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After the “red-alert” on climate change by the United Nations in 2021, Indian VCs invested around $7 billion in climate tech startups. However, in 2022, this investment massively dropped to $2.2 billion. It seems that the ‘green zeal’ of the investors has withered with carbon-intensive generative AI swooping into the picture.
In 2022, with the rise of models like ChatGPT or DALL-E, a huge portion of the funds started pouring into generative AI. What we like to call, Large Language ‘Money’, was, and probably still is, investors’ favourite. A lot of it is probably driven by the increasing number of generative AI startups.
As of now, there is no incentive from the government to invest in AI. On the contrary, there is a push to invest in climate tech startups with even the limited partners (LPs) pushing firms to invest in the field. Despite this, firms are eager to invest in AI startups.
So, there’s very little room to doubt what the VCs really care about — it’s money.
Speaking to Maanav Sagar from Bharat Founders Fund, we found that even the firms investing in climate tech startups know that they are not immediately, or even in the near future, profitable. But on the other hand, the money minting field of AI is what attracts the most funding. Is investing in climate tech something that the firms are doing to put up a good face by caring for the environment, while also making money on the side by investing in AI?
Dichotomy of AI & Climate-Tech Investment
The truth about large language models is that they take a huge amount of computational power, and currently only big tech companies have the resources to train them. This reveals a dark side of these generative AI models — they are extremely carbon intensive.
Neither OpenAI, nor Google released their cost and the carbon cost of building their models. But a few researchers analysed that training GPT-3, which is partly what ChatGPT is built on, emitted 550 tons of carbon dioxide, which is huge, and it is just the training cost, not the cost of running it and serving it for the entire globe.
What’s worse? According to the International Energy Agency, data centres account for one percent of the world’s greenhouse gas emissions. As more and more companies get into the AI field, the number is expected to only increase.
So, what exactly are the investors funding then? Speaking to various investors, we always find that while balancing the need for ROI and positive impact for the environment, investors always focus on making a profit first. But the truth is, climate tech startups are in nascent stages. There are no experts who can explain the financial return of a climate-focused startup, especially in India. “Most investors invest in them (climate tech) for the long haul,” said Vinod Jose, founder of Callapina Capital, a firm focusing on climate tech startups, especially water-based ones.
Is There a Solution?
At present, the race towards mitigating climate risk is as big as the race towards scalable deployment of AI. Looking at generative AI and climate tech separately might not be completely right. A lot of companies are leveraging AI and analytics for solving the climate crisis as well.
Now that VCs have started investing in climate tech startups, the conversation about climate change has become a part of the market-centric economy. This can be a good and a bad thing at the same time. One might even say there are more generative AI companies because VCs are pouring in money, and seeing that the big tech companies are doing the same.
Shauraya Bhutani from Breathe Capital also said climate tech investments have become the same as any other space — where founders are excited about the problem they are solving, and investors are looking to give out money. Having discussed the carbon footprint of generative AI and the data centres, one approach would be to shift these resource-intensive mechanisms onto cleaner energy sources, while also not relying on increasing the size of these models. This would reduce the negative impact of artificial intelligence on the environment.
A completely nuanced way of looking at this split investment philosophy of VCs is that they are funding solutions on both sides. A lot of startups that used to be called oil or gas companies, are now called energy companies. That is because the investment in these companies have stopped since the race to carbon neutrality started. Now VCs are looking to invest in somewhat of a greener side of things, that can also benefit the generative AI field, and vice-versa, with AI falling into the climate-tech category.
Though this outlook puts VCs on a pedestal, the opposite seems more likely true.