The Climate Tech Fund II is a federal venture capital initiative managed by the Business Development Bank of Canada (BDC) to support the growth and scale-up of Canadian climate technology firms. The fund targets innovative companies developing impactful, capital-intensive technologies that significantly reduce greenhouse gas emissions across sectors such as energy, mobility, and industry. It provides patient, equity-based financing to high-potential ventures, often in partnership with private and foreign investors. BDC takes an active role in investee companies, supporting them through milestone-based funding, strategic guidance, and connections to broader public and private innovation networks. The fund’s long-term focus aims to anchor promising climate tech firms in Canada while driving sustainable economic growth.
Business Development Bank of Canada – Climate Tech Fund II
Abstract
The Climate Tech Fund II is a CAD 500 million (approximately EUR 336 million) venture capital federal programme by the Business Development Bank of Canada (BDC) launched in 2022. It aims to invest in Canadian technology firms that have an impact on the climate. The programme builds on the first Cleantech Practice’s Fund I launched in 2018. This funding has been fully committed, supporting a portfolio of 50 companies. The Cleantech Practice Fund I together with the Climate Tech Fund II brings BDC’s commitment to CAD 1.1 billion (approximately USD 825 million and EUR 748 million).
The fund is for firms that develop technologies that materially mitigate GHG emissions across different areas, including (but not limited to):
Energy
Mobility
Built environment
Industry and resources
Carbon management
The investments areas need to conform to the following :
Late-stage seed to growth stage capital
Impactful technologies that materially reduce GHG emissions
Hard technologies (capital intensive business models)
Defensible proprietary intellectual property
Demonstrated market traction / validated product-market fit
Clear line of sight to achieve commercial scale and profitability
The average investment size is CAD 10 million (USD 7.3 million and EUR 6.3 million equivalent) per company, with some investments reaching CAD 40 million (USD 29 million and EUR 25 million equivalent). Deals of below CAD 1 million (approximately USD 730,000 and 640,000) are not within the remit of this scheme. BDC typically takes a board or observer seat in funded companies, ensuring alignment with long-term strategic goals.
The Climate Tech Fund I was established in response to a 2017 consultation led by the federal government to identify financing gaps for clean technology firms in Canada. After the identification phase, BDC was tasked with addressing some of these gaps, many of which were related to accessing sufficient finance. As climate technology firms are typically capital-intensive and high-risk, they tend to struggle to attract sufficient private funding, especially from domestic sources. This led to the launch of the initial CAD 600 million fund. Given its success and persistent challenges related to funding, the government approved a second iteration of the fund of CAD 500 million. BDC is a development bank and deliberately takes on higher-risk and longer-term investments than most private investors do.
BDC’s investment model requires co-investment from private investors, ensuring that private capital is leveraged. For the first iteration of the fund, the programme manager estimates that, for each dollar BDC has invested, it unlocked CAD 12 in private capital. The risk is usually shared equally with investors, but exceptions are possible, especially for early-stage and high-risk ventures. One ambition of the fund is to co-finance alongside foreign investors, thereby “anchoring” these companies in Canada. This feature was considered particularly important because the Canadian private sector has been relatively reluctant to engage in the kind of capital-intensive, high-risk deals that climate tech requires. As a result, many companies (especially those receiving larger investment amounts) were primarily financed by foreign investors, as many companies—especially those receiving larger investment amounts—were primarily financed by foreign investors. Aside from the climate goals and the support for innovative companies, the programme thus also served a third objective, i.e. to stimulate innovative Canadian climate tech companies to remain in Canada. BDC has sought veto rights in some deals to prevent premature foreign acquisitions.
Focused investment strategy: A key lesson from Fund I was that a broad, instrument-agnostic approach was less effective for early-stage clean technology firms. Quasi-equity instruments and investments in publicly listed companies did not meet the specific needs of beneficiaries. In response, Fund II adopted a more targeted, equity-based model. It also narrowed its scope to support fewer technologies, prioritising those with high climate impact. The focus now includes hard-to-abate sectors, capital-intensive business models, and areas where Canada has a clear global competitive advantage.
Appropriate funding size and duration: Another important lesson was the need to provide sufficient funding over a longer time horizon. Many firms receive more funding than initially requested, giving them time to refine technical capabilities and business plans before commercialisation. This aligns with a long-term view, shared by private sector partners, recognising that profitability may take time to achieve.
Strategic partnerships over direct advisory services: BDC initially experimented with offering advisory services directly, but most beneficiaries showed limited interest, and the added value of these services was unclear. A more effective approach was to collaborate with other government agencies (e.g., Clean Growth Hub, Export Development Canada). BDC now emphasises ecosystem connectivity, regularly referring companies to public partners for business development support.
Selective Investment Approach: BDC invests in only 1 out of every 75–100 applicant companies, a level of selectivity enabled by Canada’s well-developed cleantech start-up ecosystem. This approach contributes to a high leverage ratio and supports long-term profitability. Unlike some other development banks, BDC takes an active role in selecting investees, rather than delegating decisions to private partners. Its team brings strong sector-specific experience aligned with the fund’s strategic focus.
Addressing Market Gaps: The programme was designed to address a clear market failure: the shortage of risk capital for the commercialisation and scale-up of cleantech and climate tech ventures in Canada. Extensive stakeholder consultation in 2017 was key to identifying this gap and informing the fund's design. The fund targets this underserved segment with multistage, patient capital—from seed to growth phases—and does not seek early exits, unlike typical private venture capital funds. This long-term orientation is shared with its co-investment partners.
Flexible and Tailored Support: BDC’s model is intentionally flexible to meet the diverse needs of high-potential ventures. Initial investments are often larger at earlier stages and decrease as companies mature and attract private capital. This allows BDC to support higher-risk ventures with significant climate impact potential. While BDC typically takes a board seat, it can forgo this if circumstances call for it. This adaptability extends to investment structure, which can be customized depending on company needs.
Milestone-based investment and impact measurement: Investments are tied to clearly defined milestones, which support company growth and help achieve higher valuations in subsequent funding rounds. All companies must demonstrate a viable path to commercialisation, with BDC acting as a long-term partner. Environmental impact is systematically assessed using the Prime Coalition methodology, guiding investment decisions and ensuring alignment with climate objectives.
Ecosystem connectivity and facilitation role: BDC plays an important intermediary role within the innovation ecosystem. Companies that do not meet BDC’s criteria—due to ticket size or other factors—are often referred to other public organisations. Portfolio companies also benefit from BDC’s extensive network, gaining access to potential co-investors, strategic partners, and additional funding opportunities.
This work is published under the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Member countries of the OECD.
This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Photo credits: © Sakorn Sukkasemsakorn/Getty Images Plus.
© OECD 2025
Attribution 4.0 International (CC BY 4.0)
This work is made available under the Creative Commons Attribution 4.0 International licence. By using this work, you accept to be bound by the terms of this licence (https://creativecommons.org/licenses/by/4.0/).
Attribution – you must cite the work.
Translations – you must cite the original work, identify changes to the original and add the following text: In the event of any discrepancy between the original work and the translation, only the text of the original work should be considered valid.
Adaptations – you must cite the original work and add the following text: This is an adaptation of an original work by the OECD. The opinions expressed and arguments employed in this adaptation should not be reported as representing the official views of the OECD or of its Member countries.
Third-party material – the licence does not apply to third-party material in the work. If using such material, you are responsible for obtaining permission from the third party and for any claims of infringement.
You must not use the OECD logo, visual identity or cover image without express permission or suggest the OECD endorses your use of the work.
Any dispute arising under this licence shall be settled by arbitration in accordance with the Permanent Court of Arbitration (PCA) Arbitration Rules 2012. The seat of arbitration shall be Paris (France). The number of arbitrators shall be one.
