But funding for decarbonisation innovations needs to be distributed more broadly to target a wider range of economic sectors, new PwC report warns

More funding flowed into climate tech start-ups in the UK between 2013 and 2021 than any other country in Europe, but work now needs to be done to stop investment from skewing heavily towards proven technologies that can deliver the quickest financial returns, a new report from PwC has today warned.

The consultancy giant’s Net Zero Future50 report reveals that £6.5bn of venture capital investment was channelled into climate tech start-ups between 2013 and the first half of 2021 in the UK, a level of investment only exceeded by the US and China over the same time period.

The news comes after a ranking published by the UK government last November revealed six out of the 12 most valuble technology start-ups in the country are focused on the green economy.

PwC’s head of disruption and innovation, Leo Johnson, said the findings confirmed the UK was at the leading edge of climate technology innovation.

“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,” he said. “Technology is not the panacea, but climate tech is a critical mechanism to get us on track to meet the 1.5 degree goal, and the UK is at the forefront.”

However, echoing the conclusion of its State of Climate Tech report, which was published last month, PwC today warned funding flows to different climate technologies remains “uneven”, with investment predominately focused on well-proven technologies that can deliver near-term profits.

“Critical funding gaps” remain for climate technologies that can decarbonise the built environment, industry, manufacturing, and resource management, the report notes, while the carbon capture, removal and storage sectors remains similarly under-funded.

Investment also needs to be better balanced within sectors, PwC said, with the analysis revealing that electric vehicles (EV) continue to take up the lion’s share of venture capital funding pumped into the mobility and transport sector, while alternative meat start-ups are attracting far more investment than companies looking to scale natural carbon sequestration through methods such as oceanic ecosystem restoration in the ‘food, agriculture and land use’ (FALU) space.

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

PwC said rules governing the global carbon credit market needed to be finalised to unlock more capital for solutions that could decarbonise high-carbon sectors, as without a clear financial case for capturing emissions or access to significant subsidies companies would find it difficult to justify investments in industrial decarbonisation projects.

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