Sustainability Atlas
Climate Finance & Markets·14 min read··...

Interview: the builder's playbook for Funding trends & deal flow — hard-earned lessons

A practitioner conversation: what surprised them, what failed, and what they'd do differently. Focus on data quality, standards alignment, and how to avoid measurement theater.

Climate tech venture capital reached $40.5 billion globally in 2024, yet 70% of investors report that data quality issues directly impacted their due diligence decisions. The UK captured 40% of European climate tech funding—£4.5 billion in 2024, up 24% year-on-year—but behind these headline figures lies a more complex story of measurement challenges, standards fragmentation, and what practitioners call "measurement theater." We spoke with fund managers, compliance officers, and portfolio companies to understand what's actually working in climate finance due diligence and where the field continues to struggle.

The transition from growth-at-all-costs to unit economics has exposed critical gaps in how climate impact is measured, verified, and reported. For UK policy and compliance professionals, these lessons offer a roadmap for navigating an increasingly complex regulatory landscape while avoiding the pitfalls that have undermined investor confidence in the sector.

Why It Matters

The UK's position as Europe's leading climate tech hub—with over 5,200 climate tech companies and five unicorn regions—depends on maintaining investor confidence in the integrity of impact claims. Yet the proliferation of competing standards, inconsistent methodologies, and insufficient verification has created what one senior compliance officer at a major UK pension fund describes as "a wild west of carbon accounting."

The stakes are considerable. The Financial Conduct Authority's Sustainability Disclosure Requirements (SDR) came into force in December 2023, requiring UK asset managers to substantiate sustainability claims with verifiable data. The EU's Corporate Sustainability Reporting Directive (CSRD) affects UK companies with EU operations, while the International Sustainability Standards Board (ISSB) standards are being adopted globally. Failure to meet these requirements exposes firms to regulatory action, reputational damage, and—increasingly—litigation risk.

For institutional allocators, the challenge is acute. A 2024 PwC survey found that 62% of limited partners cited "lack of standardised impact metrics" as their primary concern when evaluating climate-focused funds. The same survey revealed that funds with third-party verified impact data attracted 28% more capital than those relying solely on self-reported metrics.

The message from practitioners is clear: in the current funding environment, measurement rigour is not a compliance burden but a competitive advantage.

Key Concepts

Data Quality Tiers

Practitioners have converged on a three-tier framework for assessing climate data quality in investment decisions:

Tier 1 (Verified): Data independently verified by accredited third parties using recognised methodologies (GHG Protocol, ISO 14064, Science Based Targets initiative). This includes Scope 1 and 2 emissions with complete activity data, third-party lifecycle assessments, and audited carbon credits with chain-of-custody documentation.

Tier 2 (Estimated): Data calculated using industry-standard emission factors and reasonable assumptions, subject to internal review but not external verification. Common examples include Scope 3 estimates based on spend data, modelled avoided emissions, and forward-looking projections.

Tier 3 (Claimed): Self-reported data without standardised methodology or independent review. This category includes marketing claims, qualitative impact narratives, and metrics using proprietary definitions.

"The first question I ask any climate tech company is: what percentage of your impact claims are Tier 1 versus Tier 3?" explains a partner at a London-based climate VC. "If they can't answer that question, or if the answer is mostly Tier 3, we're not at due diligence—we're at storytelling."

Standards Alignment

The standards landscape has matured significantly since 2022, with convergence emerging around several key frameworks:

GHG Protocol: Remains the foundation for corporate emissions accounting, with the updated Scope 3 guidance (2024) addressing previously ambiguous categories.

ISSB Standards (IFRS S1 and S2): Adopted by the UK in 2024, these provide a global baseline for climate-related financial disclosures. S2 specifically requires disclosure of Scope 1, 2, and material Scope 3 emissions.

EU Taxonomy: While UK-specific, post-Brexit taxonomy work continues, EU Taxonomy compliance remains relevant for UK companies with European operations or investors.

Science Based Targets initiative (SBTi): The gold standard for corporate target-setting, though the 2024 controversy over Scope 3 offset use highlighted ongoing methodological debates.

Partnership for Carbon Accounting Financials (PCAF): Essential for financial institutions measuring financed emissions, with the 2024 update providing improved guidance for private equity and venture capital.

"Standards alignment isn't about picking one framework," notes a sustainability director at a UK asset manager. "It's about understanding how they interlock and ensuring your data infrastructure can serve multiple reporting requirements simultaneously."

Measurement Theater

Perhaps the most important concept practitioners discuss is "measurement theater"—the practice of producing metrics that appear rigorous but lack substantive meaning or comparability.

Common manifestations include:

  • Cherry-picked baselines: Selecting unusually high-emission reference years to inflate reduction claims
  • Avoided emissions inflation: Claiming credit for emissions avoided compared to theoretical alternatives rather than actual displacement
  • Double counting: Multiple entities claiming the same emission reductions across value chains
  • Precision without accuracy: Reporting carbon figures to decimal places when underlying data carries 30-50% uncertainty
  • Attribution creep: Claiming portfolio-wide impact from minority investment positions

"I've seen pitch decks claiming 10 million tonnes of CO2 avoided from a seed-stage company with three customers," recalls a climate fund manager. "When we dug in, they'd multiplied their maximum theoretical capacity by the average grid intensity of their entire addressable market. That's not measurement—it's marketing."

What's Working

Third-Party Verification at Scale

The maturation of climate data verification has transformed due diligence. Firms like Apex Group, SGS, and Bureau Veritas now offer standardised verification services for climate funds, while specialist providers like Sylvera, BeZero Carbon, and Calyx Global have established rigorous rating methodologies for carbon credits.

CDP (formerly Carbon Disclosure Project) reported that 24,800 companies disclosed through their platform in 2024, with disclosure scores increasingly influencing investment decisions. Companies with CDP A-list status attracted 23% higher valuations in M&A transactions compared to non-disclosing peers.

"Three years ago, third-party verification was a nice-to-have for exits," observes a portfolio CFO at a climate growth fund. "Now it's table stakes for Series B and beyond. Investors have been burned enough times that they won't take unverified claims at face value."

Standardised Due Diligence Frameworks

The Institutional Investors Group on Climate Change (IIGCC) Net Zero Investment Framework, adopted by investors managing over $65 trillion, has established common criteria for assessing portfolio company alignment. Similarly, the Glasgow Financial Alliance for Net Zero (GFANZ) transition planning guidance provides standardised templates that reduce due diligence friction.

Octopus Energy Generation exemplifies rigorous practice. The firm's £1.2 billion total equity deployment includes comprehensive asset-level emissions tracking, third-party verified impact reports, and public disclosure of methodology limitations. This transparency has supported continued institutional appetite despite broader market headwinds.

Technology-Enabled Monitoring

Real-time emissions monitoring has moved from pilot to deployment. Climate TRACE, the satellite-based emissions tracking coalition, now provides independent verification for over 352 million assets globally. For compliance teams, this creates an external reference point against which company claims can be validated.

In the voluntary carbon market, digital MRV (Monitoring, Reporting, and Verification) platforms have substantially reduced verification costs while improving accuracy. Pachama's satellite-based forest carbon monitoring, for instance, provides continuous rather than periodic verification, addressing concerns about reversal risk that plagued early nature-based projects.

What's Not Working

Scope 3 Data Gaps

Despite years of effort, Scope 3 emissions—typically representing 70-90% of a company's total footprint—remain the weakest link in climate disclosure. A 2024 analysis by the Carbon Trust found that Scope 3 estimates varied by up to 40% depending on methodology, even for identical value chains.

"We've invested in companies that claimed net-zero supply chains based on supplier questionnaires," admits a climate fund partner. "When we did our own analysis using PCAF methodology, actual emissions were three to four times higher. The companies weren't lying—they were using the best data available. But that data was fundamentally unreliable."

The challenge is structural. Unlike Scope 1 and 2 emissions, which can be calculated from utility bills and fuel receipts, Scope 3 requires data from external parties who may have neither the capability nor incentive to provide accurate information.

Forward-Looking Metrics

Transition plans and avoided emissions claims remain particularly problematic. The Transition Pathway Initiative (TPI) found that 40% of corporate transition plans lacked interim targets, while 60% failed to explain how capital expenditure aligned with stated goals.

Avoided emissions—the reduction in global emissions attributable to a company's products or services—are even more contested. The absence of a universally accepted methodology means that different providers use incompatible baselines, system boundaries, and attribution approaches.

"I've seen the same solar installation claimed by the developer, the operator, the financing bank, and the corporate offtaker," notes a carbon accounting specialist. "The sum of avoided emissions across all claimants exceeded the total emissions of the grid being displaced. That's mathematically impossible, but each claim was internally consistent."

Voluntary Market Integrity

Despite structural improvements, the voluntary carbon market continues to face credibility challenges. A 2024 investigation by The Guardian and the Guardian found that over 90% of rainforest offset credits certified by a major standard were likely "phantom credits" that did not represent genuine carbon reductions.

While market reforms are underway—including the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles launched in 2023—adoption remains incomplete. As of late 2024, only 8% of available credits met the ICVCM's criteria for high integrity.

Regulatory Fragmentation

Despite convergence around ISSB standards, practical implementation varies significantly across jurisdictions. UK SDR, EU SFDR, and proposed US SEC climate rules each impose different requirements, timelines, and definitions.

For UK firms with international operations, this creates substantial compliance burden. A mid-sized UK climate fund reported that regulatory reporting consumed 15% of investment team capacity in 2024—up from 8% in 2022—primarily due to jurisdictional inconsistencies.

Key Players

Established Leaders

  • Octopus Group — UK's largest climate investor with £1.2bn deployed. Known for rigorous asset-level impact tracking and transparent methodology disclosure across renewable energy generation portfolio.

  • Legal & General Investment Management (LGIM) — Major institutional investor with comprehensive climate integration. Published detailed PCAF-aligned financed emissions across £1.2 trillion AUM.

  • HSBC Asset Management — Global asset manager with advanced Scope 3 data infrastructure. Partnered with major data providers to address private market emissions gaps.

  • Aviva Investors — Leading UK insurer with Net Zero Asset Owner Alliance membership. Active investor in National Wealth Fund-backed climate deals including Connected Kerb.

Emerging Startups

  • Sylvera — London-based carbon credit rating platform. Raised $57 million to provide independent verification of offset quality using satellite data and machine learning.

  • Watershed — Enterprise carbon accounting platform backed by Kleiner Perkins. Used by major corporates to manage Scope 1-3 emissions with audit-grade accuracy.

  • Persefoni — Climate management and accounting platform. Raised $101 million for AI-powered carbon footprinting aligned with PCAF and GHG Protocol.

  • CarbonChain — UK startup providing supply chain emissions tracking for commodities. Addresses Scope 3 gaps in hard-to-measure sectors like metals and energy.

Key Investors & Funders

  • National Wealth Fund (UK) — Deployed £55 million+ in 2025 across climate infrastructure including EV charging (Connected Kerb) and sustainable packaging (Pulpex).

  • European Investment Bank — Provided €750 million to H2 Green Steel. Major debt provider for first-of-a-kind climate projects with rigorous due diligence requirements.

  • Breakthrough Energy Ventures — Bill Gates-backed fund with $2 billion+ deployed. Known for technical due diligence rigour, particularly on emissions reduction claims.

  • Generation Investment Management — Al Gore-founded sustainable investment firm managing $40 billion+. Pioneered integrated ESG analysis with quantified impact metrics.

Action Checklist

  1. Audit your data quality tier distribution: Map all impact claims against Tier 1/2/3 framework. Set explicit targets for upgrading Tier 3 claims to Tier 2 or above within 12 months.

  2. Establish third-party verification protocols: Require independent verification for any impact claim exceeding £10 million portfolio exposure. Budget 0.5-1% of management fees for verification costs.

  3. Align internal methodologies with ISSB/GHG Protocol: Ensure Scope 1, 2, and material Scope 3 calculations follow standardised approaches. Document deviations and rationale for regulatory defensibility.

  4. Implement avoided emissions governance: Require conservative baseline selection, external methodology review, and explicit disclosure of assumptions for all avoided emissions claims.

  5. Address Scope 3 data systematically: Invest in supplier engagement programmes rather than relying on industry averages. Consider joining sector initiatives like the Partnership for Carbon Accounting Financials.

  6. Stress-test transition plan credibility: Evaluate portfolio company transition plans against TPI criteria. Flag plans without interim targets or capex alignment for enhanced scrutiny.

  7. Monitor regulatory developments quarterly: Track SDR, CSRD, and ISSB implementation timelines. Allocate compliance resources 18 months ahead of enforcement dates.

  8. Build carbon market literacy: Train investment teams on ICVCM Core Carbon Principles. Require offset purchases to meet high-integrity criteria before counting toward net-zero claims.

FAQ

Q: How should UK compliance teams prioritise competing disclosure frameworks—SDR, CSRD, ISSB?

A: The practical approach is to build data infrastructure that satisfies ISSB requirements (IFRS S1 and S2) as the global baseline, then layer on jurisdiction-specific requirements. ISSB is designed for interoperability, meaning compliant data can typically be adapted for SDR or CSRD with limited additional effort. For UK firms, SDR takes immediate priority for fund labelling and marketing, while CSRD matters primarily for companies with EU subsidiary operations or EU investor base. The critical capability is maintaining granular source data—aggregated numbers may satisfy one framework while failing another's specific requirements.

Q: What constitutes "measurement theater" and how can we identify it in portfolio company reporting?

A: Measurement theater manifests as metrics that appear sophisticated but lack decision-useful meaning. Red flags include: precision exceeding underlying data quality (reporting to decimal places when uncertainty is 30%+); inconsistent baselines across reporting periods; avoided emissions claims larger than the company's market presence could plausibly support; and impact metrics that don't connect to business model fundamentals. The simplest test is asking: "If this metric doubled, what operational change would that reflect?" If the answer is unclear or unconnected to actual activities, the metric may be theatrical rather than substantive.

Q: How reliable are carbon credit ratings from providers like Sylvera or BeZero?

A: Third-party rating providers have substantially improved market transparency, but ratings should inform rather than replace due diligence. Provider methodologies differ significantly—BeZero emphasises additionality while Sylvera weights permanence differently—so the same credit may receive materially different ratings. The ICVCM Core Carbon Principles provide a baseline quality threshold that major ratings correlate with but don't guarantee. For compliance purposes, treat ratings as one input alongside independent verification, project documentation review, and registry data analysis.

Q: What's the minimum viable approach to Scope 3 measurement for a mid-sized UK asset manager?

A: Start with the PCAF methodology, which provides sector-specific guidance for financial institutions. For listed holdings, use company-disclosed Scope 1 and 2 data weighted by ownership percentage. For private holdings—typically the harder challenge—begin with sector-average emission factors from PCAF or EXIOBASE, then progressively upgrade to company-specific data as engagement produces results. Disclose methodology, data sources, and coverage percentage transparently. Regulators and stakeholders accept that Scope 3 measurement involves estimates; what damages credibility is presenting estimates as verified facts.

Q: How should we evaluate the credibility of portfolio company net-zero commitments?

A: Apply the Transition Pathway Initiative (TPI) framework: Does the commitment include interim targets (ideally 2025, 2030, 2035)? Are targets absolute or intensity-based—and is intensity-based appropriate for the sector? Does capex allocation align with stated decarbonisation trajectory? Has management articulated sector-specific technology pathways? What percentage of Scope 3 is covered? Companies scoring low across these dimensions have commitments that are aspirational rather than actionable. For portfolio construction, consider weighting toward companies with credible near-term targets rather than ambitious but unsubstantiated long-term pledges.

Sources

The funding environment for climate tech has matured significantly since the 2021-2022 peak, with measurement rigour becoming as important as commercial traction. UK policy and compliance professionals who build robust data infrastructure, adopt standardised methodologies, and maintain transparency about measurement limitations will find themselves better positioned for both regulatory compliance and investor confidence. The practitioners we interviewed were consistent on one point: in climate finance, credibility compounds. The investments made in measurement quality today will determine which organisations lead—and which struggle—as disclosure requirements tighten and stakeholder scrutiny intensifies.

Topics

fundingtrendsrisktransition financebenchmark KPIsblended financeSEC climate rules

Related Articles