Current markets don’t fully value sustainability—but sustainability entrepreneurs can’t wait for this to change
25 September 2024 - James Cole, Chief Innovation Officer at CISL reflects on the importance of innovators in helping to build the markets we need for a more sustainable and equitable future.
Entrepreneurs, and particularly sustainability entrepreneurs, thrive on change, viewing stagnation as a failure of imagination. Their mission is not just to generate profits but to proactively address global challenges—climate change, inequality, resource depletion, and pollution—by building greener, socially just solutions that transform industries.
However, sustainability-focused startups face a unique challenge in competing in markets which do not price in their full social and environmental impacts – positive and negative. Until they do, sustainable businesses may struggle to compete at scale against their more unsustainable competitors.
However, despite this unlevel playing field policy makers, civil society and investors are moving in the general direction of greater value placed on sustainability, and huge progress has been made in sectors like renewable energy, where sustainability solutions now compete commercially with fossil fuels. This shift didn’t occur solely through entrepreneurial effort, but required climate focused policy interventions in markets, including public subsidies and incentives for both consumers and supply chain.
That’s not to underplay the critical role of pioneering sustainability entrepreneurs who front run the market and show what’s possible. The UK power sector, for example, has seen a wave of ‘green’ new entrants in the past two decades. Among the first were Ecotricity and Good Energy, which proved conclusively there was a growing market for green energy. They built ethical consumer bases and educated the market, helping mainstream renewable energy in the UK and blazing a trail others have followed. More recently Octopus Energy has driven further innovation, focusing on smart grids and the electrification of transport and heating; outcompeting and to an extent outgreening incumbents.
Sustainability entrepreneurs can therefore gain footholds by targeting overlooked niche markets ‘at the green edge’ with innovative, sustainability-focused solutions. While incumbents benefit from scale, they often lack the purpose and agility of new ventures focussed on a niche customer segment. Over time, the practices of these pioneers are adopted by the mainstream, and the incumbents outcompeted. Tesla’s success in electric vehicles and Beyond Meat and Impossible Foods’ meat-free alternatives all show how sustainability entrepreneurs can demonstrate the commercial potential of more sustainable products and play a role in shifting entire industries.
In search of the elusive product-market fit, sustainability entrepreneurs still need consumers and customers willing to vote with their wallets, and government action to enable or even favour more sustainable solutions (such as the phase out of internal combustion engines, electric vehicle mandates, and an increasing price on carbon).
The key challenge is that current markets don’t fully value sustainability—but sustainability entrepreneurs can’t wait for this to change, and so they play an active role in creating markets that reward sustainability. Policy change and innovation are symbiotic; the solar industry needed both pioneering entrepreneurs and strong policy support to scale. This “solutions loop” of entrepreneurial action and supportive policy can accelerate the shift to sustainable markets.
Sustainability entrepreneurs are not just displacing incumbents; they’re also providing the tools to support industries to transition. For example, in CISL’s CANOPY innovation community, Monumo is improving electric vehicle efficiency; Advanced Infrastructure uses digital twins to forecast network capacity, building retrofits, heat networks, and EV rollouts all in one platform; HACE is providing child labour-risk tools to the finance industry, and Gentian and EarthBlox provide the foundational data and insights for nature-positive business models.
Many large companies facing into the transition are aware they do not have all the answers in house, and pursue open innovation approaches to tap into entrepreneurial innovation to support the company’s own R&D – such as our partnership with the BSI to source and accelerate a cohort of startups building trust in sustainability – a core focus for BSI, and an impactful contribution to change.
Sustainability entrepreneurs at their most impactful act as systems innovators. In seeking to address complex systemic challenges, they need to apply a deep understanding of both social and environmental systems. They need to collaborate across boundaries, working with diverse stakeholders—including investors, policymakers, and civil society—to create change. Their solutions won’t fit neatly into traditional market categories, and their ultimate success will hinge on reshaping markets to value sustainability outcomes.
The transition to sustainable economies is likely to be uneven and disruptive, as sectors evolve at different paces, influenced by consumer expectations, policy pressures, and technological advances. Sustainability entrepreneurs will be crucial pioneers and enablers of systemic change, helping build the markets where sustainable solutions outcompete planet-damaging activities and laying the groundwork for a more sustainable, equitable future. But markets don’t just arise from new ways of working – the rules and infrastructure within them currently favour unsustainable business as usual, and that also needs to change
We need to build sustainable markets and the rules and infrastructure of those markets need to be written with new ways of operating in mind. As an essential part of this we need the innovators – the entrepreneurs and start ups who can see ahead of others what the new markets of the future look like.
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