Why cleantech investments in the UK are encouraging for future growth

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

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.

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.

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.

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.

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.