Why innovation ecosystems are critical to decarbonization

Despite the instability of the last few years, investment in R&D and innovation has continued to grow. Corporations are putting more money than ever into their innovation pipelines as they seek to deliver on the potential of technologies like artificial intelligence (AI), internet-of-things (IoT) and more.

But for early-stage start-ups at the cutting edge of technological breakthroughs, challenges remain — particularly those working to find solutions in hard-to-abate sectors like mining, aviation, shipping and manufacturing.

Just 2% of aggregate Assets Under Management by impact investors are allocated to seed or start-up stage companies — and even less of this is allocated specifically to those entrepreneurs seeking solutions for tough-to-decarbonize industries where innovation is most critical.

With carbon emissions baked into their very processes, these critical industries do not have the luxury of relying on traditional methods of decarbonization. Ships and planes must use some kind of fuel. Petrochemicals require fossil fuels as an integral part of their process. That’s why innovation is so crucial for these sectors to decarbonize: they have no other options.

While funding is often an obstacle, all too often the real bottleneck is knowledge of and access to opportunities to create new tools or apply existing ones in novel ways. For too long, industries like mining, aviation and shipping have existed in siloes. This has slowed innovation and the adoption of relevant new tools from adjacent sectors.

Many of these companies have been operating the same way for decades, and are not aware of how innovations elsewhere could fit into their business model. Likewise, entrepreneurs and innovators who might have solutions elsewhere simply aren’t aware of the problems facing these industries. The two groups do not interact.

Compare this with the world of AI and FinTech, which are replete with incubators and thus benefit from the network effect. For example, Coinbase, incubated in 2012 by Y Combinator — probably the world's most prolific start-up incubator. And Romania based start-up .lumen, which creates AI-powered glasses for the visually impaired, is being incubated by AI chip specialists Nvidia, now the world’s most valuable company, as part of its Nvidia Inception AI-dedicated incubation programme.

However, hard-to-abate sectors are now waking up to the need – and the opportunity – to nurture a wider innovation ecosystem.

The mining industry has a key role in the energy transition, extracting critical minerals like copper, nickel and lithium, which are key components in clean technologies like solar panels and electric vehicle batteries. But the lack of an innovation ecosystem problem has been such an obstacle to success that companies have begun to take matters into their own hands.

For example, Prospect Innovation is dedicated to nurturing start-ups in the mining and minerals space and connecting them with companies who need their products. In just five years, the mining companies and start-ups they work with are already pushing innovations that are reshaping the industry. Other examples include, Green Gravity which adapts gravity-based energy storage that harnesses the depth of disused mine shafts, and Talpa Solutions which uses predictive analytics models from the construction industry and applies them to mining.

Elsewhere, initiatives like the World Economic Forum’s open innovation platform, UpLink, are also seeking to connect companies, start-ups and investors from the hard-to-abate sector and beyond.

Like mining sector company Envicore, which transforms mineral waste into materials that can be used as a partial replacement for cement. In the aviation sector, HyFlux is building motors that harness cryogenic propulsion, which could fundamentally alter how much fuel aviation requires. Backed by UK government funding, HyFlux is moving forward on its mission to revolutionize aviation sustainability.

These companies have benefited from being a part of a wider innovation ecosystem. At events like the upcoming Annual Meeting of the New Champions in Dalian, China, they can meet key people to get a project off the ground or to identify gaps in the market that their technology can fill. This is what has been missing from so many start-ups in hard-to-abate sectors and other industries.

That’s why supporting start-ups doesn’t just mean providing funding (essential though it is). It means finding other ways to multiply the impact of innovation and bring new technologies to scale. For sectors where innovation is the only real route to decarbonization, that’s invaluable.

Policy-makers have levers they can pull to nurture the ecosystem effect in their constituencies. For example, by pricing in externalities like the carbon price or biodiversity, governments can foster innovation. For innovations that are pushing the envelope the furthest (think sustainable aviation fuel or shipping fuel), there are also options.

By arranging off-taking agreements and demand signalling for future-looking technologies that may not yet have the demand required to stimulate a market — much like the Forum’s First Movers Coalition is doing for sustainable shipping fuel — incubators and states can ensure that the technologies of the future are not left in the past.

Nurturing early-stage innovators, whether through initiatives and incubators like UpLink and Prospect Innovation or with smart policies and demand signalling, has the potential to deliver outsized impact. By treating the early-stage start-up sector like an ecosystem, any investments make waves beyond the entity on the receiving end.

Investments made as part of an ecosystem not only nurture future mentors, they lay the foundations of future collaborations and open more doors for projects and people that change the world. They attract future researchers and future entrepreneurs.

The hard-to-abate sectors are one of the final climate hurdles we need to overcome as we transition to a sustainable global economy. Innovators creating solutions for those sectors are changing the world in a meaningful way. They must be encouraged to keep doing this work in any way possible.