Green finance and innovation

Innovative new sources of finance are fundamental to the development of green technologies needed to reach net zero.

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Green finance is one of the fastest growing sub-sectors of a low carbon economy, and the UK has a strong tradition in related areas such as:

  • green corporate finance
  • green project lending
  • retail finance
  • venture capital
  • private equity

With this strong financial backing, and through world class innovators and entrepreneurs, the UK’s vision is to be a global leader in the technologies needed to decarbonise our economies.

By harnessing the international reputation of a world leading financial sector, the UK will encourage further private investment into supporting innovation and managing climate financial risk.

Opportunity highlights

Green finance will help deliver clean investment at the scale and pace required. Subject to market conditions, the UK will issue its first Sovereign Green Bond in 2021.

This will be followed up with a series of further issues as investor demand grows. These bonds will help develop sustainable projects, finance infrastructure investment, and create green jobs across the country.

Commercial maturity

The UK is a global financial hub and a leading player in green finance. The strength, maturity and global reach of its financial sector is proven not just in volume (through deals, capital, and revenues), but also in its international presence and initiative.

UK institutions benefit from an ecosystem that attracts capital and talent, and a political will to tackle climate change and transition the global economy and financial system.

The UK is home to considerable green finance expertise. Examples of this include:

  • asset managers developing successful specialist funds
  • investment banks highly involved in the green bond market
  • the world’s largest specialty insurance market in London
  • leadership in the international adoption of the Task Force on Climate-related Financial Disclosures (TCFD) reporting
  • the London Stock Exchange’s unique Green Economy Mark, helping investors identify London listed companies and funds whose revenues are mostly ‘green’
  • a diverse, proactive consultancy sector with close links to academia and science

Key UK assets

The Green Finance Institute champions the UK’s green finance brand internationally. It brings together global practitioners to design sector-specific solutions that channel capital towards an environmentally sustainable economy.

The National Infrastructure Bank promotes green finance as a priority and will receive £12 billion government backed equity and £10 billion in guarantees to leverage private sector investment.

The UK Centre for Greening Finance and Investment is a national centre established to accelerate the use of climate and environmental data and analytics by financial institutions internationally.

It will unlock opportunities for the UK to lead in integrating the financial risks of climate and environmental change into mainstream financial decision-making (often referred to as greening the financial system), and the financing of sustainable projects and infrastructure (green finance).

The City of London is one of the world’s leading green finance hubs.

R&D capability

The UK government has set an ambition for the UK to increase its total R&D expenditure to 2.4% of GDP by 2027.

HM Treasury’s Net Zero Review outlines the next steps in the UK’s transition to net zero and will consider the choices across the UK’s tax, spend, regulatory and other levers to maximise growth opportunities.

By ensuring that world-leading strengths in research are complemented by strengths in development, the UK will bring in more investment from overseas and improve access to finance for early-stage firms.

The UK is also positioning itself, and the City of London, as a leader in the global voluntary carbon markets, including in response to the recommendations of the independent Taskforce on Scaling Voluntary Carbon Markets.

The UK will also implement a green taxonomy that defines which economic and innovation driven activities tackle climate change. Combined, these measures will provide investors with clarity and a clear framework to deliver the low carbon finance needed for a net zero economy.

The £1 billion Net Zero Innovation Portfolio will focus on 10 priority areas that correspond with the UK government’s ten point plan for a green revolution.

The portfolio also includes plans for future offshore wind, energy storage, hydrogen, and industrial fuel switching.

Business and government support

The UK will harness the international reputation of its financial sector to encourage private investment into supporting innovation and managing climate financial risk. The Department for Business, Energy and Industrial Strategy (BEIS) is encouraging investment via several initiatives.

The Clean Growth Fund (CGF) is a new £40 million fund that combines a £20 million investment from BEIS, alongside £20 million from 2 private sector investors.

The commercially run venture capital fund wants to raise £100 million. It aims to accelerate the deployment of innovative clean technologies by making direct investments in companies with promising technologies.

The Energy Entrepreneurs Fund (EEF) is a competitive funding scheme. It supports the development and demonstration of state-of-the-art technologies, products and processes in the areas of energy efficiency, power generation and heat and electricity storage.

Since 2012, the government has invested over £75 million of grant money in more than 130 companies, who have in turn leveraged more than £100 million in private funding.

Case studies

Standard Chartered – Etihad’s sukuk green bond in Abu Dhabi

In October 2020, Standard Chartered and HSBC were joint lead underwriters of a sukuk green bond for Etihad Airways, the national airline of the United Arab Emirates.

This was the world’s first transition sukuk and the first example of sustainability linked financing in global aviation. The £450 million transaction will support Etihad’s drive for sustainable aviation by linking the sukuk’s terms to Etihad’s carbon reduction targets.

These targets are a commitment to net zero carbon emissions by 2050 and a 50% reduction in net emissions by 2035.

GIG Macquarie – Renewable Energy Fund 2

In February 2021, GIG Macquarie raised more than £1.4 billion for investment in renewable energy with the final close of Macquarie Green Investment Group Renewable Energy Fund 2 (MGREF2).

This 25-year closed-end fund will invest in a diversified portfolio of construction and operational stage wind and solar projects in locations across the globe.

MGREF2 attracted commitments from 32 investors including pension funds, local government pension schemes, insurers, and sovereign wealth funds.

This follows on from the success of MGREF1, a £1 billion fund that manages a portfolio of 6 operational UK offshore wind farms with a combined installed capacity of about 1,450MW.

Centre for Secure Information Technologies (CSIT), Belfast

CSIT’s mission is to couple major research breakthroughs in secure information technologies, with a unique model of innovation to drive economic and societal impact. It achieves this through world-class research, new value and venture creation and entrepreneurial approach in cyber security.

Based in Belfast’s Titanic Quarter, this flagship Centre has helped attract more than 50 high-tech start-up companies and Foreign Direct Investments (FDI). These companies employ more than 2,000 people and is evidence of the wider economic benefits from translating science into wider business and economic opportunity.

CSIT works with large multinational partners including Allstate, BAE Systems, eBay, First Derivatives, Thales, and Seagate.

International issues require international solutions and this global innovation hub at CSIT facilitates speculative blue-skies and industrial informed research projects within the same Institute.

Early development opportunities

CRYOBattery Long Duration Energy Storage Facility

Developer

Highview Power

Technology

Liquid air energy storage

Location

Trafford Park, Carrington, Manchester

Estimated value

TBD

Opportunity and background

Highview Power’s proprietary cryogenic energy storage technology uses air liquefaction, in which ambient air is cooled and turned to liquid. This liquid air is stored at low pressure and later heated and expanded to drive a turbine and generate power.

It is the only long duration energy storage solution available today that is locatable and can offer multiple megawatt-hours of storage.

The CRYOBattery has a small footprint and no size limitations or geographic constraints, allowing for the deployment of large amounts of renewables.

Highview Power’s cryogenic energy storage plants offer valuable capabilities including voltage control, grid balancing, and synchronous inertia. This gives grid operators the flexibility to manage power and keep the lights on.

The facility’s income will come from several markets, including:

  • congestion management (absorbing excess volumes of renewable energy)
  • arbitrage (buying electricity when prices are low and selling it when prices are high)
  • grid support and ancillary services such as voltage support and provision of inertia
  • the capacity market

Highview Power was awarded a £10 million grant from the UK Department for Business, Energy & Industrial Strategy (BEIS) to support the development of the facility.