Climate Tech VCs Zero In on Powering AI Instead of Cutting Carbon Emissions

Climate-tech venture investors don’t talk much these days about climate change.

What they are focused on now is artificial intelligence and the energy needed to power data centers, much like the rest of the investment world.

The AI boom has been criticized for consuming natural resources and emitting more carbon dioxide, and could be seen as antithetical to the goals of climate-tech venture capital. Some VCs are wrestling with whether they are contributing to the very problem they originally sought to solve. Many say their role is to ensure the AI build-out happens in a more sustainable manner.

Investments into energy and data-center companies by climate-tech venture and growth funds totaled $31 billion so far this year, accounting for 69% of all capital deployed by such investors, according to data from market-intelligence company Currence. Five years ago these sectors—which also include heating and cooling, energy efficiency, and building materials—represented about a fifth of climate-tech dollars.

This shift was apparent at this week’s Climate Week NYC, a series of events organized by Climate Group and drawing some 100,000 people to the Big Apple.

“Climate is out. Power is in,” is how Sophie Purdom, founder and managing partner of climate-tech venture firm Planeteer, put it in a presentation for investors at the firm’s annual general management meeting on Monday.

“Less carbon removal and more powering compute and physical AI,” Purdom said about where the firm is seeing opportunities now. “Decarb is dead for now,” she added, referring to decarbonization or reducing carbon emissions.

“Climate Week could basically be ‘AI and data center week.’ It’s all about energy, and most of us as climate investors, myself included, are focused on the energy system,” said Kareem Dabbagh, co-founder and managing partner of venture firm VoLo Earth.

The shift has to do with where the money is now: AI. And where it isn’t: carbon emissions reductions.

“Too much exposure to carbon removal was a mistake. Those markets aren’t as healthy as we once hoped,” said Shomik Dutta, co-founder and managing partner of climate-tech venture firm Overture.

Meanwhile, data centers are driving demand for new, sometimes cleaner, power generation, energy-efficiency, and other technologies that climate-tech VCs were always behind.

The environmental movement used to focus on slowing everything down, Dutta said. “But now we need to speed things up,” he said.

Purdom said that is a lucky break.

“The race of decarbonization kind of ended at the same time as the AI race started,” she said.

Still, how exactly is investing in power for AI data centers relevant to a reduction in climate-change impacts?

“So I do think if you accept that we, as climate VCs, cannot stop this, then maybe you could argue we have a responsibility to do this with more renewable energy, and more efficiently,” said Carolina Echecopar, investment manager at Carbon Equity, a climate-tech investing firm.

The shift has led to sometimes strained moments.

During her annual meeting, Purdom highlighted Hyphenbox, a Planeteer portfolio company that creates annotations for robotics data. Someone in the audience raised their hand.

“What’s the climate thesis here?” the person asked.

Purdom had said herself that Hyphenbox was pretty far from her climate thesis. Still, the technology could be used in the future by recycling facilities or solar companies.

At the same time, she recognizes the friction as climate-tech VCs move toward AI.

“For sure, this is the tension generally with climate and environmentalism and capitalism. We would solve it if we did de-growth,” she said. “But that is such an outdated view. And we are not trying to be Europe here. This is America, we are the heart of AI. We will consume more, but we will consume better and cheaper and cleaner.”

Write to Yuliya Chernova at yuliya.chernova@wsj.com