In the driving seat: How entrepreneurs can move us into the fast lane for the green transition

Entrepreneurs are prolific problem solvers. Think of the ingenious water-tech pioneers overcoming water shortages in Israel’s arid landscapes. Or the global army of entrepreneurs who helped us through the Covid-19 pandemic with innovations such as transparent face masks to assist the hearing impaired. Or digital apps to promote employee wellbeing. Countries across the world are now gearing up to face the most profound shared challenge in generations: climate change. The road to net zero will be paved with innovative green technologies – the bread and butter of the green entrepreneur. With the right policy support, these entrepreneurs can drive the green transition.

Making their mark

Green entrepreneurs are already making their mark. According to data from PitchBook, nearly half of venture capital investments in the climate tech sector globally are directed towards electric transportation start-ups. Activities range from the design of next-gen lithium batteries (see Novali) to the development of software to optimise electric vehicle charging (see Bia Power).

Electric vehicles are attracting the lion’s share of venture capital funding

Elsewhere, green entrepreneurs are advancing the shift to a greener agricultural system. Examples include alternative meat products, from Aleph Farm’s lab-grown steaks to Because, Animals’ cultured rabbit and mouse treats for household pets. They are also accelerating the renewable energy revolution through efficiency-enhancing solar panel cleaning robots (see Inti-Tech), green hydrogen production units (see Lhyfe) and gravity-powered batteries to store surplus power (see Energy Vault and Gravitricity). These are just a handful of examples from a rich and growing network of green entrepreneurial ventures that are large in number and in impact. For instance, in the EU, a third of new start-ups now offer green products or services.

An uphill battle

While these examples offer a taste of the potential of green entrepreneurship, this potential cannot be fully realised without the active support of policy makers. From the get go, entrepreneurs face an uphill battle to access finance and attract skills, suppliers and customers without the brand, networks and resources available to established companies.

For green entrepreneurs, these barriers can be daunting, especially as their products are often hardware-based and capital-intensive with long development timelines. Demand for green entrepreneurs’ products is also volatile and uncertain, depending on unpredictable factors such as the future policy landscape, the development of complementary technologies and the evolution of customers’ tastes and preferences. There is also a high – and changing – regulatory burden in many of the sectors that green entrepreneurs are active in, such as food and energy. New entrepreneurs are at a disadvantage compared to established companies when it comes to having the resources and knowhow needed to navigate these complex regulatory environments efficiently.

Supporting the start-ups

Recent OECD work has examined how policies can help overcome these barriers and unlock the potential of green entrepreneurship. A key takeaway is that funding pipelines that support green entrepreneurs throughout their development phase are critical. In Canada, the funding pipeline has been nurtured through the creation of two arm’s length public funding bodies (Sustainable Development Technology Canada and the Business Development Bank of Canada), where green entrepreneurs can access long-term, patient capital that is complemented by specialised advice and coaching.

Policy makers can also support dedicated networks to facilitate the exchange of information and the formation of partnerships between entrepreneurs, industry and research institutions. The Environmental Sustainability Innovation Lab in Haifa, Israel, shows how the public sector can initiate collaborations between large companies and entrepreneurs. Universities also serve an important function in green entrepreneurial ecosystems through their provision of entrepreneurship education, research facilities and expertise, and incubation and acceleration programmes (see for example the GreenUp Accelerator programme operated by the Technical University of Denmark’s Science Park, which aims to facilitate the scaling up of climate tech start-ups).

Public policy can also help stimulate demand for green products and solutions. This can be through taxes or regulations that make environmentally friendly products cheaper than less sustainable alternatives, such as the carbon pricing schemes in place across many OECD countries. Other effective measures include public procurement policies that bolster demand by prioritising environmentally sustainable solutions. In Germany, the new procurement regulations set out requirements for lifecycle forecasts of greenhouse gas emissions to be assessed for certain publicly procured products or services.

Raising our ambition

The promotion of green entrepreneurship is fast becoming a priority area for governments. It must remain so. Green entrepreneurs need the support of carefully targeted policy interventions to access resources and create the market conditions for them to survive and thrive. Policy makers should be ambitious in their support: these investments will pay rich dividends in terms of our climate ambitions, helping avoid the most catastrophic consequences of global warming.

Read more on the OECD work on Green Entrepreneurship.

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Pablo Shah is a Junior Policy Analyst at the OECD’s Centre for Entrepreneurship, SMEs, Regions and Cities, with a focus on entrepreneurship policies. He is a co-author of the OECD’s report on the promotion of start-ups and scale-ups in Denmark. In previous roles, Pablo has worked as an economist at consultancies and think tanks, and formerly worked as a civil engineer in the water industry. He holds a Master’s degree in Economics from the University of Cambridge and a Master of Engineering degree in Civil Engineering from the University of Bristol.