3 ways companies are signaling for climate innovation

In April of last year, the IPCC estimated that we need to invest $48 trillion between 2020-2050 to reach net zero.

We are currently on track to spend just $10 trillion.

Although the private sector’s willingness to act on climate has never been stronger, there nevertheless remains a sizable innovation gap in realizing the corporate commitments aligned with the Paris Agreement.

Some companies, however, have recognized their unique position when it comes to demonstrating market demand for that type of necessary innovation — and they are making their voices heard.

Here are three ways that companies are currently sending demand signals for climate innovation:

Advanced Market Commitments

Advanced Market Commitments (AMC) are a way for companies to send a strong demand signal through aggregation and early purchasing.

These arrangements help to de-risk innovation by creating a readied market of purchasers, and more and more companies are joining climate-specific AMC coalitions and alliances as a way to make purchase orders for climate technologies or solutions that don’t yet exist at scale.

Under this model, if/when one of those pieces of technology or solutions does become scalable, the committed companies purchase and deploy the innovation, which reduces their emissions while also driving down the cost of producing the technology for the rest of the market.

Often, these commitments specify price, volume, and/or time. For example, member companies of the First Movers Coalition’s aluminum commitment have committed to “at least 10% (by volume) of all [their] primary aluminum procured per year [being] low-carbon (as per FMC definition) by 2030.”

There are currently dozens of purchasing commitment coalitions and alliances, including First Movers Coalition, Sustainable Aviation Buyers Alliance, RE100, and Climate Group Concrete Zero, which are covering more scaled technologies like electric vehicles and renewable energy to more nascent technologies like green cement, aluminum, and steel.

Corporate Incubators and Venture Capital

Instead of developing new solutions that address innovation gaps internally, companies are launching in-house incubators and accelerators.

These incubators can be an effective way for companies to bring in new ideas and support promising startups throughout the value chain via funding, physical resources, networks, and expertise.

For example, AB InBev, along with Coca-Cola, Colgate-Palmolive, and Unilever, runs the 100+ Accelerator as a way to incubate new solutions that directly address major innovation gaps in their value chains, such as circularity, sustainable agriculture, water conservation, plastics, and personal health.

Beyond running incubators, a growing number of companies are utilizing independent investment arms, or corporate venture capital (CVCs), to invest corporate funds into early-stage climate startups.

Similar to the use of incubators, CVCs allow companies to purchase equity in an emerging technology that could decarbonize their value chain and generate business value in the future.

Amazon’s Climate Pledge Fund, for example, is a venture arm of Amazon focused on investing in sustainable and decarbonizing technologies and services. Beta Technologies, one of their portfolio companies, develops electric aircraft technology for cargo and logistics.

Open Innovation

Companies are using climate-focused open innovation challenges as a way to crowdsource new ideas and solutions from larger communities.

Unlike incubators, innovation challenges, competitions, or open calls for ideas are typically leveraged to raise awareness around a particular challenge or desired solution that may not have existing startups in the market. Although the solutions might not be market-ready, companies can sponsor innovation challenges with funding for pilot projects and access to company experts to further develop the idea into an embedded or acquired climate solution.

For example, CSAA Insurance Group, along with other insurance companies, teamed up with the global design firm IDEO to host the Climate Resiliency Challenge, an open innovation challenge that’s awarding a total of $1 million in prizes to the most novel ideas and solutions that can “empower frontline communities to prevent, prepare for and recover from the most urgent climate-related disasters; such as wildfires, floods and extreme weather.”

In addition to establishing demand signals for a desired solution, challenges like these engage a wider community, including students, academics, communities, entrepreneurs, and even incumbent companies.

Conclusion

As companies continue to shift their focus from setting commitments to taking action toward their goals, sending the appropriate demand signals for the particular solutions that address their innovation gaps is critical.