Funding for climate innovation is increasing. However, to enable a truly global and equitable transition, both investors and the sector philanthropic They must include diverse grassroots innovators working on adaptation and mitigation.
Between 2015 and 2020, climate tech venture capital jumped to investments between 3.700 and 17.000 millions of dollars – and then soared to $53 billion in 2021. This positive development fills a portion of an annual funding gap of more than 4 trillions of dollars necessary to limit global warming to 1,5°C. Additionally, venture capital remains concentrated in specific markets and sectors, with 81% in the United States, Europe and East Asia, with a focus on transportation and electricity.
Current funding shortfalls result in missed opportunities for climate action where it is needed most.
In philanthropy, climate action is a priority for a few funders, but the sector as a whole has hesitated about where and how to participate. Globally, climate change mitigation funding makes up less than 2% of philanthropic giving. – approximately 10 billion dollars in 2021, with only a third of foundations considering funding climate efforts.
Philanthropy plays a key role in training impact-focused innovators to overcome the common “valley of death” between launching an idea and demonstrating a viable business model. Philanthropic funds can also be used to develop novel and valid climate solutions that go unnoticed by traditional venture capital entities.
Current funding shortfalls result in missed opportunities for climate action where it is needed most. Those who contribute the least to the climate crisis, both within and across countries – the least developed nations, indigenous peoples, and more – are those most affected by the repercussions of historic emissions.
To achieve equitable outcomes for climate action, we must invest heavily in undervalued communities, grassroots organizations, and historically underfunded communities. Supporting local innovators will not only help us close the gap between climate goals and reality, but will also lead to more sustainable, culturally responsible and anti-colonial solutions.
There are communities developing and testing practical ideas, born from their direct lived experiences and needs, that provide better livelihoods and a higher quality of life and that help communities adapt to more extreme climatic conditions, while avoiding the high carbon consequences of fossil fuels, industrialization assumed in the Global North zone.
These solutions often have difficulty fitting into traditional financing models for multiple reasons. First, most climate solutions require hardware development, which requires more capital. An equitable zero-carbon world will require significant physical changes, such as building good new homes for one billion people and replacing and retrofitting most existing homes in the Northern Hemisphere. This requires additional capital to prototype, test and validate those solutions, often over a long period of time.
To achieve equity, such tests must be tailored to the local context. Some of the most crucial work, such as protecting indigenous land rights, may never produce returns at market rates and will depend on concessional capital or government support. Philanthropic financing is very suitable as risk capital in this field.
There are real, but surmountable, additional barriers to expanding philanthropic and venture funding support to grassroots global solutions. Identifying and validating viable grassroots climate solutions in emerging markets takes time, and investing in them can be perceived as a major risk factor. Smaller organizations often struggle to meet the reporting needs of traditional philanthropic funders or the production requirements of potential corporate buyers.
Additionally, historical injustices, such as colonization, can create barriers to understanding, trust, and collaboration. Using intermediaries to connect funders to a global portfolio of vetted promising ideas allows resources to be channeled more efficiently to grassroots innovators and facilitates knowledge sharing on both sides.
The innovators who will shape and build an equitable, prosperous and climate-stable future are already at work in their communities. For philanthropists exploring climate strategies, grassroots climate innovators offer a direct path to impact that can catalyze access to critical investment capital.
As interest in financing climate solutions increases, both the philanthropic sector and investors must look to innovations from emerging economies and underappreciated communities. Over time, funders will find that investing in diverse innovators is a pragmatic solution to addressing the climate crisis.
