The COP26 summit last year inevitably resulted in grand policy announcements that attempt to provide top-down solutions to the climate crisis facing humanity.  A paper from CU Boulder’s Leeds School of Business argues that startups are quite possibly going to be more effective.

The authors highlight how the focus on grand policy pronouncements left many disappointed after the inevitable horse-trading at the summit resulted in lackluster outcomes.  By contrast, small businesses that can adopt a climate-conscious stance can bridge any gaps between those who favor the market and those who favor the environment.

What’s more, startups operating in this way were found to be more effective than larger firms attempting to do likewise, as skepticism around the motives of larger firms often diminishes any good they can do.

Tackling climate change

The authors hope that their paper can help us to rethink how we can successfully tackle climate change, and begin to view the period as one of opportunity rather than a threat.  This is especially so for businesses that are able to portray the climate crisis as a key moral issue of our times.

“We call these industries ‘moral markets,'” the authors say. “And this really got us thinking about how we could help environmental entrepreneurs succeed.”

They examined the impact the “moral market” was having on the green building industry between 1999 and 2007, which is a period in which the industry began to build momentum.  The analysis revealed that the industry has various exceptions to traditional economic rules around things like growth and competition.  This is especially so when the companies operate in regions that are pro-environment, where market growth wasn’t particularly useful and competition didn’t have a negative impact.

The ideal environment

The ideal combination for companies seemed to be when they operated in markets where there was both a pro-market and pro-environment influence. In these markets, the startups performed better than when in purely pro-environment markets.

“This means that green building businesses need to find a market where it’s not just a bunch of greenies,” the researchers say. “What they actually want is a market that focuses on both market growth and protecting the natural environment––and it turns out those are mostly college towns.”

Suffice to say, not all places have such an ideal environment, but the authors remain optimistic for the fortunes of businesses in these environments.  While the common perception around the climate crisis is that solving it will be an unalloyed cost on business, the authors argue that addressing climate change allows economies to own the industries of the future while creating cleaner air and a better environment.

“If we can shift the conversation away from reining in business versus protecting the environment, and instead infuse the idea that protecting the environment can be done by supporting new businesses that do that, then that’s where people can come together,” they explain.

Startups are ideally placed to capitalize on this because people with pro-environment beliefs are automatically inclined to support sustainable businesses, but those with pro-market beliefs are also more inclined to support small businesses.

“Entrepreneurs represent a mechanism that we don’t talk about nearly enough when we talk about solving climate change,” the authors conclude. “I think that message can resonate across the divide.”