Mitesh Soni, Managing Director and Head of Cleantech at Deutsche Numis, looks at the case for Cleantech to be the next potential super-sector for the UK capital market.
The UK’s capital market has many distinct strengths – its scale as the largest capital markets venue in Europe1, its international investor base and its highly developed ecosystem of financial services, to name a few. But it has no stand-out ‘super-sector’, an industry or related cluster of industries for which the London stock market is globally renowned.
The advantage of London having such a super-sector is one of the points on which our Raised in London 2024 survey found near unanimity, with 99% of FTSE leaders saying a super-sector would boost London’s attractiveness as a capital markets venue. Opinion was divided, however, as to what that super sector might be, with fintech, life sciences and Cleantech all named as potential candidates. We see the case for Cleantech as being one of the most powerful.
The Cleantech sector (also sometimes called Greentech/Climatetech) covers a variety of innovative businesses across multiple end markets, including enabling the generation of clean energy (renewables such as solar/wind and the associated service providers needed to construct, install and maintain them), green transportation (EVs, batteries and charging infrastructure), circular economy (increased recycling and value from waste) and more nascent but potentially impactful technologies such as geothermal, hydrogen and carbon capture. In recent years we have seen a strong alignment of factors that could allow the UK’s capital market to become a natural global home for Cleantech capital.
We could see a once-in-a-generation opportunity for the UK capital markets to play a pivotal role in developing a Cleantech super-sector. Mitesh Soni, Managing Director and Head of Cleantech at Deutsche Numis
Strong foundations for a super-sector
The UK is, in fact, already a global leader in the deployment of renewable energy – according to the Department for Energy Security & Net Zero, in Q2 2024 a record 52% of all UK electricity generation was derived from renewable sources2 – the 3rd quarter in a row where this has been more than half of total share. To add to this, in September 2024 the UK became the first G7 country to fully phase out coal power.
Despite this positive progress it is also clear that both in the UK and globally the required scale of future investment and pace of innovation required to meet net-zero targets is immense. For UK capital markets to be a leading source of finance for global Cleantech we believe there are three core factors that will define the opportunity: growth funding, people and public policy.
Growth funding
Many Cleantech businesses are currently at the early growth stage and investment has been significant, with £3.2bn deployed, largely in the venture capital private markets, for UK Cleantech businesses in 20223 . However, historically there has been a lack of conversion into the larger private growth funding rounds needed to scale up these same businesses into companies ready for public markets. New investors such as the National Wealth Fund4 have been created to play a vital role in plugging this gap with London’s public market having the appropriate scale and international status to finance these companies over the long term.
People
When it comes to technological innovation and skills, the UK has a head start and is already home to a thriving Cleantech growth ecosystem fuelled by our world-leading universities centred around the “golden triangle” of London, Oxford and Cambridge. However, more is needed to help boost entrepreneurship and help de-risk first-of-a-kind projects in order to incentivise founders to maintain their headquarters in the UK.
Policy
Whilst policy is the area that requires the most attention of these three pillars, there are reasons to be confident. The new government has made green infrastructure a priority and has already made several new announcements, including the newly created Great British Energy company and a commitment to invest £22bn into CCUS (Carbon Capture, Utilisation and Storage) and Hydrogen. Most important will be continued clarity and consistency in policy, because this enables businesses to plan for the long term and investors to assess with confidence the returns that could be made.
With the right combination of these three elements, we could see a once-in-a-generation opportunity for the UK capital markets to play a pivotal role in developing a Cleantech super-sector.
As with any rapidly innovating industry, there will be winners and losers, but at some point in the future, we could see Cleantech giants – if so, we should aim for them to be raised in London.
1 London Stock Exchange report (August 2024) 2 Department for Energy Security & Net Zero (September 2024) Energy Trends 3 Cleantech for UK report – Charting the Progress: Building the next generation of Cleantech champions (2023) 4 Previously UK Infrastructure Bank - https://www.ukib.org.uk
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Mitesh Soni, Managing Director and Head of Cleantech at Deutsche Numis, looks at the case for Cleantech to be the next potential super-sector for the UK capital market.
The UK’s capital market has many distinct strengths – its scale as the largest capital markets venue in Europe1, its international investor base and its highly developed ecosystem of financial services, to name a few. But it has no stand-out ‘super-sector’, an industry or related cluster of industries for which the London stock market is globally renowned.
The advantage of London having such a super-sector is one of the points on which our Raised in London 2024 survey found near unanimity, with 99% of FTSE leaders saying a super-sector would boost London’s attractiveness as a capital markets venue. Opinion was divided, however, as to what that super sector might be, with fintech, life sciences and Cleantech all named as potential candidates. We see the case for Cleantech as being one of the most powerful.
The Cleantech sector (also sometimes called Greentech/Climatetech) covers a variety of innovative businesses across multiple end markets, including enabling the generation of clean energy (renewables such as solar/wind and the associated service providers needed to construct, install and maintain them), green transportation (EVs, batteries and charging infrastructure), circular economy (increased recycling and value from waste) and more nascent but potentially impactful technologies such as geothermal, hydrogen and carbon capture. In recent years we have seen a strong alignment of factors that could allow the UK’s capital market to become a natural global home for Cleantech capital.
Strong foundations for a super-sector
The UK is, in fact, already a global leader in the deployment of renewable energy – according to the Department for Energy Security & Net Zero, in Q2 2024 a record 52% of all UK electricity generation was derived from renewable sources2 – the 3rd quarter in a row where this has been more than half of total share. To add to this, in September 2024 the UK became the first G7 country to fully phase out coal power.
Despite this positive progress it is also clear that both in the UK and globally the required scale of future investment and pace of innovation required to meet net-zero targets is immense. For UK capital markets to be a leading source of finance for global Cleantech we believe there are three core factors that will define the opportunity: growth funding, people and public policy.
Growth funding
Many Cleantech businesses are currently at the early growth stage and investment has been significant, with £3.2bn deployed, largely in the venture capital private markets, for UK Cleantech businesses in 20223 . However, historically there has been a lack of conversion into the larger private growth funding rounds needed to scale up these same businesses into companies ready for public markets. New investors such as the National Wealth Fund4 have been created to play a vital role in plugging this gap with London’s public market having the appropriate scale and international status to finance these companies over the long term.
People
When it comes to technological innovation and skills, the UK has a head start and is already home to a thriving Cleantech growth ecosystem fuelled by our world-leading universities centred around the “golden triangle” of London, Oxford and Cambridge. However, more is needed to help boost entrepreneurship and help de-risk first-of-a-kind projects in order to incentivise founders to maintain their headquarters in the UK.
Policy
Whilst policy is the area that requires the most attention of these three pillars, there are reasons to be confident. The new government has made green infrastructure a priority and has already made several new announcements, including the newly created Great British Energy company and a commitment to invest £22bn into CCUS (Carbon Capture, Utilisation and Storage) and Hydrogen. Most important will be continued clarity and consistency in policy, because this enables businesses to plan for the long term and investors to assess with confidence the returns that could be made.
With the right combination of these three elements, we could see a once-in-a-generation opportunity for the UK capital markets to play a pivotal role in developing a Cleantech super-sector.
As with any rapidly innovating industry, there will be winners and losers, but at some point in the future, we could see Cleantech giants – if so, we should aim for them to be raised in London.
1 London Stock Exchange report (August 2024)
2 Department for Energy Security & Net Zero (September 2024) Energy Trends
3 Cleantech for UK report – Charting the Progress: Building the next generation of Cleantech champions (2023)
4 Previously UK Infrastructure Bank - https://www.ukib.org.uk