Unlocking scale for UK climate tech: a practical blended finance proposal

Scaling UK climate tech using blended finance

The UK has over 2,600 climate technology-oriented start-up and scale-up companies in operation, building on world-leading research to innovate and commercialise new solutions to address the climate crisis. These solutions play a crucial role in supporting the UK to meet its legal commitment to reaching net zero emissions by 2050, with the IEA forecasting that ~35% of emissions reductions will come from technologies which are not yet deployed to market. In addition, scaling these technologies enables the UK to realise the strategic and economic benefits of commercialising innovation.

Climate tech scale-ups are capex-hungry

Scale-up companies face significant challenges in accessing the capital they require to reach commercial maturity. Whilst the UK has strong support for early-stage companies via grant and venture capital funding, once technology is ready to be deployed at first commercial scales, suitable funding is scarce. Climate technologies are often highly capital-intensive to scale, with requirements of £25-100M+ to build manufacturing facilities, well above the cheque sizes venture capital funds can deploy. Yet, technical and engineering risks are still high, and this capital is required pre-revenue, ruling out debt financing. As a result, UK climate tech start-ups are struggling to commercialise, preventing their vital technologies from unlocking emissions reductions, or are moving operations overseas to secure capital.

Private capital needs incentive to invest

Research initiated and overseen by Innovate UK and delivered by Carbon Limiting Technologies highlighted that there is a need to incentivise institutional investors to deploy more capital into climate-focussed VCs, particularly for Series B-C-oriented funds, to increase the volume and magnitude of deal-flow into the sector whilst ensuring that investment decisions are made by experts. To enable institutional investors to allocate capital to unlisted equities, a funding vehicle which enables large-scale deployment into a diverse, flexible fund providing market-rate returns and a clear route to liquidity is required.

Blended finance can mobilise capital at scale

The research led to an illustrative example vehicle where public investment is deployed as a cornerstone investment into a large-scale umbrella fund, whilst also providing a guarantee on institutional capital invested into the fund. The funds would then be distributed between equity, topco debt, and project debt funds by expert fund managers to provide climate start-ups and scale-ups with flexible scale-up financing. Crucially, the fund also uses public and philanthropic funding to provide technical and commercial assistance to these companies, in the form of a FOAK Builder programme, to de-risk operations and accelerate progress.

A coalition for action is the next step

Since this research was completed, Innovate UK have begun detailed design of the FOAK Builder programme, with the formal launch planned for summer 2026, and are now establishing a Coalition of Interested Investors to promote the need for a scale-up fund. This coalition will bring together institutional and specialist investors to complete a detailed co-design phase to produce a final fund proposal whilst securing support for
the fund from government.

Key takeaways

• The UK needs a thriving climate technology innovation landscape, but current funding mechanisms do not adequately support companies as they scale up.
• A significant funding gap exists at the commercialisation stage, with scale-up companies struggling to access suitable investment capital.
• An umbrella funding vehicle would meet the needs of institutional investors, alongside a programme of technical and commercial support to effectively unlock progress.
• A FOAK Builder concept could provide project and industry-level support to deliver this range of technical assistance to investee companies, public and private investors, and other associated stakeholders, such as lawyers and insurers.