Prioritize Climate Innovation in Company Policies and Strategies
Environmental Defense Fund
The current rate of technological innovation is insufficient to reach net zero by 2050. By prioritizing climate innovation in your company’s policies and strategies, you can contribute to the global challenge of halting climate change, reduce the risks posed by harder to abate emissions sources in your value chain and showcase climate leadership.
Net zero emissions will not be achieved without new technologies. But their development depends on companies signalling their demand and investing in innovation. Currently, the Intergovernmental Panel on Climate Change estimates we are only on track to invest $10 trillion of the $48 trillion required from 2020-2050 to reach net zero.1
Companies like yours can accelerate climate innovation by prioritizing it across your policies and strategies. What this looks like for your company will depend on your given context, but actions such as explicitly allocating funding for climate innovation and publicly advocating for government policies that will drive innovation are central first steps.
Allocating Funding for Climate Innovation
The key barriers to climate innovation include insufficient funding, short-termism, and limited demand-signaling. These and other barriers can be addressed by businesses explicitly allocating funding to innovation.
For some companies, working on innovative solutions will be best done in-house. However, for many this may not be appropriate for a number of factors, including a mismatch between the research and development required and the company’s underlying internal capabilities and competitive advantages. It may also be the case that the emissions sources that require the development of new solutions sit outside of your direct operations. For example, a retail company may have significant Scope 3 emissions from the shipping of goods and wish to support zero emissions shipping efforts without working on sustainable fuel development themselves.
In instances such as these, there are a number of ways in which your business can provide direct support for climate innovation, including:
- Advanced Market Commitments (AMCs): AMCs are a financing mechanism in which sponsors enter an agreement committing to purchase a predetermined quantity of a product at an agreed upon value once technology has developed enough to satisfy the order. This incentivizes and accelerates innovation in that product area, and derisks this development of the technology at scale through clear demand signals. An example of this is the First Mover’s Coalition, which includes an aluminium commitment in which a number of companies have committed to at least 10% of all their primary aluminium procured per year being low-carbon by 2030.2
- Corporate Incubators and Venture Capital: corporate incubators can be an effective way to bring in new ideas and support promising startups through funding, physical resources, networks, and expertise. Similarly, independent investment arms, or corporate venture capitals (CVCs), are one mechanism for purchasing equity in emerging technologies that may have a material impact on your value chain emissions and future business value. Examples of these include the 100+ Accelerator,3 run by AB InBev, Coca-Cola, Colgate-Palmolive, and Unilever, and Amazon’s Climate Pledge Fund.4
- Open Innovation: innovation challenges, competitions and open calls are often used to raise awareness around a particular innovation gap or challenge for which there are no existing startups in the market. Beyond establishing demand signals for the solution in question, these options can also add value to your company’s reputation and network as it brings together a wider community of interested parties, from researchers to entrepreneurs and the general public. Examples of this include Google’s Impact Challenge on Climate Innovation5 and the Climate Resiliency Challenge established by several insurance companies.6
Regardless of which of these approaches your business deploys, creating consortiums across your industry can accelerate progress and risk share early-stage research, development and demonstration. Working with your customers and others to spark interest can also help with the creation of an environment conducive to new products.
A Climate Innovation Policy Agenda
Best practice corporate climate action plans include a policy agenda. Voluntary actions to reduce emissions are important, but only public policy can deliver change at the speed and scale needed. Governments at the state and federal level listen to the needs and opinion of businesses. This is particularly the case for trade associations, who have more political clout than individual companies.
Supporting policies that accelerate the implementation of mature climate solutions is essential, but so is advocating for policies that will drive the research, development and demonstration of technologies that can bridge the climate innovation gap. The relevant policies will depend on the industry in which your business operates, but the types of policies to advocate for may include:
- Those that offset the upfront costs of innovation like direct funding (e.g., subsidies), indirect incentives (e.g., tax offsets) and public private partnerships
- Disincentives for incumbent high-emissions technologies that reduce the relative cost of emerging innovative solutions
- Standards, protocols and regulations that support the development of emerging solutions
- Government targets and long-term strategies for key innovation areas (e.g., renewable energy storage, or the production of low emissions building materials)
By publicly advocating for innovation policy independently or through your trade association, your business can assist in enacting policies that will reduce your risks and costs, improve your reputation among stakeholders and shareholders, and give you a seat at the decision-making table as emerging industries develop.7
Integrate Emissions Considerations Across Your Business
As outlined above, explicit policies and strategies to support climate innovation are key to filling the technological gaps to your business’ emissions targets. But a holistic integration of climate concerns across your business will also necessitate an increased focus on innovation.
For example, adjusting procurement policies such that suppliers must showcase how their operations support the achievement of net zero emissions by 2050 will place pressure on your supply chains to innovate toward lower emissions solutions. Similarly, incorporating emissions-related metrics as part of business KPIs, or incorporating climate risk analysis in core business planning, will necessarily draw attention to areas of your business where innovation is needed.
In some cases, action such as these which do not involve direct upfront funding for research, development and demonstration, will be easier to socialize internally. Mainstreaming emissions considerations across all business policies in this way is also necessary for the systemic changes that needs to occur in all supply chains.