How innovation can help tackle climate change
By Neil Foster
Following COP26, Neil Foster explores how innovation is needed to consolidate climate change efforts.
If you didn’t attend COP26 in Glasgow, you probably feel like you did anyway. There were inescapable headlines with constant updates on the pledges made and by which countries, with great hopes of resolving our climate crisis and accelerating the transition towards renewable energies.
COP26’s domination of the mainstream news demonstrates how important this issue is. The world has finally woken up to the urgency of the climate crisis. The decisions made at this conference will have an enormous impact on the future of our planet.
But what actually happened at COP26, why is it important and how is the UK involved in the energy transition?
There were three key attendees at COP26: government delegates, activists and innovators. Heads of government and activists may have made the headlines, but innovators will drive us forward in the fight against climate change.
Innovators will develop solutions regardless of what government decisions are made. Research and Development (R&D) is a time-intensive process, so these innovator companies have to be ahead of government. The government’s role is to create an attractive environment for entrepreneurs to get these innovations market ready and scalable.
So, while the pledges made by government are important, what goes on behind the scenes at COP26 was just as important to ensuring our success in the fight against climate change. The success of the pledges made at COP26 will be measured by its focus on innovation.
The UK is home to some of the most notable innovations in the world, particularly environmental technologies, but capitalising on this and creating an attractive environment which encourages innovation and entrepreneurship is key.
So where do deal lawyers come in?
We are deal makers. Our role is to help innovator companies navigate the regulatory environment and find funding which will enable them to grow and succeed. This year at COP26, in partnership with Greenbackers, we hosted a SuperPitch event where 26 cleantech ventures pitched for investment to over 600 environment-focused investors.
The event featured a huge range of ventures, from companies creating greener batteries and solar panels to innovations in hydrogen energy, transportation and agriculture. In advance, our firm Brown Rudnick conducted webinars with the company founders and CEOs providing advice on term sheets. Events like these are important. These innovators hold the key to resolving the climate crisis. But without funding, their ideas cannot become market-ready or be industrialised.
And we need more than just one type of technology. I’ve had the privilege of working with countless exciting technology and cleantech companies throughout my career and what I have learned is diversity and breadth of innovation is crucial. We need a matrix of technologies if we are to succeed in the energy transition.
Some of these technologies are already in the market, some are still in development and some haven’t been invented yet. For example, even if the government were to ban petrol cars tomorrow, it would not be feasible for everyone to start driving an electric vehicle because we don’t have sufficient charging facilities. In addition, solutions will not look the same from central London to a rural farm. This is why we need to fund innovation, so we can develop a complementary matrix of technologies which will give us the best chance of securing a successful energy transition and standing a chance of fulfilling the pledges made by the government at COP26.
Virtually all of the successful innovator companies I have worked with, no matter what size, have had founder groups that are not solely British. UK universities are world-class and so is our R&D. The government needs to ensure Britain continues to be the most attractive place not only for the brightest minds to study and research, but to stay and set up their companies. We have to benefit from the cluster effect from universities.
Currently, visas to live and work in the UK are being delayed. We need to be quicker and more agile so we don’t lose pioneers, entrepreneurs and employers to other countries. After the US, the UK has the leading environment for universities and for venture capital, so there is a lot working in our favour. And, without pioneers, the right environment and more efficient processes to get important deals over the line, our innovator companies cannot grow.
The commitments and accountability we have seen at COP26 represent huge progress. COP26 has been an important step forward in the fight against climate change. Yet how can we make practically steps so these pledges can be reached?
Substantial efforts have already been made to ensure the UK is an attractive place for innovation and entrepreneurship. The Enterprise Investment Scheme, for example, has been transformative and the same goes for R&D tax credits. But we need more. As mentioned above, the UK has the leading venture capital (VC) environment after the US and our innovation is world-class. This should be a winning combination.
However, while we are world-leading for startups, we are only thirteenth in the world for growth-stage funding. Growth is crucial for innovator companies so their incredible solutions can be industrialized at scale. Funding will accelerate growth whether it is from venture capital firms, private equity or corporate venture capitalists.
At Brown Rudnick, we work 50 per cent on the ‘company side’ and 50 per cent on the ‘money side’ of deals. This gives us a deep understanding of the obstacles of getting a deal done from both sides. While the deal making community is adept at overcoming challenges, the government needs to act to create a funding environment which is benign and efficient.
After all, the time is now. We can no longer delay. Our VC and Corporate Venturing clients are leading the charge. We have seen a surge in corporate venture capital investment into innovator companies. Yet the amount of capital deployed needs to accelerate in 2022 if we are to resolve the climate crisis. The 2021 levels of investment were not sufficient.
COP26 has placed the climate emergency at the forefront of the world’s agenda. It has shone a light on the world’s failings so far, while prompting the world to refocus on getting to where we need to be. The days of the UK being a prominent oil and gas economy are fading but they are not gone yet. The most important technologies and largest players in the energy transition may not yet even be known. Ultimately, for greater progress to be made, we must come together to support, encourage and facilitate innovation and we will continue to be at the forefront of this vital sector by executing financing deals for the next generation of cleantech innovators.
Neil Foster is a partner at Brown Rudnick brownrudnick.com