Barclays Commits £500 Million to Climate Tech Startups by 2027

Barclays PLC announced it will have invested £500 million in climate technology start-ups by 2027 in its Climate Ventures division. The action is taken as high-street banks in the UK are facing more pressure for the businesses they have in the world's climate agenda. Barclays has already put £203 million into early-stage and growth-stage firms working in clean energy and climate tech since it outlined its climate plan in 2020.

The Climate Ventures initiative has the specific focus of investing in startups that are developing viable climate solutions, such as renewable energy, carbon capture, low-carbon transport, and low-carbon technologies. Such companies are typically cash-strapped because they have long-term payback periods for their profits and because their ventures are high-risk. Barclays has the intent of filling the funding gap by funneling large amounts of capital into the sector and facilitating other sources of capital from outside investors.

To date, the bank reports that its climate investments have leveraged an additional £305 million of third-party capital, taking the total investment mobilized under the programme to over £500 million over five years. Barclays has mobilized an average of an additional £2.18 of external finance per £1 of Barclays' finance. The co-investment model has helped the scaling of startups that would otherwise have been left out of funding in a traditionally risk-averse financial system.

The bank positions this effort as part of its wider strategy to support the march to a net-zero economy. Barclays is one of several large banks that has publicly committed to delivering net-zero financed emissions by 2050. By investing in new climate technology, the bank believes it will be able to help cut world carbon emissions and support a green industrial revolution.

Unlike such public position, Barclays has been at loggerheads with environmental bodies and policy experts. Climate think tank InfluenceMap has highlighted, in a recent report, inconsistencies in the bank's green agendas. The report accuses Barclays, and other major UK banks, of lending more money to fossil fuel companies than to green initiatives after they had embarked on sustainability goals.

The InfluenceMap report shows that most of the UK's biggest banks have lagged behind in ending their funding of fossil fuel projects. Worries are that these investments will be stranded assets—investments that lose their value as global climate policy constrains and the use of fossil fuels decays. The report encourages banks such as Barclays to allocate more of their money into climate-friendly technologies in line with global climate targets.

Barclays' recent press release on green climate-themed investments, while received with relief as a positive step, falls short of being a satisfactory response to answer these allegations. Environment experts believe that without being preceded by a similar level of reduction in fossil fuel investment, banks' green investments may prove too low to meet climate goals. To boot, the UK banking industry altogether is being requested to tighten internal policies and scrutiny mechanisms to provide consistent backing to net-zero targets.

From a business perspective, climate tech startups are promise and risk. While the hefty initial capital outlays and long periods of return can be intimidating to traditional venture capital investors, institutional investors such as Barclays are increasingly rising to take their portion. Such investment is especially significant in making the development of technologies scale up rapidly and with long-lasting environmental impact, such as energy storage technology, green hydrogen, and artificial intelligence-based climate modelling software.

The bank's action can also be interpreted as a reaction to evolving investor needs and regulatory cues. ESG considerations are increasingly becoming an integral part of portfolio choices, and institutions that do not make climate risk a consideration in their financial choices will face financial and reputational losses. Barclays' pledge in its Climate Ventures initiative can therefore be interpreted as both a strategic action and a reputational imperative.

But the public's trust in these initiatives is still dependent on transparency, quantifiable results, and consistency with the bank's overall financing strategy. As the climate technology industry opens its arms wide to non-traditional sources of finance, there is also greater need for finance hubs to ensure that all lending and investment initiatives are consistent with the Paris Agreement and national net-zero plans.

Further evolution of climate finance will increasingly test the credibility and durability of traditional banking models. Institutions like Barclays are under growing pressure now to prove that their green finance activities are not tokenistic gestures. The next couple of years will be pivotal to determine whether these intentions can be translated into lasting change across the industry and deliver a meaningful contribution to worldwide action on climate change.

Source: BusinessGreen