Innovators and Access to Finance in the UK’s Environmental Sector

Technological improvements are seen as the best solution in countering the environmental impacts of economic activity. UK economy is no exception to this view, where the environmental sector is put under the spotlight to innovate and maximize energy efficiency. Yet, the success of firms, especially SMEs, in the environmental sector is dependent on the presence of appropriate external financing to support their innovative activity. In an attempt to understand the circumstances surrounding the financing of 330 UK SME firms from the environmental sector between 2007-2010, we focus on the factors that affected firms' probability to receive external finance (traditional bank loans, venture capital (VC) and government funds). The results indicate that venture capital and government funding are supportive of innovative activities in the environmental sector, yet these funds are accessible to a small minority of firms. The most commonly accessible source of finance; bank loans, on the other hand are not necessarily supportive of the innovative activities in the environmental sector. Our findings also suggest that SMEs of the environmental sector will have an increased demand for finance in the near future and there may be important negative implications of finance scarcity upon the innovative performance of the clean technology sector