19 Oct 2021
Windmill creating electricity

Why cleantech investments in the UK are encouraging for future growth

Authors
Alison Kay

EY UK&I Managing Partner for Client Service

Focused on delivering long-term value through purpose for clients. Diversity and inclusion ambassador. Happiest when spending time with family and friends. Loves to be near the ocean.

Peter Arnold

EY UK Chief Economist

A passionate leader and trusted advisor. Over 20 years of experience in economic policy, regulation and competition. Optimising client strategies through the use of analytics and economic analysis.

19 Oct 2021

New analysis of our 2021 UK Attractiveness Survey data suggests cleantech investment can also help level-up the UK economy.

In brief
  • The UK attracted one-in-six of all FDI-backed cleantech projects in Europe in 2020, with London receiving the most projects of any European city.
  • Overall, the UK’s cleantech performance mirrors its overall share of all European FDI, but there’s a much more even spread of cleantech investments nationwide.
  • Key challenge for the UK will be to ensure it is a location for designing and building clean technology, not just deploying it.

Back in June, we launched our 2021 UK Attractiveness Survey – this captured how resilient foreign direct investment (FDI) had been into both Europe and the UK, despite the very turbulent 18 months the global economy had faced as a consequence of the pandemic. One of the many areas where the pandemic seemed to magnify public focus was on sustainability, and the need to accelerate innovation and delivery against environmental targets and aspirations. Indeed, as we shared findings with businesses and governments, a key question that kept arising was how much investment activity was focused on ‘cleantech’ – that is, investments targeted at environmental sustainability and delivering on the global goals around achieving net zero. 

We knew then that cleantech was important as an investment theme – with 19% of investors seeing it as being a key driver of the UK’s future growth, and with 60% of investors stating that clear government policies on sustainability were ‘important’, ‘very important’ or ‘critical’ factors in their decisions to invest.

However, what we didn’t know at that time was what proportion of current investment into the UK – and indeed across Europe – was related to cleantech. Investor sentiment did seem to imply that the UK was lagging a little behind its European competitors.

In this context, we have revisited our UK Attractiveness Survey 2020 data to analyse preliminary cleantech data points to try and understand the current landscape, and to get a better perspective on the extent of the challenge facing economies looking to transition to a sustainable future.

In 2020, out of a total 5,578 FDI-supported projects across Europe, 346 of them (6.2%) were cleantech related. Germany led the way, attracting 67 projects (19.4% of the European clean-tech market). The UK followed with 59 cleantech-related projects (17.1% of the European total), accounting for 6.1% of all UK FDI-supported projects in 2020. France, Spain and Poland made up the remaining top five destinations.

UK share of European cleantech projects

17.1%

The UK attracted 59 cleantech projects in 2020.

A broad regional spread across the UK

London and Scotland were the UK’s joint most important locations for FDI-backed cleantech projects in 2020, securing 11 projects each – equivalent to 19% of all UK cleantech projects apiece. This performance is in stark contrast to the picture for all FDI projects in the UK last year: in 2020, London was the country’s clear overall FDI leader with a 48.5% share of the UK market, followed by Scotland on 11%.

Yorkshire and the Humber was not far behind London and Scotland on cleantech, with nine projects in 2020 and a 15% market share. The South East (six projects and 10% of the market) and the West Midlands (five projects and 8% of the market) round out the top five UK regions and countries for cleantech.

Top UK regions to receive cleantech FDI projects 2020

Fig 1. Top UK regions to receive cleantech FDI projects, 2020

Notably, UK cleantech projects are dispersed across a wide number of city locations. Only London and Aberdeen attracted more than two. Birmingham, Coventry, Grimsby and Scarborough each attracted two projects, with single projects dispersed between 46 other UK cities and towns.

London (=7th), Scotland (=7th) and Yorkshire and the Humber (9th) all feature in the top-10 European regions for 2020 cleantech project numbers, with London leading the table of individual cities.

This suggests that cleantech investments could support the Government’s levelling-up agenda in the UK, as a blend of geographical and historical factors could provide comparative advantages to many UK regions.

Cleantech is fundamental to the levelling up agenda, with projects spread across the country far more evenly than the overall mix of overseas investment into the UK.
Alison Kay
EY UK&I Managing Partner for Client Service

Manufacturing dominates cleantech investment – in Europe and the UK

When it comes to activities within companies that attract cleantech investments, manufacturing dominates right across Europe, accounting for 36% (124 projects) of the total market. The next most common activities were sales and marketing (59 projects, 17% of the market), followed by research and development (49 projects, 14% of the market).

In the UK, manufacturing was also the dominant activity, with a slightly smaller 27% share of all cleantech FDI projects (16 projects). Notably, manufacturing’s cleantech performance is much-improved relative to its 11.5% share of the overall UK market for FDI-backed projects. Business services (12 projects, 21% of the market), logistics (nine projects, 15% of the market) and research and development (nine projects, 15% of the market) were the other key UK cleantech activities in 2020.

Activity of UK cleantech FDI projects 2020

Fig 2. Activity of UK cleantech FDI projects, 2020

Investments by sector predominantly going into utilities

Sectoral analysis across Europe shows that the utility supply sector receives the majority share of cleantech investment (60 projects,18% of the market). Machinery and equipment follows (30 projects, 10% of the market), with electronics attracting 9% (32 projects). In the UK, 20% of projects (12 projects) were in the utility supply sector, followed by 15% (9 projects) in machinery and equipment.

In the long term, the key challenge for the UK will be to ensure it is a location for designing and building clean technology, not just deploying it.
Peter Arnold
EY UK Chief Economist

The data raises the focus on an important area which is a defining issue of our generation. Understanding the current landscape to get a better perspective on the extent of the challenge facing economies looking to transition to a sustainable future is key, and we look forward to revisiting the numbers in 2022.

Summary

The UK is in an encouraging place on green investment, with cleantech project numbers keeping pace with the UK’s overall FDI performance. The UK is also performing better on cleantech than perceptions might imply – our June 2021 UK Attractiveness Survey showed that while investor support for UK cleantech has grown significantly in recent years, Europe is still more likely to be perceived as a leader in this area. With scope to improve investor perceptions, the UK has a solid foundation from which to accelerate its cleantech performance and level-up the economy.

About this article

Authors
Alison Kay

EY UK&I Managing Partner for Client Service

Focused on delivering long-term value through purpose for clients. Diversity and inclusion ambassador. Happiest when spending time with family and friends. Loves to be near the ocean.

Peter Arnold

EY UK Chief Economist

A passionate leader and trusted advisor. Over 20 years of experience in economic policy, regulation and competition. Optimising client strategies through the use of analytics and economic analysis.