Despite a global venture capital slowdown and growing turmoil in the tech sector, climate startups have been hailed as recession proof. Investors are leaning in, with more than one quarter of venture capital funding in the past year going to climate technology.
But both the environmental impacts and financial returns of investments in climate solutions risk falling short for two reasons.
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Investors often overlook climate solutions driven by those on the frontlines of climate change.
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Focusing on technology alone and making siloed investments is not going to drive the profits and progress the world needs.
Generational climate solutions come from investing in proximate leaders who intrinsically understand the problems their communities face, breaking down traditional siloed investments.
Centuries of indigenous knowledge can help us safeguard biodiversity and advance climate solutions.
Investing in Marginalized Communities Isn’t about Altruism
Increasing diversity among investment decision makers is more than checking a box on your ESG scorecard—it’s also smart business. Research shows that women-managed US funds outperform all-male rivals.
Those who have firsthand experience with climate impacts are typically not the ones financing climate solutions. From my decades of lived experience, climate leaders on the ground are too overwhelmed and often too understaffed to seek financing. Women of color are disproportionately impacted by the climate crisis but represent only a small minority of investors. As a result, underrepresented climate entrepreneurs are overlooked, contributing to stalled progress on the 1.5-degree Celsius goal. The adverse consequence of this is long-term strategic capital left on the table for investors.
However, there is a silver lining. Climate opportunities are abundant, with immense potential for environmental impact and sizable investment return. For example, low-income countries around the world often bear the most risk of dire climate consequences. At the same time, they are at the forefront of climate opportunities, including restoration. The UN Environment Programme found that every dollar invested in restoration creates up to 30 dollars in economic benefits.
Climate solutions led by local indigenous populations also show real promise. Indigenous peoples make up 5 percent of the world’s population but safeguard 80 percent of the world’s biodiversity. Despite this deep connection to the land and centuries of indigenous knowledge that can help us safeguard biodiversity and advance climate solutions, only a miniscule percentage of venture and institutional funding today goes toward indigenous-led climate solutions. Amazonian indigenous leaders and researchers from nine countries presented evidence showing that the Amazon rainforest may be looming towards devastating deforestation if immediate protection and funding are not given.
Silos Will Not Decarbonize the Planet or Yield the Greatest Returns
Climate investments are only recession-proof if they are not made in silos. Many investment theses are grounded in a single vertical, without recognizing interconnections inherent in how climate change impacts the planet and humanity.
Industries like food and agriculture, energy, mobility, and infrastructure are inextricably linked, and therefore investments must also be treated as interdependent. The Intergovernmental Panel on Climate Change states that the agricultural sector is responsible for around 25 percent of global greenhouse gas emissions. And food waste accounts for 8 percent of global greenhouse gas emissions. Driving the shift in the food and agriculture sector to be carbon neutral will take all of the other sectors, including the shipping of food to the infrastructure where the food is produced. The data clearly show the intersections of all sectors. Without addressing one of these issues, we cannot mitigate the challenges of the climate crisis.
As the climate tech industry booms, we can’t neglect the opportunity that lies directly in nature—even on the ground beneath our feet. Often considered the forgotten solution, soil still remains one of the quickest ways to sequester carbon. Healthy soil not only sequesters carbon to help fight climate disaster but also reduces water pollution, prevents erosion, and promotes biodiversity, presenting investment opportunities across multiple verticals. Investing in soil is investing in the overall health of human beings.
Transformational climate investing has to transpire at the ecosystem level. Investing in frontline climate solutions is not only a matter of fairness but also an imperative for achieving our investment and climate goals. And in order to transform our climate ecosystem, we must first transform our climate investments.