Financing Nordic Cleantech – mobilising private capital
by
Financing Nordic Cleantech – mobilising private capital
The Green Finance Institute (GFI) has operated in Denmark since 2023, engaging with investors and mortgage banks focused on crowding in private capital to close the investment gap in decarbonising real estate. Starting this year, and following the GFI model of “test, demonstrate, and scale”, we are now analysing the barriers to scaling the Nordic cleantech sector and identifying the need for catalytic capital, building on work already underway in the UK and Brussels.
The Nordic market boasts a promising cleantech startup sector, with the potential to radically green global economies while simultaneously driving growth and enhancing Europe’s position in an increasingly competitive landscape. Strong research institutions and government support enable a robust start-up environment, but few cleantech startups are well-positioned to scale.[1]
A central barrier to these companies entering the market is the lack of scale-up finance. Moving from proven technology to first-of-a-kind (FOAK) production plant requires significant funding, often unavailable through debt, as these companies lack cash flow to service it.
Venture capital on infrastructure scale
A report from a group of Nordic public investment banks and credit agencies in 2024 estimated that Nordic Cleantech start up and scale up companies will need €15 billion in venture capital funding over the next five years to maintain previous growth rates.[2] Similarly, the Export and Investment Fund of Denmark estimated last year that cleantech startups and scaleups in Denmark alone will need approximately €1.42 billion over the next five years. Crucially, the Danish venture market specialising in cleantech, with actors such as Nordic Alpha Partners, Climentum, Vår Ventures, and CIP, has only an estimated €576 million in dry powder, implying an investment gap of over €844 million.[3]
This investment gap is particularly pronounced in the later stages of growth, buyouts and infrastructure, as illustrated by the attrition rates of Danish firms advancing from the first round of venture capital funding to subsequent funding rounds. Within the cleantech firms in the mobility sector, 58% progressed to a second funding round, 33% to a third and only 8% to a fourth round.[4]
The European Commission estimates that it will need at least €92 billion in investments into the six Net-Zero Industry Act strategic cleantech sectors to reach its goal of net-zero manufacturing capacity, meeting at least 40% of the EU’s annual deployment needs by 2030.[5] Despite recommended public investments of €16-18 billion, a €50 billion investment gap remains in these six sectors alone.[6] Cleantech for Europe estimates that this figure could easily double once other strategic sectors are included.[7] Many are looking to the Commission’s Clean Industrial Deal and the Competitiveness Fund to provide a much-needed boost.
The solution: convening, coordination and co-investing
With the philanthropic support of Breakthrough Energy, the GFI in Denmark is convening the market to design and implement solutions to this €50 billion gap in scale-up capital and mitigate operational FOAK risk for proven technologiesfor the growth phases of Nordic-based cleantech companies.
A central part of this work is coordinating actors across the capital stack to ensure that the risk, return and ticket size preferences of public, philanthropic, venture, and institutional capital are better understood when integrated into blended funding structures. The work will look at using a portion of concessional and high-risk capital to facilitate co-investment from lower risk capital. Such high-risk capital could stem from public funding, development financing, impact investors or governmental climate funds.
The GFI team is identifying the type of capital needed on a project-by-project basis to unlock change within specific venture segments. Equity investors in cleantech start-ups must have a clear path to scale and, ultimately the valuation and exit they seek. This requires a debt offering that is not currently available in the market at the required volume. The GFI will also design solutions that enable public funds to provide guarantees, price stability mechanisms and offtake agreements, that support price signals and underpin investor certainty.
Regional strong points
The GFI will focus on mobilising capital into sectors which the Nordic region holds a particular comparative advantage, namely energy, mobility, agriculture and manufacturing.
Data from the Investment and Export Fund of Denmark shows that cleantech companies in food and agriculture received more than a third of the combined venture capital investments between 2015-23, demonstrating Denmark’s leadership in agricultural startups.[8]
Across the Nordics, the region is well-positioned to drive a proliferation of agriculture and biomanufacturing industries given its long history with fermenting materials to generate value. For decades, precision fermentation processes, involving carefully selected microbial strains in closely monitored environments, have been the backbone across sectors in companies like Novo Nordisk, Arla and Carlsberg.
The GFI will collate viable solutions in a Nordic Cleantech Fund Playbook and identify go-to-market strategies for each. This could include partnering to set up new blended funds, as well as innovative methods to securitise revenue from new infrastructure such as decentralised renewable energy battery storage, to attract institutional investors. Our aim is to identify the Carlsberg’s of tomorrow, which can drive economic growth and the green transition.
Scaling Nordic expertise to drive project-level solutions
The Nordic opportunity is twofold: co-investing for cleantech scale up in the Nordic region but also exporting these cleantech solutions globally to support greening the global economy, mobilising private capital, and boosting European competitiveness. This process requires organisations like the GFI who can bridge the gap between committed capital and impactful solutions. To address challenges of this emerging sector, we need to adopt innovative financial structures, radical collaboration and effective deployment of public capital to share risks with private capital and unlock investment to scale Nordic cleantech.
If you are interested in learning more about mobilising capital to close the scale-up finance gap in Nordic cleantech please reach out to comms@gfi.green
[1] Cleantech in the Nordics – Market study (2024)
[2] Cleantech in the Nordics – Market study (2024)
[3] EIFO: Dansk Cleantech – markedsanalyse (2024)
[4] Cleantech in the Nordics – Market study (2024)
[5] EU: The Net Zero Industry Act (2024)
[6] EU: The Net Zero Industry Act (2024)
