Moving the money: Climate change adaptation and entrepreneurship

There is an increasing recognition that entrepreneurship plays a critical role in driving climate change adaptation. Recognising that business as-usual can no longer suffice in the sustainability transition, the need for innovation has become extremely important. Business model innovation both for existing and emerging enterprises, offers an opportunity to test new concepts that can drive a low carbon development trajectory, while creating decent job opportunities for the multitudes of unemployed young people.

The role of small and medium enterprises (SME) in charting the transition is paramount, partly because SME’s are responsible for most job creation, but crucially are key for testing new business models. Large business are difficult to transform in most cases because of well established business processes that might be deemed effective, especially for companies that are profitable.

Even though the role of SME’s in climate adaptation is well recognized, they face insurmountable challenges, more especially access to finance. Due to the nature of ‘green’ enterprises, they often can’t meet the funding criteria of traditional financial institutions such as commercial banks. There is a dearth of generous and patient capital that is willing to fund untested business models, regardless of the potential impact they hold. This has greatly impacted on the deployment of innovative mechanisms and solutions for climate change adaptation.

Impact investing has emerged as a key pathway for financing green enterprises, even though its real ‘impact’ is yet to be felt on the ground. It has been estimated that impact investment as an asset class is worth $50 billion, in the US alone. In South Africa, it was been estimated that close to $4.9 billion of impact investments have flowed into the country, according to the Global Impact Investing Network (GIIN).

So why is funding not reaching onto the ground, more specifically to the Base of the Pyramid (BoP), where the impact of climate change is going to be felt the most?

The poor dealflow, could almost solely be attributed to a broken ecosystem, where financiers and entrepreneurs are not interfacing effectively to understand each other’s needs. Governments and development agencies are pre-occupied with policy formulation without any foresight on implementation, leaving the poor and vulnerable victims of climate change to fend for themselves.

It’s encouraging to see that some key stakeholders have recognised the problem and are attempting to fix the broken system.

As part of this effort, UNEP and the government of Flanders, recently convened a dialogue that brought together key stakeholders from government, development agencies and the entrepreneurship support ecosystem in South Africa. As expected lack of funding for SME’s, poor deal flow of bankable projects and lack of innovative partnerships, were outlined as major bottlenecks in financing climate change adaption.

More of this kind of discourse is required, but talk is also cheap. We need a critical mass of change agents that are willing to work directly with entrepreneurs and communities on the ground to effectively channel resources. Unfortunately this is not the case as most of the incubators and accelerators that purport to support enterprise development are out of touch with the needs of local entrepreneurs.

Catalysing systems change through sustainability leadership

On 2nd May 2017, we convened a policy dialogue at the Durban ICC to explore how sustainability leadership can address inequality and poverty alleviation in Africa. The event brought together delegates from industry, academia and industry to review the role of sustainability leadership in addressing inequality, systems change and expanding inclusion to address current and future development challenges. The significant outcomes from the dialogue are summarized below.

A key outcome highlighted was the realisation that there was indeed a sustainability leadership crisis in Africa. This stems from a lack of clear understanding and clarity about what sustainability leadership entails and how it can effectively be carried out. The conversations at the dialogue stressed the importance of partnerships as key to driving sustainability leadership. There is also a need for accountability and an active citizenry in seeing that leadership is adhered to and checked. A key take home on this subject was that leadership is not a title.

On the issue of financial inclusion, a key outcome was the need to improve regulation pertaining to financial inclusion in Africa. The discussion identified lack of adequate regulation to support the uptake of fintech in Africa. Numerous examples were given on how lack of regulation can be detrimental to the use of fintech. African governments should adopt legislation quickly to keep up with the ever increasing pace of innovation. Lastly the conversations identified the need to take into consideration culturally sensitive models as a way of increasing financial inclusion

The discussion around social entrepreneurship as a driver of systems change uncovered numerous pertinent challenges that need to be addressed. The participants emphasized financing, political environment and a lack of opportunities as affecting social entrepreneurship. They also recommended partnerships and working as collective as key to driving systems change. A quote following from this session was, “there is no us without us.”

Furthermore, regarding technology in education, a key outcome from the conversations was that there is a myriad of opportunities that exist in this space especially in as far as capacity building is concerned. The participants identified opportunities that lie in agriculture, early childhood development as some areas for innovation. However, they also highlighted challenges that exist for instance lack of support for uptake.

The renewable energy sector was identified as one of the key solutions towards solving the energy crisis that in Africa. The conversations highlighted that African innovators need to explore ways to expand access to energy on the continent. However, renewable energy legislation requires community development and localisation. The focus should not only on job creation but on the development of small businesses in localities.

Special thanks go to the event sponsors; Green Economy Coalition (GEC), Asciona Energy, Barloworld and Old Mutual without whom this dialogue would not have been possible.