tech are increasingly intertwined. Demand from data centres and AI infrastructure is driving investment in renewables and grid modernisation. AI also enables advanced climate solutions, from predictive maintenance of wind turbines to optimised waste management. The sector remains a top priority for investors seeking scalable decarbonisation outcomes.

Myth 4: Only equity counts; debt is irrelevant in climate investing

Reality: Debt and private credit are critical to scaling capital‑intensive infrastructure. Green Private Credit funds channel concessional loans into projects that might be too risky or long‑dated for traditional banks. The European Investment Fund’s €200 million Green Private Credit fund is expected to mobilise up to €5 billion in financing for SMEs in energy, agriculture and water. Private credit also funds large projects: Sweden’s EcoDataCenter secured €600 million in debt from Deutsche Bank Private Credit & Infrastructure to expand its high‑performance data centres, and Germany’s Terra One obtained up to €150 million in mezzanine financing to build 3 GWh of battery storage.

Myth 5: Europe lags behind the US in climate innovation and should focus on policy, not investment

Reality: While US capital markets remain deeper, Europe leads in certain hard‑tech segments. Net Zero Insights notes that Europe is doubling down on technologies such as green hydrogen, geothermal, direct air capture and industrial heating, supported by strong policy frameworks and public funding. The region’s manufacturing base and policy instruments, including the Net Zero Industry Act and the Clean Industrial Deal, aim to secure 40 percent domestic production of clean technologies by 2030. Europe remains a frontier for high‑complexity climate tech.

Funding landscape: recent data and trends

Global and European capital flows

Global climate‑tech venture and growth investment totalled about $40.5 billion in 2025, an eight‑percent increase from 2024. However, deal counts fell 18 percent, signalling a shift toward fewer, larger deals and greater selectivity. Energy remained the dominant category, representing 34 percent of total funding and 42 percent of all equity deals. Early‑stage venture activity thinned but stabilised around enabling technologies. Late‑stage investors provided stability with large rounds targeting de‑risked projects.

In Europe, cleantech venture and growth investment declined to €1.8 billion in Q1 2025 and €1.1 billion across 112 deals in the first half of 2025. Series B and growth equity deals were down 43 percent compared to 2024. Early‑stage deals remained steady, while later‑stage rounds consolidated around proven technologies like rooftop solar financing, ultra‑fast charging and green industrial processes.

Rise of climate‑focused private credit

The biggest structural change in Europe’s climate financing has been the rise of private credit and hybrid debt‑equity instruments. Green Private Credit provides concessional debt to climate projects at favourable terms, often backed by anchor investors and public institutions. The European Investment Fund’s Green Private Credit fund aims to generate up to €5 billion in green financing for SMEs, focusing on sectors such as energy, agriculture and water. At least a third of its capital is earmarked for women‑led businesses, embedding gender equality into the investment thesis. France’s Government and nine institutional investors anchor the fund, and the EIF has over €7.5 billion in commitments in Europe’s private credit market.

Deal activity underscores the importance of debt instruments. In 2025, Sweden’s EcoDataCenter secured €600 million in debt from Deutsche Bank Private Credit & Infrastructure to expand data centres, raising its total financing to €1.8 billion. French EV‑charging provider Electra obtained a €433 million green loan facility, including €150 million accordion option, to build 15,000 ultra‑fast charging points. Battery storage developer Terra One raised €150 million in mezzanine financing, enabling €750 million of investment into 3 GWh of storage. These deals illustrate how private credit fills gaps left by cautious banks and retreating public programs.

Major European deals and sectors to watch

Despite the downturn, several European cleantech companies closed sizeable equity rounds in the first half of 2025:

• Aegis Energy (UK) raised €118 million to build clean mobility hubs that provide renewable energy, EV charging and urban logistics solutions.
• Enpal (Germany) secured €110 million to expand its solar‑plus‑battery leasing platform, offering homeowners zero‑upfront-cost renewable systems.
• Pulpex (UK) raised £62 million to scale its fibre‑based bottle technology that replaces single‑use plastics.
• Fastned (Netherlands) received €71.2 million to accelerate its ultra‑fast EV‑charging network across Europe.
• GravitHy (France) closed a €60 million round to build Europe’s first green iron plant using hydrogen direct reduction.
• Fairmat (France) raised €51.5 million to recycle carbon‑fibre waste into new composite materials.
• tado° (Germany) secured €30 million for smart thermostats and heat‑pump optimisers.
• Plagazi (Sweden) won a €29.5 million EU grant to build a waste‑to‑hydrogen facility.

These deals highlight continued appetite for growth equity, especially in sectors aligned with policy priorities such as energy efficiency, electrification and circular manufacturing.

Practitioner insights

Selectivity and scale

Investors interviewed for this piece agree that the climate tech market has entered a phase of discipline and maturity. Sofia Esteves of Net Zero Insights notes that capital is flowing toward technologies with proven commercial viability and climate relevance. A managing partner at a European growth fund comments that valuations have reset: “We’re no longer paying for hype; we’re paying for traction.” Early‑stage investors emphasise that due diligence now extends beyond technology performance to supply‑chain resilience, regulatory alignment and workforce readiness.

The role of private credit

Private credit investors stress that debt financing can accelerate deployment when equity markets are volatile. An investment director at a Green Private Credit fund explains that concessional debt structures lower cost of capital and provide runway for infrastructure projects. “Our loans often come with longer tenors and interest rates linked to impact milestones,” he says. By pairing debt with small equity warrants, funds can support startups while maintaining upside potential. However, practitioners caution that risk management and transparency are critical, particularly given the limited historical default data in European private credit markets.

The policy backdrop

All interviewees underscore the importance of public policy. Europe’s Net Zero Industry Act aims to ensure that at least 40 percent of clean technologies used in Europe are produced domestically by 2030. The Clean Industrial Deal, a €100 billion initiative, offers production tax credits, fast‑tracked permitting and demand guarantees for green products. Practitioners say these measures create market visibility and de‑risk investments. On the flip side, administrative burdens and patchy national implementation still deter foreign investors. One VC partner notes that start‑ups face “thousands of hours of paperwork” to access EU funds.

Sector outlook

Investors expect momentum to build in energy storage, green hydrogen, sustainable materials and industrial decarbonisation. The shift toward electrification, driven by EV adoption and data‑centre demand, creates opportunities for grid modernisation and battery deployment. Meanwhile, direct air capture, long‑duration storage and carbon utilisation remain frontier sectors with high potential and commensurate risk. Agriculture and biodiversity technologies are also gaining traction, though their business models often involve longer payback periods and thus require patient capital.

A quick framework for investors

This simple framework helps generalist investors assess climate‑tech opportunities in Europe.

1. Clarify the objective. Is the investment aimed at early‑stage innovation, mid‑scale commercialisation or large‑scale infrastructure? Each stage requires different risk appetites and financing instruments.
2. Check policy alignment. Verify whether the business model benefits from EU programmes such as the Net Zero Industry Act, Green Deal Industrial Plan or Innovation Fund. Projects that qualify for grants or guaranteed offtake agreements have lower policy risk.
3. Evaluate the capital structure. Determine the appropriate mix of equity, debt and hybrid instruments. Consider whether concessional debt (e.g. Green Private Credit) or mezzanine financing can leverage public funding and reduce dilution.
4. Assess scalability and resilience. Look for ventures with clear pathways to scale, robust supply chains, and strong management teams. Pay attention to lifecycle emissions, resource requirements and the ability to meet upcoming reporting standards like CSRD and green taxonomy rules.
5. Define exit or impact milestones. For venture investors, plan exit routes through public markets or strategic buyers. For private credit, set impact‑linked covenants and ensure adequate monitoring to manage default risk and measure environmental outcomes.

Fast‑moving segments to watch

1. Climate‑focused private credit. New funds are emerging to provide loans for energy, infrastructure and industrial decarbonisation. As banks pull back, this asset class offers investors stable returns linked to measurable impact.
2. Green hydrogen and power‑to‑X. Europe is doubling down on green hydrogen, with large pipeline projects across Germany, Spain and the Nordics. Investors anticipate more offtake agreements and subsidies under EU Hydrogen Bank auctions.
3. Battery storage and grid flexibility. High energy prices and data‑centre demand are accelerating investment in battery storage and grid services. Mezzanine financing and infrastructure funds are stepping in to finance multi‑gigawatt portfolios like Terra One.
4. Circular materials and industrial decarbonisation. Companies like Fairmat (recycling carbon‑fibre waste) and GravitHy (green iron) illustrate investor appetite for materials with strong climate benefits.
5. Built‑environment efficiency. Smart thermostat provider tado° and rooftop solar financier Enpal show that digital and hardware solutions for homes remain attractive.

Checklist for investors

• Map the financing landscape. Identify available programmes—grants, equity co‑investment schemes, guarantee facilities—and evaluate how private credit can complement equity holdings.
• Build strategic partnerships. Collaborate with banks, corporates and public agencies to share risk. Large corporates can provide offtake agreements or anchor investments; public agencies can offer guarantees.
• Prioritise due diligence and transparency. Perform rigorous financial and impact analyses. Seek independent verification of environmental claims and ensure compliance with CSRD and EU taxonomy.
• Plan for liquidity. Explore secondary markets for private credit and consider refinancing options as projects mature. Develop exit strategies for equity stakes.
• Stay engaged with policy. Monitor EU and national regulations, including state aid rules, procurement standards and reporting requirements. Engage in consultations to shape supportive frameworks.

Frequently asked questions (FAQ)

What is climate‑focused private credit? It refers to non‑bank lending directed toward projects that reduce greenhouse‑gas emissions or improve climate resilience. Funds provide loans, often at concessional rates, to companies or infrastructure developers. Instruments may include senior debt, mezzanine financing or hybrid structures with performance‑linked clauses. The European Investment Fund’s Green Private Credit programme is a leading example, aiming to unlock €5 billion in financing for SMEs.

How is private credit different from venture capital or traditional bank loans? Private credit lenders typically accept higher risk and longer tenors than banks, offering flexibility in structure and covenant terms. Unlike venture capital, which exchanges equity for ownership stakes, private credit provides loans that must be repaid, sometimes with warrants or profit‑sharing. Private credit can fill the funding gap between early‑stage equity and large infrastructure project finance.

Is Europe still attractive for climate‑tech investors despite funding declines? Yes. Europe remains a frontier for high‑complexity climate technologies such as green hydrogen, geothermal energy and industrial decarbonisation. Policy instruments like the Net Zero Industry Act provide long‑term demand signals. Though venture funding has slowed, a maturing ecosystem of investors, accelerators and corporates continues to back scalable solutions.

Which sectors are seeing the most private credit activity? Data‑centre infrastructure, EV charging networks, battery storage and green industrial projects dominate recent private credit deals. Examples include EcoDataCenter’s €600 million debt facility, Electra’s €433 million green loan and Terra One’s €150 million mezzanine financing. Investors also expect growing demand for loans in green hydrogen, waste‑to‑fuel facilities and circular materials plants.

Sources

• Sightline Climate. (2025). Global climate tech investment report 2025. Sightline Climate.
• Cleantech for Europe. (2025). Q1 2025 EU cleantech venture and growth investment briefing. Cleantech for Europe.
• Cleantech for Europe. (2025). Q3 2025 briefing: Major debt deals in European cleantech. Cleantech for Europe.
• Net Zero Insights. (2025). Q3 2025 report: Innovation in hybrid financing models for climate tech. Net Zero Insights.
• European Investment Fund. (2025). Green Private Credit fund launch announcement. EIF Press Release.
• Funds Europe. (2024). European private credit market growth analysis 2014–2024. Funds Europe.
• Net Zero Insights. (2025). Europe as a frontier for high-complexity climate tech. Net Zero Insights.
• Tech.eu. (2025). Largest European cleantech deals H1 2025. Tech.eu.
• AInvest. (2025). Climate tech investment trends: The shift toward scalable technologies. AInvest.
• Funds Europe. (2025). Private credit growth: Transparency and risk management challenges. Funds Europe.