Exclusive: Loosen pension rules to bridge ‘valley of death’ for climate tech, say policy groups

Ministers must rein in restrictions on pension funds to allow cash to flow into climate tech start-ups and bridge the “valley of death” funding gap in the sector, tech bodies said today.

In a series of policy recommendations to the government, Coadec, Tech Nation, TechUK  and over 100 startups, have called for the government to lift the charge cap on pension funds which currently restricts the range of assets that pension cash can flow into.

The cap currently sits at 0.75 per cent and blocks pension cash from flowing into venture capital investors due to the higher money management fees, though ministers have been consulting on whether to loosen the cap this year.

Tech bodies have long been lobbying for a loosening of the gap to fill a dearth of funding for facing UK tech firms. The groups today have now claimed it is hobbling the UK’s net zero ambitions.

“The Government could help unlock investment by enabling financiers to invest at different stages,” said the report.

“One significant step in this direction would be to adjust the pension charge cap to allow pension funds to invest in some higher risk activity that could support disruptive firms caught in the valley of death.”

The new recommendations, which were drafted after a series of roundtables with climate tech startups, aim to drive the shift to a “low, to no, carbon future of green growth fuelled by British entrepreneurs”, Coadec said.

Among a host of recommendations, the groups called for ministers to set up a Net Zero Innovation Directorate in the Cabinet Office and explore the concept of an Ofgem policy sandbox to allow firms to innovate outside of the full ofgem rulebook.

Signatories are also urging ministers to ringfence an “innovation pot” in the contracts for difference scheme, which is used to incentive investment into low carbon electricity generation.

Green cash

Cash has been flooding into climate tech in the UK in the past two years, with total investment into the sector set to double this year after firms scooped up $7.5bn in the nine months to September, according to a report by Tech Nation.

Tech Nation chief Gerard Grech told City A.M. earlier this month that steady investment into the sector would be crucial in the fight against climate change.

“Around 40 per cent of emission reductions are still relying on technologies which are not yet mass market, so it’s imperative that we support the companies that are helping to drastically reduce our carbon emissions,” Grech said.