In a business context, sustainability is often defined more specifically as triple-bottom-line thinking (people-planet-profit). In other words, balancing economic value with environmental and social value. This means that in a sustainable business, environmental and social impact assessment are usually embedded in the business objectives and operations.
Green tech and climate companies are rapidly transforming our marketplace. With sustainability now a business imperative, entrepreneurs, decision makers and established corporation need to move quickly or risk missing out on the massive sustainability business opportunity.
We’ve seen this pattern before notably in the realm of digital disruption and internet revolution with the dot.com. First movers are disproportionately benefiting and are normally being rewarded by markets. Just to add some data to the transformation we are witnessing, in 2011, just 20 percent of companies in the S&P 500 published sustainability or corporate social responsibility (CSR) reports. By 2013, the number of S&P 500 companies publishing a sustainability report more than tripled to 72 percent. G&A’s research found that 99% of the S&P 500 companies declared themselves sustainability focused in 2022.
In the past five years, sustainability has emerged as a critical value driver. As it became clear that existing efforts may not be sufficient to cap temperature increases and accelerate decarbonization efforts, corporations and investors began to recognize the opportunity of addressing the accelerating climate challenge. Organizations began adopting and promoting environmental, social, and governance (ESG) measures, and from 2020 to 2021 alone, the number of companies committing to science-based sustainability targets tripled. Corporations started to play leading roles in global climate summit such as the Paris Climate Summit in 2015, and the COP26 in 2021 in the UK. Finally, start up and risk taker entrepreneurs fostering sustainability to create value are growing to unprecedented scale, resulting in the rapid rise of “climate unicorns.”
What are the key drivers?
First, the price of carbon is rising while the cost of renewable energy continues to fall, making sustainable energy solutions increasingly competitive (and, in some cases, cheaper than traditional energy). Second, public pressure to take decisive action to avert climate catastrophe demands real behavior change by companies. This is also supported by consumer demanding more transparency and more ethical posturing or else boycott products. And the third factor is driven by the first two: capital is pouring into the sustainability space and risk in the broader decarbonization space is raising at break-neck pace.
Lessons from capital mobilization
Looking forward with a clear understanding of what went wrong with venture capital investments in the cleantech boom and bust in the late 2000s could help policymakers, entrepreneurs and investors better understand how to ensure that next wave of sustainable corporate efforts are more successful. However, the researchers expect VC investments in clean energy and clean tech in general to continue falling behind investments in other climate sectors because of continued difficulties in product differentiation. Several reports recommend policy makers aiming to accelerate the green growth agenda to shift their focus toward creating demand-side policies that make investments in clean-tech more attractive to VC in general.
Final actions items
To succeed in sustainability and with a crisis prone market, these are the key actions that we recommend to entrepreneurs:
- a) Think of nontraditional partnership. Your larger competitor, or established company can be your best partner as it provides the scale you don’t have.
- b) Set up a bold sustainability vision that set you apart and aims to put your agile, nimble new group in prime market position.
- c) Overinvest in the public good as the future consumers will choose those producers that are focused on societal returns.
- d) Seek smart money outside of the costly VC hubs such as Silicon Valley and prioritize networking with larger family offices that are under pressure to diversify their portfolio towards sustainable investments.