Creating a climate-resilient entrepreneurial ecosystem

How can governments, business communities and others create a climate-resilient entrepreneurial ecosystem that provides the solutions we need?

The demand for climate resilience has never been greater. While governments are slowly acting to transition away from fossil fuels, the private sector is expected to step up and invest in green growth. Private firms have increasingly seen the market opportunity (and moral imperative) to decarbonise. Others have begun introducing new business products, services and models that promote green growth and climate resilience.

Businesses can help society adapt to climate change. Climate adaptation is about preparing for and adjusting to the current and projected impacts of climate change. Businesses can provide new technologies, such as innovative irrigation systems or low-energy lighting, and new services, such as sustainable water management.

The business response to climate change can be sped up and deepened through an enabling environment that encourages the private sector to innovate and bring new solutions to the market.

This requires a climate-resilient entrepreneurial ecosystem that enables the private sector to adapt and invest in green growth. This would help us become more resilient to climate change and contribute to the transformation of the economy.

Private sector development can contribute to climate resilience

We are resilient when we can withstand and recover quickly from difficulties. Climate resilience describes our ability to anticipate, prepare for, and respond to hazardous events, trends or disturbances related to a warming planet.

By becoming more climate resilient, we can better assess how climate change will create new or alter current climate-related risks and take steps to better cope with these risks.

Private sector development can contribute to climate resilience by supporting systemic changes affecting businesses’ response to current and emerging threats.

Businesses need to identify and respond to the threats that climate change presents. These threats may be direct and short-term, such as supply chain disruptions due to drought or floods. They may also be indirect and long-term, such as increasing insurance premiums.

In addition, businesses must reduce their environmental impacts by, for example, shifting to renewable energy or applying better waste management practices. Sadly, many businesses only do this when forced by government policy.

Businesses can also contribute to a more resilient society and economy by introducing new products and services that reduce carbon emissions and improve people’s ability to cope with climate change. We often describe this as “green growth.” It is about “fostering economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies.”

This is a familiar role for the private sector in many ways. Businesses provide solutions to customers’ problems. They innovate and respond to market signals. Climate change presents a new set of challenges for the market.

It also provides new challenges for how governments regulate markets to reduce emissions and encourage a transformation towards a low-carbon economy.

Creating a dynamic and vibrant climate-resilient entrepreneurial ecosystem

The concept of an ecosystem comes from environmental sciences. It describes a system in which environments and organisms form through interaction.

An entrepreneurial ecosystem is also created through the interactions of various public, private, academic, and civil society actors. It emerges through these interactions and a culture of trust and collaboration. An entrepreneurial ecosystem nurtures the flow of talent, information and resources so entrepreneurs can quickly find what they need at each growth stage.

The United Nations Framework Convention on Climate Change highlights the role of innovation and the entrepreneurial ecosystem in responding to climate change. It describes how innovative solutions result from interaction and collaboration among individuals and institutions.

Governments have a crucial role to play here. They must establish a business environment that fosters climate-resilient entrepreneurship and innovation. This requires more significant and effective public, private, and civil society collaboration.

Researchers in the USA describe the entrepreneurial ecosystem as a “complex adaptive system” that emerges from the “uncoordinated, semi-autonomous actions of individual agents.” As a result, an entrepreneurial ecosystem is not a direct, top-down tool for promoting entrepreneurship.

The entrepreneurial ecosystem is a context where governments work alongside private, academic, and civil society actors while shaping the institutional framework.

When we apply a climate change perspective to the entrepreneurial ecosystem, we seek ways to create a more dynamic and vibrant climate-resilient market system in which businesses operate. This would likely comprise the following:

• More private sector “solution providers” (i.e., businesses).
• Financiers (i.e., finance providers and investors in businesses providing climate-resilient solutions).
• Adaptors (i.e., clients and customers of these businesses).

Market systems promoting green growth

A climate-resilient entrepreneurial ecosystem will also contain a market systems approach to promoting green growth by developing value chains and markets for environmental products and services. The International Labour Organisation describes a market systems approach as addressing one or multiple (potentially overlapping) environmental challenges in and around a value chain. Examples include biodiversity conservation, climate change mitigation, climate change adaptation and resilience to natural disasters, or remedying resource depletion.

Small businesses face several barriers to addressing climate change. These include a lack of capacity and access to tools needed to green their businesses. There are also problems with poor access to finance for low-carbon technologies and inadequate awareness of the business case for increasing efficiency and improving resilience. A market systems approach to developing a climate-resilient entrepreneurial ecosystem will consider these problems and how ecosystem actors interact.

Skilling for green growth

A climate-resilient entrepreneurial ecosystem also includes a system for developing business management and vocational skills. Training drives productivity and competitiveness, building business capacity for climate adaptation.

Sometimes referred to as “green skills,” these are the knowledge, abilities, values and attitudes needed to live in, develop and support a sustainable and resource-efficient society. Well-designed government policies and competent training providers stimulate private investment in green skills, improving the capacity to innovate and provide new solutions for climate adaptation.

Financing climate-resilient entrepreneurship

Access to finance is critical for green growth and innovation. Indeed, financial and investment services are essential elements of a climate-resilient entrepreneurial ecosystem.

A recent OECD report on Financing SMEs and Entrepreneurs 2024 highlights the role of sustainable finance. This has many implications for financing green growth. For instance, SMEs can tap into a growing pool of finance to meet their investment needs by adopting green business models or improving their environmental performance. Yet, while SMEs may face more incentives to green their business models, they also risk losing access to finance if they cannot advance fast enough. The evolving financing landscape requires SMEs to interact with an even more comprehensive range of ecosystem actors that can support them in measuring, reporting on, and improving their environmental performance.

More public support is required to mobilise sustainable finance for SMEs. This includes direct financing (e.g., public lending schemes, non-debt financing, such as equity or grants, and hybrid financing instruments) and mobilising private financing (e.g., green credit guarantees).

New business models for lasting positive environmental change

The OECD’s Development Assistance Committee argues that driving lasting positive environmental change requires private sector engagement that promotes sound business models for environmental protection. These should demonstrate how environmental outcomes are delivered and are financially feasible while creating decent jobs.

An exciting example is the clothing retailer Patagonia, which has advocated for protecting public lands for almost 30 years. Patagonia has placed a lot of emphasis on the company’s internal actions to improve its processes. Most notably, the company’s actions to make its supply chain carbon-neutral by 2025 have encouraged other retailers to do the same. For Patagonia, that means working with recycled cotton, polyester, and down, among other materials, and trying to find more natural fibers to manufacture clothing while pushing suppliers to adopt more sustainable practices.

Dialogue and knowledge-sharing

How public, private, academic, and civil society actors interact in the ecosystem is central to success. Governments and development actors wishing to create a climate-resilient entrepreneurial ecosystem should promote dialogue and knowledge-sharing among diverse actors.

Many different actors must be mobilised to support the business transition to sustainability, including regulators, policymakers, standard setters, public and private financial institutions, ESG intermediaries, accountants, digital financial and non-financial solutions providers, and many others.

Fostering regular dialogue, knowledge-sharing and partnerships among these entities can help generate and disseminate relevant solutions to accelerate the transition.

How can governments, business communities and others create a climate-resilient entrepreneurial ecosystem?

The answer lies in a good old-fashioned process of sector and community mobilisation. Governments, development agencies and business representative organisations should partner with others in the geographical area and facilitate discussion on the effects of climate change and share examples of the ways businesses have pursued new market opportunities.

It may be useful to map the entrepreneurial ecosystem to identify gaps in services.

In the long run, a climate-resilient entrepreneurial ecosystem will emerge through collaboration and shared leadership, and through demonstrations of how the private sector can bring new solutions to the climate challenges we face.