UK Net Zero tech companies have nearly doubled in value over the last year - from $24.4bn to $47.6bn, a rise being driven by more climate tech companies reaching ‘unicorn’ ($1bn+) status, as public demand for action on climate change grows
The UK is a global hub for sustainable tech; 7.8% of global Net Zero tech ‘unicorns’ – and 5% of global Net Zero tech ‘futurecorns’ - are headquartered in the UK
The UK is fourth in the world for investment into Net Zero tech - and Bristol comes in second as a hub for energy tech, after London
UK Net Zero companies are creating a growing number of jobs in the UK with Net Zero employment growing by 33% between 2020 and 2021
Yet, the rate of investment in UK climate tech is slowing; between 2020 and 2021, investment grew from $1.54bn to $1.57bn (a $30mn - 2% - increase), while between 2019 and 2020, UK climate tech investment saw a much larger increase of $470mn - and Sweden radically outperforms the UK in terms of pounds invested per tonne of CO2 emitted
Funding and talent outlined as the top challenges for Net Zero tech firms to scale
Tech Nation calls on investors and policymakers to prioritise supporting and investing in UK Net Zero scaleups - setting a target of $15bn invested by 2025 - building on last month’s announcement of the UK’s Green Gilt; the government’s first green sovereign bond
Drawing on Tech Nation’s proprietary data, network and both qualitative and quantitative insights, the report explores the opportunities and challenges being faced by UK high-growth tech firms in this burgeoning sector. This latest report has been created in partnership with a range of key stakeholders, including scaling Net Zero tech firms, sponsors BNP Paribas and Sage, the UK government, and UK venture capital firms.
Valuations of UK Net Zero tech companies have sky-rocketed since last year
After rising steadily from 2010-2020, UK Net Zero tech companies have nearly doubled in value over the last year - rising from $24.4bn to $47.6bn. This reflects a surge in public demand for climate action in the lead up to COP26, as well as an increased reliance on technology to offset the UK’s carbon emissions. While 10 new UK Net Zero companies have entered the market, these skyrocketing valuations have been primarily driven by existing climate tech companies reaching unicorn ($1bn+) status. These include companies Arrival (whose valuation increased to $16.2bn after their IPO in March 2021), Octopus Energy (whose valuation grew to $4.9bn after a growth equity VC round in September 2021) and ITM Power (valued at $2.9bn in June 2021). Mega valuation hikes like these are the biggest driving force when looking at why the Net Zero valuations have increased.
The UK is a prominent global leader in Net Zero tech
UK Net Zero tech scaleups make up 12% of the global net zero ecosystem. Eight (7.8%) of the 103 global Net Zero tech ‘unicorns’ (companies valued at $1bn+) are headquartered in the UK, such as OVO Energy, Octopus Energy and Arrival, along with eleven (5%) of the 237 global Net Zero tech ‘futurecorns’, such as OLIO, Bulb and Cervest.
Of the UK’s unicorns, climate tech company Arrival is the UK’s first Net Zero ‘decacorn’ (company valued at $10bn+), with a valuation of $16.2bn.
The UK’s 8 Net Zero ‘unicorns’
(Source: Tech Nation, Dealroom, 2021)
The UK’s 11 Net Zero ‘futurecorns’
(Source: Tech Nation, Dealroom, 2021)
When breaking down Net Zero tech into the six key industries (energy, industry, buildings & cities, transport, forests & land use, and agriculture & food), the majority of companies operate in the energy industry. Even if you combine the number of Net Zero companies operating in the next four largest UK industries (food, transportation, fashion & environmental intelligence software), there are still more companies operating in energy.
Growth is coming from all corners of the UK
While London accounts for 72% of all VC investment made into Net Zero firms in 2021 so far, Bristol comes in second after seeing a spike in activity in 2019 with investment in climate tech ‘unicorn’ OVO energy, who raised $200mn of growth equity, one of the largest rounds of investment in a UK Net Zero company.
This growth is having a positive impact on the UK economy through attracting foreign investment and creating employment opportunities. UK Net Zero companies currently employ over 23,200 people - and are well-positioned to continue creating more job opportunities in future, as Net Zero employment is on a strong growth trajectory. The number of people employed by climate tech companies grew by 36% between 2019 and 2020, and 33% between 2020 and 2021.
We are still not seeing investment in Net Zero tech accelerate at the pace required
While the UK is fourth in the world for investment for Net Zero tech, the rate of investment in UK climate tech is slowing; between 2020 and 2021, investment grew from $1.54bn to $1.57bn (a $30mn increase), while between 2019 and 2020, UK climate tech investment saw a much larger increase of $470mn.
Sweden radically outperforms the UK in terms of pounds invested per tonne of CO2 emitted, investing over 10x the amount in Net Zero tech per tonne of CO2 emitted than any other nation. The UK is second, third is the US and China is 8th. Tech Nation’s Net Zero Report suggests we should be working together to aspire to what Sweden has achieved.
The government has put in place a ten point plan for a green industrial revolution, which promises more investment into the UK’s Net Zero tech companies. Tech Nation celebrates this plan, and calls for investment levels in Net Zero companies to be increased tenfold by 2025. This would equate to an additional $15bn invested by 2025 - 15% of the $100bn climate finance yearly target (a COP26 goal). Tech Nation believes half of this $15bn should come from VCs accelerating the growth of promising Net Zero scaleups and technologies, and the rest from other PE firms.
Scaling Net Zero companies face significant challenges on their scaling journeys
There is some way to go if these critical technologies are to save our planet. Net Zero tech firms tend to face unique challenges in scaling (many shared with deep tech companies), due to the R&D intensive nature of development of their products and services, an adverse investment infrastructure favouring rapid returns rather than longer term horizons, and difficulty in hiring top Net Zero talent (on both tech, and non-tech sides of the business).
Among Tech Nation’s Net Zero 2.0 applicants (137 climate tech companies), nearly half (45.9%) of companies identified ‘team’, ‘talent’ or ‘hiring’ as one of their top three scaling challenges, and almost a quarter (21.9%) highlighted ‘funding’.
Net Zero tech is critical to achieving our climate goals
Covering industries from energy and transport to forestry and agriculture, these technologies offer the solutions we need to reduce carbon emissions, either directly or indirectly, and secure a more sustainable future.
The UK’s Net Zero companies are contributing significantly to the UN’s ‘Climate Action’ goal to ‘take urgent action to combat climate change and its impacts’ (part of the UN’s 17 Sustainable Development Goals), with this being a high priority in helping the UK achieve its goal of reaching net zero by 2050.
To realise that goal within the next three decades, the report makes clear, we must support the UK’s Net Zero scaleups - which are driving us towards net zero - through higher levels of investment (at least $5bn per year) into net zero tech scaleups, and accelerator programmes.