Climate and environmental entrepreneurs are defined as change agents who see the creation of ventures as a way to address urgent climate and environmental challenges. Climate entrepreneurs can provide a catalyst to combat climate change and achieve the 2030 Agenda goals.

In building up a business, climate entrepreneurs focus not only on the growth of the venture, but also enable greener and more sustainable ecosystems. A recent report looked at the four most common sectors that climate and environment entrepreneurs engage with: renewable energy, circular economy and waste management, sustainable agriculture and aquaculture, and sustainable forest management.

Entrepreneurial challenges

Climate entrepreneurs face various challenges in scaling up and ensuring that their projects lead to sustainable impact. The three most common barriers that they struggle with are unsupportive regulatory frameworks, financial resources and capacity limitations.

Moreover, a limited understanding of climate-focused business models also creates a major hindrance for climate entrepreneurs to scale up their ventures. Green business models or sustainable business practices are widely mooted as concepts. In reality, only a few projects actually make it off the ground. Unclear and inadequate criteria surrounding what constitutes a “green practice” often make it difficult to determine whether the firm genuinely contributes to sustainability or merely uses it to “greenwash” environmental destruction.

The lack of capacity can obstruct climate entrepreneurs in their ambitions given that most countries have regulations on micro, small and medium enterprises, but not all recognize enterprises or start-ups that aim to bring social impact, let alone the environment. This is often compounded by inequitable access and opportunities for women climate entrepreneurs. The constraints derive both from the market itself and within households, institutions and society, affecting women disproportionately in the face of climate vulnerability and in developing climate and environmental solutions.

Figure 1. Percentage of organizations ranked in terms of top three target climate and environmental sectors by country. Source: SEI / ANDE.

Figure 1. Percentage of organizations ranked in terms of top three target climate and environmental sectors by country. Source: SEI / ANDE.

Supporting local and indigenous efforts

A more inclusive business model is needed. Indigenous peoples, smallholder farmers and women are all custodians of their landscapes. These groups and their communities possess the knowledge of local ecosystems and which climate actions can be effective. A business model that promotes the leadership, knowledge and value of these groups and communities is a key foundation of any efforts to enhance climate resilience. However, these groups often need a range of support from training and access to finance to education and recognition for their knowledge and efforts.

Strategically aligned Sustainable Development Goals (SDGs) with their business core and using them as the blueprint will serve as guidance to ensure funding contributes to sustainable natural resource management, renewable energy, biodiversity, low carbon initiatives and other societal goals. SDGs are currently mainstream in industries with their global campaigns. However, access may be limited for small and medium enterprises. With its slogan of “leave no one behind” and limited government capacity, collaborative efforts are the key to achieving Agenda 2030.

Percentage of organizations that align with the UN Sustainable Development Goals

Figure 2. Percentage of organizations that align with the UN Sustainable Development Goals. Source: SEI / ANDE / UN.

Funding is often a major shortage given that traditional lenders need collateral in a situation where many entrepreneurs, particularly women, have limited or no assets. Innovative financing programs tend to have fewer restrictions and are designed for less risk-averse enterprises. Blended finance can narrow the financial gap between public funding and traditional investment.

Entrepreneurs can also utilize new funds created from blended finance to pilot or scale up their projects with new funds.

Partnership for climate action

Collaboration and partnership are crucial. While lack of funding is one of the main barriers, many investors also have an interest in investing in social impact-focused enterprises, but cannot find organizations that match their criteria. There is a need for consortiums or platforms to help connect entrepreneurs to funding, bridge capacity development providers and donors and explore opportunities to co-manage funds.

Our study on climate entrepreneurs highlights the importance of cross-sector collaboration with other like-minded organizations. Using a collaborative approach, not only financially but also in programme implementation, infusing sustainability and entrepreneurship, deploying concessional capital alongside de-risk transactions and bridging evidence-based research to policy to influence policymakers can all help create meaningful impact.

This piece is based on a recent report from the Aspen Network of Development Entrepreneurs (ANDE) and SEI on the challenges, opportunities and recommendations to foster climate entrepreneur for technology and innovation in climate action.

The findings of this report were presented at the International Conference on Sustainable Development on 20–21 September 2021.