The total value of net zero tech companies in the UK has nearly doubled over the last year, from $24.4bn to $47.6bn, new Tech Nation research released today has shown.

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).

The findings in the Net Zero 2021 Report, sponsored by BNP Paribas and Sage, reflect 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. 

Sammy Fry, Net Zero lead at Tech Nation, said: “Scaling climate tech must become a global priority. If we are to achieve net zero, it is vital that all state and non-state actors invest and support the growth of climate tech. 

“With the value of climate tech companies almost doubling, the growth of the sector is promising, but we need to do more. We urge global leaders to put their support behind the sector to accelerate the net zero transition and ensure the world realigns itself with a 1.5C trajectory, in order to safe-guard the future of the planet.”

The UK is a global leader for net zero tech

UK net zero tech scaleups make up 12% of the global net zero ecosystem. Eight (7.8%) of the all 103 net zero tech ‘unicorns’ globally (companies valued at $1bn+) are headquartered in the UK, such as OVO Energy, Octopus Energy and Arrival, along with eleven (5%) of the 237 net zero tech ‘futurecorns’, such as OLIO, Bulb and Cervest. 

The UK is fourth globally for net zero tech investment – at $1.51bn (8% of VC investment raised in the UK in the first half of 2021) – behind the US, China and Sweden – and is second only to Sweden in terms of European investment into climate change catalysts. 

“Decarbonising our atmosphere has swiftly become both a national and global priority,” commented Andrew Griffith MP, UK Net Zero Business Champion.

“The UK’s net zero companies are helping to create jobs, ensure the UK’s future prosperity and tackle the most pressing issue of our time. As COP26 approaches, accelerating the growth of the UK’s net zero companies – and helping them overcome key scaling challenges – is a core part of our government’s mission, and we look forward to supporting the net zero scale ups who are driving us forwards in the Race to Zero.”

Net zero growth across all UK regions

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. 

Value is growing, but investment is slowing

In spite of the sector’s growing value, 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 $470m.

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.

Dr George Windsor, head of insights at Tech Nation, said: “As our latest Net Zero Report makes clear, the UK’s net zero scaleups are boosting job creation with 23,200 employed in the sector, and making a tangible difference in the fight against climate change – across all regions of the UK. 

“However, as the report outlines, if these net zero companies are to fulfil their potential to save our planet, they need more help, support and funding from investors, UK pension funds and policymakers worldwide. This report aims to highlight the challenges – as well as the opportunities – facing scaling climate tech companies, and sets an aspirational target of boosting 2021 net zero investment by 10x by 2025.”

Challenges for scaling net zero companies

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 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 3 scaling challenges, and almost a quarter (21.9%) highlighted ‘funding’.

Read the full Net Zero 2021 Report here