Climate tech investments in the UK fell 40 percent this year owing to lower investor confidence, financial services giant PwC has said.
PwC’s 2023 “State of Climate Tech” report, published on Tuesday, cited economic uncertainty and geopolitical conflict as reasons for the slowdown in climate tech investments.
The report analysed over 8,000 climate tech start-ups and over 32,000 deals worth more than £400 billion.
PwC defined “climate tech investments” as start-ups with net zero-focused strategies and start-ups that could have first-order impact on emissions, among others.
The 40 percent slowdown in investments is said to reflect market conditions more than a deliberate move away from climate tech.
The report showed that investment in other categories dropped even more sharply, down to 50 percent.
“While it is not surprising that absolute levels of investment in climate tech have fallen along with the market, it is concerning,” said global climate leader at PwC UK, Emma Cox.
She welcomed the shift in investments towards technologies that cut emissions the most.
The industrial sector, which accounts for 34 percent of emissions, has seen an almost doubled volume of tech venture funding between the last quarter of 2022 and the third quarter of 2023.
More money now goes to startups working on technologies with higher emissions reduction potential.
The report said that investment share for solar power was up 24 percent since 2022. Green hydrogen and carbon capture also enjoyed bigger investments, up 64 percent and 39 percent accordingly.
“Now we need to see that shift continue, coupled with an increase in the absolute levels of investment in all technologies with the potential to cut emissions,” Ms. Cox said.
The proportion of capital streamed to tech with relatively lower potential to reduce emissions has dropped.
PwC reported a 50 percent decrease since 2022 in light-duty battery electric vehicles’ proportional share of investment.
Micromobility, which includes electric bikes and scooters, was down 38 percent. However, mobility in its different forms still accounts for 45 percent of investment.
Economic uncertainty has pushed the investment interest to mid-stage deals, as opposed to early stages, PwC said. This year also saw a steady influx of first-time climate tech investors.
“The industry remains attractive as a whole,” the report said.
Green Finance Strategy
There are “huge opportunities” for investors in the national transition to a net-zero economy, government ministers have argued.Under the Environmental Improvement Plan, the UK is meant to become a net-zero economy by 2050.
In a joint statement on March 26, Energy Secretary Grant Shapps, Chancellor Jeremy Hunt, and Environment Secretary Therese Coffey said that Britain’s financial services sector could drive the transition to net zero.
This includes venture capital supporting innovative climate tech and private investment in the green economy.
The government’s Green Finance Strategy estimated that through the late 2020s and 2030s, an additional £50 to £60 billion capital investment will be required each year.
The strategy outlined government plans to “harness the UK’s world-leading financial services sector” to support the net-zero goals.
Ministers plan to consult on the requirement for the UK’s largest companies to disclose their transition plans if they have them. The government also committed to deliver a UK Green Taxonomy, a tool informing investors of which economic activities should be labelled as green.
Government investments will mobilise and attract private investments, the ministers added.
A mixture of government funding, private investments, and levies on consumer bills saw £198 billion spent on low carbon energy since 2010.
Throughout 2023, the government committed to publishing a series of net-zero investment roadmaps. These will summarise investment needs and government policy by sector to make it more “investable.”
Public trust in the government’s ambitious net-zero strategy varies, depending on the policy requirements.
A recent poll showed that two-thirds of Conservative voters support green policies that don’t result in costs for the public. Only 17 percent said they would support them if they prove to entail costs.
