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.