Climate Tech at the Crossroads: Investment Reality Check
Scotland's entrepreneurial ecosystem offers significant opportunities, yet the climate tech sector faces substantial challenges. Despite positive headlines, the situation for scale-ups and investors is more complex.
The UK defied global trends with a 24% surge in climate tech investment, reaching £4.5 billion in 2024. However, this success masks deeper structural challenges that could determine whether British climate innovators capture a global market share or watch competitors pull ahead.
The Investment Reality: Strong Start, Uncertain Scale-Up
The fundamentals look promising. UK-based investors channeled £2.4 billion into domestic climate tech companies, marking a 7% rise in investment volume.
The government's commitment runs deep, with the National Wealth Fund having £7.3 billion allocated to drive job creation in clean energy and fund vital infrastructure.
Early-stage resilience provides genuine cause for optimism. UK-based AI climate tech firms saw investment surge 128%, rising from £440 million in 2023 to £1.01 billion in 2024. This isn't just about the numbers, it signals that investor confidence in British innovation remains intact, particularly in AI-powered climate solutions where UK companies now account for 22% of global investments.
The Scale-Up Challenge: Where Growth Gets Complicated
However, significant headwinds remain. The resurgence of protectionist policies worldwide is creating new challenges for climate tech development and deployment.
The intensifying competition between the US, EU, and China around green technologies means sectors like solar, EVs, and batteries have become flashpoints for geopolitical tension.
This fragmentation shows up in investor behaviour. Traditional venture capital is increasingly gravitating toward sectors perceived as immediately strategic, including defense tech, critical infrastructure, and advanced manufacturing. Climate tech finds itself competing for attention in an increasingly crowded field.
The data reflects this shift starkly. Total global investment in climate tech dropped to £44 billion in 2024, from £62 billion in 2023. This isn't merely cyclical; it represents a reassessment of risk and return expectations in an environment where geopolitical stability can no longer be taken for granted.
Late-stage funding presents the most acute challenge for scale-ups. The collapse of high-profile companies and broader contraction in growth-stage capital have created what industry analysts identify as a persistent scaling problem. Despite the UK outperforming other European countries, US firms dominate the largest funding rounds globally, and this gap widens precisely when climate tech companies need substantial capital to achieve commercial scale.
A key concern for founders is that UK investors often show greater risk aversion, hesitating to lead investment rounds and prioritising near-term profitability. Are they right?
In climate tech, where commercialisation timelines are long, this cautious approach can significantly hinder scaling efforts.
Strategic Solutions: What Actually Works
The path forward requires acknowledging that climate tech operates under different rules than traditional venture investments.
Here are three strategic interventions that could bridge the current divide and create genuine opportunities for both scale-ups and investors.
Government as Co-Investment Partner: The UK government should look to expand beyond grants to become a more active co-investor in late-stage climate tech funding. This could involve direct investment alongside private capital or providing downside protection that enables pension funds and institutional investors to participate more actively in the market. Research shows that start-ups receiving corporate venture capital within their first three financing rounds have significantly higher success rates, and between 21 and 64 percent higher chances of successful exits.
Regional Innovation Clustering: Sustainable Ventures, Europe's leading climate tech cluster, demonstrates the value of concentrated ecosystems. Expanding this model beyond London to create regional centres of excellence could help diversify risk while building deeper industry expertise. Scotland's existing strengths in offshore wind and marine energy provide natural foundations for such clustering.
Institutional Capital Activation: The most significant untapped opportunity lies in mobilising institutional capital. Leading industry bodies have demonstrated how pension funds and insurance companies can become more active participants in climate tech financing. This requires both regulatory clarity and new investment structures that match institutional risk profiles with climate tech timelines.
These interventions must be viewed as strategic infrastructure investments rather than subsidies. Climate tech represents critical infrastructure for a net-zero economy, requiring patient capital and different return expectations than pure venture plays.
The Investment Decision Point
The evidence suggests UK climate tech sits at a genuine crossroads. The technical capabilities, policy support, and early-stage innovation ecosystem remain world-class. Accelerator programmes have supported over 800 start-ups, helping attract over £1.1 billion in investment and creating 6,500 green jobs, demonstrating the existing foundation.
However, national security, economic resilience, and industrial strategy now frame policy development. This creates both opportunity and risk. Climate tech positioned as strategically essential, including energy security, critical materials, industrial decarbonisation, may benefit from increased attention. Technologies perceived as purely environmental may find themselves deprioritised.
The upcoming policy announcements in 2025, including the government's Carbon Budget and Growth Delivery Plan, will provide crucial signals about long-term commitment. But investors and scale-ups cannot wait for perfect policy clarity. The companies and investors who recognise climate tech as fundamental infrastructure for economic resilience, rather than an optional ESG overlay, will be best positioned to navigate current uncertainty.
The Bottom Line for Investors and Scale-Ups
The question isn't whether climate change requires urgent action – that debate is settled. The question is whether we can build investment models and policy frameworks robust enough to deliver returns amid genuine geopolitical instability. The UK, and in particular Scotland, has the technical talent, early-stage momentum, and policy framework to lead. But without strategic interventions to support scale-up and navigate global headwinds, it risks watching other regions capture the economic benefits of technologies it helped pioneer.
“Is climate tech a casualty of geopolitics or the foundation of a resilient future economy?”
The answer lies in the investment decisions made over the next 24 months. For investors seeking real returns and scale-ups looking to build global businesses, the crossroads is here. The direction chosen will not only define individual company outcomes but also the UK's position in the global economy by 2035 and beyond.
The opportunity remains substantial, but the window for decisive action is closing.
