As the UK works to meet its ambitious Net Zero targets, the role of innovative technologies and the investment community is becoming more crucial than ever. Ian Thomas, managing director, Turquoise International, explains.
Recently, I presented to an online roundtable hosted by Pensions for Purpose, delving deep into the role that the UK’s financial community can play in supporting developing technologies that achieve real-world decarbonisation. We also explored the significant gap in growth capital in the UK and the compelling investment case for those looking to be part of the transition to a low-carbon economy.
The UK has established itself as a global leader in developing cutting-edge ClimateTech solutions aimed at reducing emissions from CO₂-intensive industries. Supporting these groundbreaking technologies is essential not just for meeting our decarbonisation goals but also for generating local employment opportunities and creating export revenue as the whole world seeks technological solutions to the climate crisis.
For the UK to achieve its Net Zero ambitions, an estimated £1.4 trillion in new investment is required over the next 30 years. Although much of this investment will comprise infrastructure, with expected annual rates of return below 10%, approximately 35% of the technologies required to achieve Net Zero are still at the early adoption stage. They are dependent on continued innovation to improve performance and reduce costs and to do that the companies that are developing them require growth capital which is in short supply.
However, this gap in growth capital represents a significant opportunity for investors. UK ClimateTech is estimated to be a market worth around £2 billion per annum, with potential financial returns of 20% or more. Such investments also achieve genuine impact by driving meaningful progress in the journey toward Net Zero.
The pathway to Net Zero is complex, impacting every sector of the economy from industry and housing to agriculture, transport, construction, and services. The transition will require a massive shift away from fossil fuels towards renewable energy sources, including new energy storage technologies for both electricity and heat.
The UK has already moved away from coal power, but the focus is now on phasing out gas for both power and heating. The importance of intermittent renewable energy sources, like solar and wind, necessitate advanced storage solutions to ensure a firm energy supply. While there are many exciting innovations, it’s crucial not to underestimate the complexities involved in selecting the right technologies that offer both cost-effectiveness and scalability.
The UK is second only to the United States in the number of ClimateTech startups and, on a GDP-adjusted basis, commands a significant share of the global venture capital market. However, much of this investment is directed toward early-stage opportunities, creating a funding gap at the growth stage. Late-stage UK ClimateTech funds have the potential to play a transformative role by helping companies transition from generating revenue to achieving sustainable profitability and scaling up operations. Addressing this funding gap will enable UK businesses to reach their full potential and deliver substantial carbon emission reductions.
The journey to Net Zero in the UK is both a challenge and an opportunity. As the country continues to innovate and lead in ClimateTech, the role of growth capital becomes even more critical. By bridging the funding gap and supporting late-stage companies, investors have a unique chance to drive sustainable change while unlocking financial returns in a rapidly evolving sector.