Takeaways

• AI adoption in UK climate tech startups is nearly double the national startup average, signaling strong investor confidence.
• Most AI-related funding is flowing into software-led ventures, while hardware startups tackling major emissions face declining support.
• Experts urge a balanced approach, combining AI-driven software with hardware innovation to unlock deeper climate impact.

Artificial Intelligence (AI) is emerging as a powerful driver in the UK’s climate tech sector, with adoption rates nearly twice the national startup average, according to new research by Sustainable Ventures.

The report, Advancing AI’s Potential for Climate Innovation, found that 9.7% of UK climate tech startups are AI-related, compared to 4.6% across the wider startup ecosystem. This growth outpaces even financial services, where AI adoption stands at 6.9%. The proportion of AI-driven climate tech startups has increased by 17% per year on average over the past five years, highlighting AI’s rising role in the race to net zero.

Funding Favors Software

The study, based on data from Beauhurst and insights from founders, investors, and academics, revealed that funding trends heavily favor software-led ventures. In 2024, 40% of all UK climate tech funding went to AI-related startups, up from 20% in 2022. Investment in software-led companies reached £2.19 billion, including £1.3 billion in AI-driven ventures, double their share from just two years earlier.

By contrast, hardware-led climate tech investment fell 22% between 2022 and 2024, dropping from £1.61 billion to £1.25 billion. These companies attracted only 4% of AI-related funding (£90 million), even though hardware innovation is instrumental in addressing around 80% of global emissions. Their share of UK climate tech investment has shrunk from 60% in 2021 to just 37% in 2024.

Read More: Why Climate Tech Is the Next Big Frontier for Entrepreneurs

Sector Leaders

Energy and mobility sectors dominated AI-related investment, securing £1.2 billion of the £1.4 billion invested in 2024. These industries now account for 64% of all climate tech funding. Their success highlights the benefits of hybrid models, where AI-driven software optimization is combined with scalable hardware deployment. Electric vehicles, smart grids, and battery technologies generate vast data streams that make them especially compatible with AI, enabling measurable efficiency gains.

Risks and Opportunities

Industry leaders caution that the growing reliance on software-led models could leave critical hardware sectors behind. Andrew Wordsworth, Founder of Sustainable Ventures, warned that the climate crisis is “at its root a hardware problem” and urged investors to support ventures in heavy industry, agriculture, and the built environment, areas where emissions are highest.

Julien Vaissieres, CEO of Batch.Works, added that while AI offers huge potential to cut waste and improve efficiency, the real challenge lies in building shared infrastructure, investment, and skills to scale such innovation across hardware-intensive fields.

A Call to Action

To bridge the divide, Sustainable Ventures recommends accelerating the AI readiness of hardware-led startups, providing targeted public investment, expanding data-sharing initiatives, and developing accessible AI tools. Its newly launched “AI Implementation Roadmap for Startups” outlines an eight-step guide to help businesses strengthen data infrastructure, identify high-impact AI use cases, and build the partnerships needed to thrive.

Also Read: VC Giants Join Forces to Scale Climate Tech Startups

As Wordsworth emphasized, AI integration is becoming a key marker of scalability and competitiveness. But for the UK to fully capture the commercial and environmental benefits of the net zero transition, investors and policymakers must ensure hardware innovators are not left behind.

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Source: STARTUPS MAGAZINE