Scotland has seen the UK’s largest number of smaller business equity deals in net zero sectors outside of London, according to new research from the British Business Bank.
Its Small Business Finance Markets 2022/23 report found that Scotland accounted for 14% of net zero equity deals from 2018 to the third quarter of 2022 – double its 7% share of total UK low-carbon and renewable energy sector turnover.
Among the businesses securing net zero equity deals in recent years has been Celtic Renewables, which produces biofuels from whisky co-products. The firm is using the funding to develop Scotland’s first biorefinery facility in Grangemouth.
The findings support previous research from the British Business Bank’s Nations and Regions Tracker , which found Edinburgh was the UK’s top ‘net zero cluster’ by deal count, with £186m invested through 92 transactions between 2011 and the second quarter of 2022.
Despite the challenging economic climate, Scotland saw a 26% increase in the announced equity investment value during the first three quarters of 2022, compared to the same period in the previous year.
The £525m invested between January and September also meant that values were on track to exceed the record £540m set in 2021.
However, in line with much of the wider UK, Scotland saw a fall in the total number of announced equity deals between the first and third quarters of last year compared to 2021 – down to 151 from 178.
Overall demand for external finance has dropped significantly, from 42% among Scottish smaller businesses during the third quarter of 2021 to 28% in the same quarter of 2022.
This was also reflected across the UK, with only 33% of small businesses using external finance in the third quarter of 2022, compared to 44% the year prior.
Susan Nightingale, director for Scotland at the British Business Bank, said: “Today’s report shows how small businesses are adapting to a challenging economic climate, as they reduce their use of external finance.
“Nevertheless, there are promising signs of growth in the net zero deal sector as equity finance markets respond to growing demand for investment in green innovation.
“Scotland has always been a hub for net zero sectors and it is highly encouraging to see that the country is also a leader in funding these industries.
“However, smaller businesses unable to transition to a low-carbon economy to keep up with regulation or competitors could face significant challenges and may also struggle to secure investment in the future, as more financial institutions begin reflecting ESG in their lending criteria and decision-making.“
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