The energy sector is booming and this time it’s clear that a secular shift has taken hold. When the International Energy Association (IEA) announced in May that there should be “no investment in new fossil fuel supply projects,” the energy policy agency for developed economies told the world that future energy investments would have to support a net-zero future.

Impact investors have been pushing forward. They’ve put more funding into the energy sector than any other; one sample of investors more than doubled its annual investment over the past five years—from $9 billion in 2015 to $19 billion in 2019. Those amounts are miniscule compared with the capital it will take to transform the sector: the IEA hopes for $4 trillion per year in clean energy investment by 2030. But impact investors play an important role in developing new technologies and catalyzing further investment. They’ve homed in on strategies where their capital can provide a lot of leverage in the coming energy sector transformation, and they think more broadly about impact than just emissions.

What impact investors think about when they think about energy

Over the past several years, Bridgespan has worked with a number of impact investors to analyze over 70 potential investments in the energy sector. These investors span the globe and fund companies at different stages.

For a lot of investors, the main goal is to mobilize as much capital as they can to abate carbon emissions and avert the worst impacts of climate change. Their focus tends to be in three main categories: energy production (solar, power utilities, waste to energy, wind), transportation (electric vehicles, bicycle and car sharing), and energy efficiency technologies.

The investors we work with don’t lack for opportunities to invest. Rather, they think seriously about making the most impact they can. They wish to avoid tying up a lot of capital in something that in the end could have little impact on climate change.

Thus, some are attracted to investments that may lack glamor but offer a clear path to efficiently producing energy from renewable sources. These investors seek firm estimates of emissions reductions. Consider Ecoppia, an Israeli company whose little robots that clean solar panels powered its initial public offering earlier this year. The robots, alas, aren’t funny or adorable like C3PO or WALL-E (although company execs might differ). Rather, the practical machines allow solar installations to maintain peak performance with low costs and minimal human intervention. They don’t require water, and they recharge their own batteries with built-in solar panels. Since clean solar panels can produce 35 percent more power than dirty ones, and the solar sector is projected to grow by 20.5 percent per year through 2026, such a technology could have a significant emissions impact.

Other investors look for more of a moonshot—investments that could have a profound impact on climate change. They are willing to accept a lot of risk to invest in areas such as carbon capture and sequestration, direct air capture, fusion reactors, or hydrogen-powered aircraft. Approaches such as these face obstacles and uncertainties along a long and winding path to large-scale impact. But they have game-changing potential for a net-zero world.

Read the full article about the coming energy sector transformation by Stephanie Kater, Erica Kelly, and Sam Whittemore at The Bridgespan Group.