Climate tech funding is splitting into two camps: those betting on policy support and those betting on AI infrastructure demand. Mike Schroepfer, the former Meta chief technology officer, just closed a $250 million institutional fund that backs the latter thesis, arguing that the explosive growth of artificial intelligence data centers will force companies to adopt cleaner, more efficient power systems faster than government mandates ever could.

The timing is striking. While U.S. clean-tech investment fell for a sixth consecutive quarter in early 2026, dropping to $8 billion in the first quarter, down 34 percent year-over-year, Gigascale Capital closed its first outside investor fund on June 1, betting against conventional wisdom that climate tech has lost its appeal. The fund targets energy, grid infrastructure, and critical minerals through a climate lens, but with a twist: it frames the opportunity not as environmental necessity, but as economic inevitability.

Why Are Data Centers Becoming the New Driver of Clean Energy Adoption?

Hyperscalers like Microsoft, Google, and Amazon are consuming enormous amounts of electricity to power artificial intelligence models. This demand is so large that it's forcing a reckoning with power grids designed for a different era. Gigascale's thesis is that companies will adopt cleaner energy not because it's the right thing to do, but because it's cheaper, faster, and more reliable than the alternatives.

The fund's portfolio reads like a roster of companies solving the physical constraints of the AI boom. Commonwealth Fusion Systems is advancing fusion energy technology. Heron Power, led by Tesla's former senior vice president of powertrain and energy, Drew Baglino, is developing industrial power electronics for grid hardware. Radiant is tracking toward one of the first commercial deployments of nuclear microreactor technology in the United States. Arbor Energy signed an agreement with GridMarket for up to 5 gigawatts of zero-emission baseload power specifically for data centers.

"Cost curves bend, markets scale, and a better alternative makes the old way obsolete," said Mike Schroepfer, founder of Gigascale Capital, citing solar's move from 40 gigawatts annually to 600 gigawatts in a decade.

Mike Schroepfer, Founder, Gigascale Capital

The implication for investors is clear: late-stage infrastructure-style climate funds still raise capital easily, but early-stage deep tech companies now need a thematic wrapper, such as "physical economy" or "AI infrastructure," to pass through institutional investor screens.

What's Happening to Carbon Removal and Other Climate Sectors?

While traditional clean-tech investment is contracting, one segment is booming: durable carbon removal. In the first quarter of 2026, carbon removal companies contracted 2.3 million tonnes of removal, roughly 560 percent of the volume from the same quarter in 2025. Microsoft alone accounted for 43 percent of that contracted volume, signing a 1 million-tonne biochar deal with Liferaft in the first quarter. This concentration around a single buyer reveals both the opportunity and the risk: demand is real, but it depends heavily on a small number of large corporate purchasers.

Other climate-focused funds are also closing, signaling that capital is flowing, just into different hands. Transition Ventures closed a $150 million second fund for AI infrastructure and power systems. The UK-based Big Nature Impact Fund secured 64.6 million pounds for biodiversity and peatland restoration. Convective Capital closed an $85 million fund for disaster monitoring and recovery technologies.

How Are Tech Giants Addressing the Water and Power Challenges of AI Data Centers?

Beyond clean energy, hyperscalers are confronting another constraint: water. Google announced five new commitments to address water use at its data center sites, including a pledge to replenish more water than it consumes by 2030. The company said it replenished more than 7 billion gallons in 2025, equivalent to the annual water usage of roughly 70,000 average U.S. households. Once Google's 165 water stewardship projects across 97 watersheds are fully implemented, they are expected to replenish more than 19 billion gallons annually by 2030, more than double the company's 2024 consumption.

Google is also committing $17 million to new water stewardship projects in Georgia, Iowa, Michigan, Minnesota, Missouri, Nebraska, and Texas, in addition to the 165 projects already underway. The company has committed over $500 million to the development of water, wastewater, and water reuse infrastructure and to the utility partners that deliver water in the communities where it operates and builds data centers.

• Replenishment Target: Google will replenish 120 percent of the water it uses at data center sites by 2030, helping improve water security for local communities.
• Infrastructure Investment: Over $500 million committed to updating public water infrastructure, including projects to detect leaky pipes and enhance local water supplies.
• Watershed Protection: Google uses a data-driven framework to assess local watersheds before building new data centers, choosing air cooling or recycled water if a water source is at high risk.
• Transparency Reporting: Google was the first major cloud provider to disclose annual water use for data center locations and is committed to continuing this transparency.
• Alternative Solutions: The company is working with utility partners to identify freshwater alternatives, such as reusing treated wastewater for cooling at data center campuses.

Where Is Global Data Center Investment Heading Next?

The geographic expansion of AI data center investment is accelerating. AirTrunk, an Australian data center developer, announced a $30 billion investment to build 5 gigawatts of AI-focused data center capacity in India, with construction expected to begin in 2027. The project is expected to create thousands of jobs in construction, operations, and maintenance, while positioning India as a critical node in the global AI supply chain.

AirTrunk's CEO stated that the investment is a direct response to growing demand from major technology companies that require immense computing power to run AI models, and that India offers a unique combination of technical talent and competitive costs. However, the project also raises important questions about energy consumption and environmental impact. AirTrunk is committed to using renewable energy sources to power its data centers, but the biggest challenge lies in meeting surging electricity demand without straining the national grid.

The broader pattern is clear: climate tech is no longer a niche sector betting on policy support. It's becoming the backbone of AI infrastructure. Companies that can solve the energy, water, and cooling constraints of hyperscale AI data centers are attracting institutional capital at a pace that outpaces traditional clean-tech investment. The winners will be those that make the old way of powering and cooling data centers obsolete, not through regulation, but through superior economics.