Making the UK a destination of choice for climate tech companies critical for net zero

• The UKIB or BBB should launch dedicated climate tech fund or programme with a specific focus on supporting transactions with a £10-25m ticket size
• Recommends maximising public finance guarantee structures and bolstering existing tools and mandates to mobilise public and private capital
• Welcomes the creation of the National Wealth Fund and outlines opportunities for further collaboration of public institutions to unlock climate solutions

The UK has an opportunity to leapfrog international markets and become a destination of choice for innovative climate technologies, vital to achieving net zero ambitions. In order to do so, the new UK Government must address the public and private sector funding challenge, which is currently hindering the ability of growth-stage climate tech firms to scale at pace.

A new paper from Barclays, Scaling growth-stage climate tech companies – How can existing UK public finance support for growth-stage climate tech be optimised to bridge the ‘missing middle’ financing gap?, outlines the main obstacles around financing and government support, and details four key recommendations to address them. These include:

1) Provide direct public support for companies by addressing the £10-25m gap in public financing provision
a. The British Business Bank (BBB) or the UK Infrastructure Bank (UKIB) to launch a specific fund or work programme focused on climate tech transactions requiring debt and/or equity investment at this ticket size

2) Expand financing mechanisms and maximise existing tools and mandates to improve the impact of public finance institutions. This includes:
a. UKIB and BBB maximising guarantee powers and mandate to help mobilise private capital and transfer risk
b. The BBB should explore the creation of a guarantee scheme specifically targeted at supporting climate technology companies
c. Appropriately resourcing both institutions to ensure they have the right talent and expertise to understand the unique requirements of innovative climate tech companies 

3) Improve organisational connection and collaboration. The recently announced National Wealth Fund presents an opportunity to facilitate better collaboration and unlock greater financing. The current set-up of organisations, including the UKIB, BBB, UK Export Finance and Innovate UK creates missed opportunities for collaboration, alignment and better cohesion in delivery of programming and support.

4) Consider the existing infrastructure of UK public finance institutions and whether they operate within the most effective structure  
a. Review the ecosystem of support and consider the benefits and practicalities of consolidating the existing infrastructure of UK public finance institutions

Daniel Hanna, Global Head of Sustainable Finance, Barclays, said: “The UK is renowned for its innovation but there is a missing middle of capital holding back successfully scaling viable real economy ideas that can support the transition to net zero emerging from our institutions, entrepreneurs and universities. The National Wealth Fund presents an opportunity for the UK to fine-tune the UK’s public finance approach and help mobilise greater private capital. Our policy paper Scaling growth-stage climate tech companies suggests four practical steps for the National Wealth Fund and UK public institutions to unlock financing critical to scaling next generation climate tech companies and support the UK becoming a global centre for climate tech.”

Climate tech companies are critical to addressing climate change and will play a pivotal role in directly reducing or removing greenhouse gas emissions and improving resilience or adaptation to the physical impact of climate change. The International Energy Agency estimates that 35% of greenhouse gas emission reductions required by 2050 will come from technologies not yet on the market¹.  

The missing middle

The paper highlights the ‘missing middle’ funding challenge inhibiting the success of growth-stage climate technology companies, particularly those at the Series B+ investment stage. These firms often have high initial upfront costs and long timeframes to profitability. Faced with an investor market more acclimatised to software start-ups, climate tech firms can find it challenging to convey their revenue drivers and scale potential, creating a perceived risk/return profile which can prove difficult to overcome, meaning these companies fail to secure the funding needed for their next level of growth.

While the UK is no exception and is seen as a great place to innovate, it is competing with compelling policy landscapes in other jurisdictions, including the US. The paper highlights how companies are closely watching the UK’s response to international incentive schemes and subsequently evaluating their locations and where best to deploy their funds. 

ENDS

Notes:

Click here to view the full policy paper, Scaling growth-stage climate tech companies - How can existing UK public finance support for growth-stage climate tech be optimised to bridge the ‘missing middle’ financing gap?. The paper draws on insights from Barclays’ own work with climate tech companies, as well as bespoke research of over 800 employees working within UK businesses which use climate tech.

Barclays’ Group Policy Development team creates public policy thought leadership content on behalf of Barclays. The work draws on the bank’s expertise, data and insights, and is intended to inform the design and application of public policy solutions in response to pressing economic and societal challenges.

Barclays’ Sustainable Impact Capital portfolio has a mandate to invest £500m into global climate tech companies by the end of 2027. Between 2020 and 2023, Barclays had invested £138m into over 20 innovative companies.

Methodology

• Barclays held a series of insights roundtables and engagements with climate tech firms to understand their experience.
• These insights were complemented by bespoke research carried out with Censuswide, the international market research consultancy, in Autumn 2023. The research surveyed 507 employees who work in UK businesses which use clean tech, and 300 senior managers and above working in clean tech companies with 10+ employees.

Footnote
¹ https://iea.blob.core.windows.net/assets/9a698da4-4002-4e53-8ef3-631d8971bf84/NetZeroRoadmap_AGlobalPathwaytoKeepthe1.5CGoalinReach-2023Update.pdf