The hard truth about Canada’s climate solutions hardware

Canada is at risk of missing the boat on some of the most promising climate technologies. The culprit isn’t a dearth of ambitious innovators. The problem is there aren’t enough Canadian early-stage investors willing to back the commercialization of “hard tech” — the new devices, materials, infrastructure and other physical solutions that will play an outsized role in stabilizing the health of the planet.

Much of the heavy lifting in reducing emissions will be done by cleantech firms like Hydrostor, which is working on two large-scale energy-storage projects, or Opalia, which is creating a more sustainable method of producing dairy, or Carbon Engineering, which is removing carbon dioxide from the atmosphere. These hard-tech solutions are packed with engineering know-how, but require perseverance — and substantial capital — to be scaled in real world industrial settings.

Regrettably, many Canadian investors aren’t backing such technologies during the critical early stages of development, preferring lower-risk software-based solutions. I’ve worked in climate tech for more than a decade, and I have seen investors pressing cleantech companies developing both software and hard-tech components to focus only on software where the returns are typically much quicker. 

There is a reason for this: the typical 10-year fund timeline isn’t conducive to the growth patterns of hard-tech ventures, and emerging fund managers — typically those providing early-stage funds — need to demonstrate quick returns to their LPs before they raise their next fund. We need financing structures that are better aligned to the realities that are unique to developing and commercializing the hard stuff. If Canadian investors overlook opportunities in hard-tech, we’ll miss out on what will be a trillion-dollar opportunity over the next two decades. 

Canada’s investment in climate technology is actually deteriorating, according to a new MaRS report. The flow of domestic cleantech deals peaked in 2023, with $108 million raised from 36 deals, the Canadian Venture Capital Association recently reported. 

MaRS data shows that while Canadian cleantech investment overall has remained stable, early-stage deals plummeted by 69 per cent between Q2 2023 and Q2 2024. Funding is key at this early seed stage because this is when entrepreneurs are refining and building their company. And if startups aren’t supported early on, it means there will be fewer firms available to investors looking for more mature Canadian clean-tech plays in the coming years. 

If we don’t support them early on, the pipeline of potential solutions dries up. Perhaps, it’s no coincidence that the number of Canadian firms on the Global Cleantech 100 in 2025 fell to nine, down from 13 in 2024. This slowdown threatens Canada’s 2050 climate goals, which require annual capital investments of $120 to $140 billion. 

These domestic trends run counter to what’s going on abroad. Global demand for climate tech is skyrocketing. In 2023, the sector was estimated to be worth U.S.$1.8 trillion, and the compound annual growth rate for global climate tech increased by 23 per cent from 2022. As Victoria Beasley, a partner at impact investment firm Gigascale Capital, says, “Climate and hard-tech fundamentals are stronger than ever.”

That growth is being driven by a range of factors, including regulation, carbon pricing, corporate adoption, investor and environmental, social, and governance mandates. In practice, these trends are driving companies in sectors, like steel and cement, to invest in carbon mitigation technologies, and ventures with viable climate-tech solutions stand to reap huge returns. The implications of failing to nurture the nascent firms in this space are clear: if we don’t support our startups, Canadian corporations will have to look to international suppliers for the carbon-reduction technologies they’ll be required to adopt.

As a country, we have to decide whether we aspire to create and sell our climate technologies to the rest of the world, or if we’re satisfied to simply import them. Given that Canadian institutional investors have a long-standing reputation for risk aversion, especially in areas outside the resource sector, our policy-makers must pay far more attention to the specific challenges in climate hard-tech.

 We need to take three important steps:

• Family offices should consider making long-term strategic investments in hard-tech. These are sole limited partnerships, which means they aren’t bound by the VC sector’s 10-year investment horizon. A handful of family offices have now entered this space — Good and Well and Box One. We need many more.

• Canadian corporations can step up their participation in climate-focused limited partnerships. Strategic investors and early adopters are critical for hard-tech firms, which need to build out commercial-scale demonstration plants to provide proof-of-concept to customers, as well as investors. This practice is well established among U.S. limited partners and allows investors to learn from corporations about whether they'll buy these systems once commercialized.

•  Finally, Canada’s public-sector research funders, which provide significant non-dilutive funding for emerging hard-tech firms, should adopt the practice of sharing their rigorous internal evaluations with early-stage investors as a means of making prospective backers more comfortable with these technologies before committing their capital.

Canadian hard-tech ventures have great ideas to help solve the climate crisis. According to the International Energy Agency, more than a third of the carbon dioxide reductions needed by 2050 will be derived from technologies that are currently in development. We need lead investors, patient seed capital and strategic partners willing to take bold steps to allow them to participate fully in a rapidly growing global sector.

Leah Perry is senior manager, cleantech at MaRS Discovery District. She spent seven years at EDC, with several years in the agency’s cleantech practice and holds an MBA from York University’s Schulich School of Business.