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UK climate tech startup investment doubles in 2022

Climate technology investment has nearly doubled in the UK over the past year and is growing globally, but questions remain over how to scale capacity and whether the necessary change will occur in time to prevent climate catastrophe

UK climate technology startups have raised $7.5bn in 2022 so far, almost double the entire $4bn raised by the same firms throughout 2021, but more work is needed to scale down global emissions in the timescales needed, according to a Tech Nation report.

Published ahead of COP27, which runs from 6-15 November, the Climate tech report 2022 said UK investment in firms working to address the climate crisis had seen “exponential growth” in the past year, with 5,200 companies now operating in the sector.

It added the UK now has eight unicorn companies (those valued at over $1bn) working to address the climate crisis, with a further 19 on their way to reaching the same valuation.

The eight existing unicorns include Octopus Energy, Newcleo, Depop, ITM Power, Ceres, OVO Energy, Smart Metering Systems and Vertical Aerospace.

“The outsized role technology must play in tackling the climate crisis is undeniable. There has never been a more crucial time to take action, and while we should be encouraged by the immense growth of the UK’s climate tech sector – along with the high carbon reduction potential of climate tech companies and the resilience of the sector in the midst of difficult economic times – this is certainly no time to be complacent,” said Sammy Fry, net zero lead at Tech Nation.

“We must continue to fuel the areas curtailing emissions with investment and shape policy that allows real change to become possible. This is the only way to preserve our planet for future generations.”

Outside of the UK, the report added that climate tech investment is growing globally, and has already reached $73.86bn in 2022 so far, compared with $111.24bn in all of 2021. Tech Nation said this investment was largely being driven by large funding rounds of $185m or more at later stage companies.

“The outsized role technology must play in tackling the climate crisis is undeniable. There has never been a more crucial time to take action”
Sammy Fry, Tech Nation

For further comparison to general tech investment, enterprise software startups raised $103.7bn in 2021, while healthtech and fintech firms raised $119bn and $129.4bn respectively.

Tech Nation estimated that there are now more than 44,000 climate tech firms globally, with the highest number (around 14,300) based in the US, where the general tech ecosystem is much larger.

Most of these are distributed across eight verticals, including energy, farming and food production, the circular economy, the built environment, mobility, manufacturing, carbon accounting and climate risk, and greenhouse gas (GHG) removal.

Of these, energy production startups and scaleups make up the largest percentage of climate tech companies (29.1%), while farming and food production are the second (23.6%). GHG removal startups and scaleups make up the smallest proportion of the market, at 0.5%.

Tech Nation added that the emission reduction potential of the technologies being developed by the globe’s 44,000-plus climate tech firms is predicted to surpass 2019 emissions by 2036, meaning these companies will be removing more carbon from the atmosphere than the world produced in 2019, by 2036.

It further added, however, that this capacity would need to be rapidly scaled, as significant change would need to be made before this time.

In October 2022, for example, a report from the United Nations’ Environment Programme (UNEP) showed a massive gulf between the level of action countries are taking to tackle climate change and what is needed, with most nations “woefully” far from hitting their targets to reduce global warming.

The UNEP report added that rapid change was needed across society, including changes to electricity supplies, industry, transport and buildings, as well as the preservation of natural landscapes, changes to diet and farming, and removing carbon from food supply chains, all of which UNEP estimates would require between $4tn and $6tn to fund globally.

“Only a root-and-branch transformation of our economies and societies can save us from accelerating climate disaster,” said UNEP executive director Inger Andersen.

Tech Nation said in its report that climate tech ambitions are dependent on the right policies being in place. Amid concerns that research and development (R&D) funds might be cut in the UK, Tech Nation is urging the government to protect this funding source for firms to help drive the push to net zero.

“It is imperative we match the rhetoric ambition of making the UK a ‘forward-facing science superpower’ with the R&D commitment needed to achieve this,” said Tech Nation CEO Gerard Grech. “COP27 focuses the mind; new technology development is critical for solving acute global challenges such as carbon reduction and removal, and deep tech will be an ever more essential component of the tech ecosystem.”

Tech Nation currently has two net-zero-oriented accelerator programmes. These are the Net Zero programme, which is now in its third year and focuses on early-stage climate tech scaleups, and Net Zero X, which launched in October 2022 and is run exclusively for later stage firms.

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