UK a leading climate tech hub in Europe

08 February 2022 Consultancy.uk 3 min. read
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The UK is emerging as a global climate tech leader and is the leading climate tech hub in Europe, according to a new study. The market is still largely geared toward short-term profitability though, as opposed to more important high-carbon-impact solutions.

As the importance of climate tech’s scientific benefits have become more widely demonstrated, investors around the world have scrambled to capture their own part of the market. While climate tech investment plateaued from 2018 to 2020, tempered by macroeconomic trends and the global pandemic, investment rebounded sharply in the first half of 2021 driven by a heightened focus on ESG in private markets, emerging regulations and standards, and thousands of companies committing to net-zero strategies.

In late 2021, analysis of investments in the market by PwC suggested that investment from venture capital and private equity in particular was pouring into climate tech, reaching $87.5 billion over the second half of 2020 and the first half of 2021. This represents a 210% increase from the $28.4 billion invested in the 12 months prior, with 14¢ of every dollar of venture capital investment now going to climate tech.

H2 2020 - H1 2021 funding received by UK Climate tech startups

Amid this booming environment, further research from PwC has found that Britain is emerging as a leading player in the climate tech scene. The UK ranks top in Europe for total climate tech Venture Capital funding between 2013 and the first half of 2021, while seeing investment levels in excess of £6.5 billionover that period. It is third in the world, behind the US and China.

Leo Johnson, Head of Disruption & Innovation at PwC, said, “As climate challenges grow ever more urgent, climate tech innovations are helping to bend the emissions curve and accelerate decarbonisation. The UK has been pivotal in climate tech’s growth over recent years and with COP26 highlighting the need for climate technology as part of the Glasgow Breakthrough Agenda, the space is emerging rapidly.”

Funding gap

This is not to say the UK is faultless in its European leadership though. Global market trends are still borne out in the British climate tech sphere, potentially preventing it from pressing home its early advantage. In particular, PwC found a ‘Carbon Funding Gap’ was emerging, as Venture Capital investment remains focused on well proven technologies, prioritising near term profitable outcomes rather than longer term, higher carbon impact solutions.

For example, mobility and financial services both command disproportionately large portions of climate tech funding in the UK. The UK greenhouse gas emissions of the mobility sector make up about a quarter – but due to the profitable nature of the market, funding relating to it makes up close to half of all investment.

Meanwhile, the direct emissions of the financial services sector is so low that it does not appear on PwC’s charts – but it attracts about the same amount of investment as manufacturing and industry; despite that segment also adding around a quarter of all the UK’s emissions. The built environment meanwhile represents an estimated 17% of emissions, but received only 5.1% of financing.

According to PwC, as this gap is currently present across other leading markets, this presents an opportunity for the UK to take a truly leading position. This could see it focus greater pools of capital on certain innovations across high-carbon sectors like built environment to food, agriculture and land use – which are less profitable now, but will be in keen demand in the future. To support the acceleration of this, the researchers called for the alignment of national and global policies, especially with agreeing the rules and guidelines for a global carbon credit market. 

Johnson concluded, “Investment is needed across all sectors, but the challenge is implementation, speed and scale. It will take engagement and action from policymakers as well as investors to deliver the potential of these climate tech breakthroughs.”