There has been a changing attitude concerning sustainability and responsible environmental practices in recent years, with businesses and organizations changing pace when it comes to their support and contribution towards an evolving solution surrounding climate change.
In a short period, sustainably-minded entrepreneurs and startups have created a mirage of impact-driven solutions that are helping businesses become more complacent in a changing business ecosystem.
As the marketplace evolves, along with newer, and more eco-conscious consumers, businesses will need to adapt their practices in an effort to stay relevant and garner support from changing consumer habits.
A Global Sustainability Study by Simon-Kucher & Partners, a global strategy and consultancy firm found that roughly 85% of people have changed their purchasing behavior towards more sustainable options in the last five years. But the change in consumer behavior is not the only driving factor that’s been pushing businesses to become more supportive and adaptable towards sustainable and environmental responsibility.
The investment ecosystem is also shifting, with Socially Responsible Investing (SRI) and Environmental, Social, and Governance ESG-based investments taking off over the last couple of years. We now see both investors and business leaders looking to develop a strategic direction that is more conscious of their community and the environment.
Traditionally, businesses and organizations, both small and large, were struggling to adapt alternative directions that would see them develop more meaningful or environmentally responsible strategies. The mirage of progressive startups and entrepreneurs focused on these issues is setting a new tone, using advanced technology and software to restructure primitive business models and establish solution-based practices.
The opportunity now lies within the scope of practice that businesses are willing to take. From early-stage startups to established conglomerates that dominate their marketplace on an international level.
The shift in generational consumer habits and changing investor interest means businesses are now facing new challenges that place them in a position of change, modification, and adaptation to environmental efforts.
Here’s a look at how sustainable startups and entrepreneurs are leading the change, and why business owners should be paying attention.
Key Market Areas for Sustainable Entrepreneurship
Consumers and businesses are willing to adapt and make some form of change in an effort to pursue environmental and sustainable practices. The World Economic Forum (WEF) has in recent years identified three key market areas that offer both financial and job-related opportunities.
The urgency by global organizations and national governments are pushing companies to mitigate the common “extract, use, and dispose” model. Instead, the WEF report found that three key market areas, including food, land and ocean use, infrastructure and the built environment, and energy and extractives could deliver more than 395 million jobs over the next decade, with an estimated $10 trillion in business value.
There’s growing opportunity in these market areas, not only for new businesses but those already established within the ecosystem.
Consumer Support
If there is one thing sustainable entrepreneurs are aware of, it’s that consumer habits have changed over the last few years, and it’s only becoming more clear each passing year.
As more and more people are willing to make adjustments to their personal lives to drive more meaningful change, consumers are looking to support businesses and companies that are open and transparent when it comes to their environmental and social performance.
In a 2021 Deloitte survey, roughly 55% of British consumers changed their grocery shopping habits by choosing brands that are more environmentally inclined. 36% of respondents raised concerns over an ethical or sustainable-related issue, while 38% of consumers changed major household appliances to renewable energy resources. Based on these findings by Deloitte, it’s already quite clear how much consumers have adjusted their shopping habits over the last few years.
On another note, sustainable startup entrepreneurs are also making use of Artificial Intelligence (AI) and Big Data to help power their consumer insights. With these capabilities, startups can create meaningful strategies aimed at the corresponding target audience.
Seeing as businesses aren’t able to resolve climate and environmental issues solely by themselves, insights by Nvidia Inception found that more than 10,000 different members are using cutting-edge artificial technology to build applications that can help accelerate environmental developments for businesses.
ESG-based Investments
The rise in startups has meant that investors are looking to park their investments in companies that are focused on environmental and societal change. According to Bloomberg Intelligence, ESG-based investments are set for record growth in the coming years, with more than $50 trillion being directed towards sustainable startups by 2025.
With concerns surrounding climate change and societal issues becoming more prominent, betting on traditional forms of business has become redundant in the modern world of business.
Historical data have shown that since 2006, ESG ETFs have grown almost exponentially year over year. Since 2006 ESG assets totaled $5 billion globally, at the end of 2021, that number increased to more than $391 billion.
A record number of investors are now more concerned about climate change and social justice, and 2021 marked the year that pushed companies and regulators to make a change as more funds were directed towards startups and companies focused on ESG factors.
Investors are not only focusing on how companies are developing new tools and software that can help offset climate change, but also on how it could help grow financial well-being in the near future.
As companies look to adapt and learn from what smaller startups can offer in accordance with regulatory considerations, investors are seeing portfolios also becoming more diversified. Currently, ESG funds and investments now account for roughly 10% of global fund assets as of 2021.
Regulators across the world are making statutory changes to the investor landscape, a partial driving force behind the record number of ESG-backed funding.
For example, in the European Union, new disclosure regulations such as the implementation of the Sustainable Finance Disclosure Regulation created three new avenues of fund designations that look to incorporate ESG characteristics in the investment decision-making process.
For investors, it’s not about looking up the trendiest or hottest new startup focused on ESG principles and simply piling cash into their ventures, there’s more to the equation.
Companies are looking to develop solutions to growing climate concerns, and supply chain constraints. Using adaptive technology and augmented software, they can establish innovative models and structures that can build more meaningful long-term solutions. These capabilities range from food security, water safety, sustainable and renewable energy sources, electric vehicles, alternative packaging and shipping, and clean solutions.
These categories, among others, are growing more interest from investors, as they lean towards startups that are focussed on providing not just an answer, but viable real-world solutions.
What are Startups Doing?
When we consider the above-mentioned factors, we see how business owners can look towards social and environmental entrepreneurs to help establish more viable solutions for long-term success.
Small startups are making a more positive impact, not only through their application of innovative technology but more so through their adaptability.
We see this with companies such as Tracfier, a startup that makes use of blockchain-based traceability applications that helps to reduce food waste and fraud. For quite some time already, entrepreneurs have been looking for ways in which they can incorporate blockchain technology in their practices that can help highlight the importance of sustainability and climate change.
Another firm that makes use of blockchain technology and AI is Circulor, a startup that helps automobile manufacturers track raw materials through the use of blockchain. The startup provides traceability-as-a-service that enables manufacturers to responsibly source materials and improve their supply chains.
Faradai utilized IoT platforms that analyze sensor data to pinpoint energy and operational insights in offices, stores, and commercial property. Their platform functions on the basis to monitor where energy consumption is being wasted on non-primary functions.
There are thousands of similar startups working on various environmental projects that help companies to improve their practices and their development strategies. More so, these efforts are not only giving them traction in their respective field, but it’s also helping them lend technology and insight to larger, more established companies across the world.
The assumption is that one company or multinational organization won’t be able to resolve the world’s issues when it comes to climate change or environmental concerns. Rather, startups are working as an incubator for companies who are willing to now move toward change and adaptation.
Besides these efforts that sustainable entrepreneurs are bringing to the table, they’re also able to highlight how rapidly consumer and investor sentiment has changed over the last few years. No longer are these practices considered a niche, but perhaps a prominent characteristic of modern business.
The Bottom Line
Whether it’s climate change, social justice, or governance, sustainable startup entrepreneurialism is completely changing the face of modern business. It’s creating new forms of understanding that enables business owners to adjust their strategies in such a way to ensure they stay relevant in a fast-changing consumer and investor ecosystem.
With the startup landscape dominated by sustainable and environmentally-focused innovations, it will become easier for business owners, and business leaders to consider which application would work best within their operations.
It’s now more clear than ever that ethical and environmental concerns are becoming a major part of both the consumer and the business, and it’s imperative that business owners adapt to these changing behaviors.
Lastly, as mentioned, one country or business can’t resolve the world’s issues, but rather, it takes a unified understanding and skill to build a greener, and more environmentally conscious consumer, investor, and business that can harness long-term success through progressive environmental efforts.