The True Cost Of Saving Our Planet

Last November, Greta Thunberg braved the typically chilly Glasgow weather to raise a megaphone and demand “No more blah blah blah!” as the world’s leaders met in the building behind her to repledge their commitment to protecting the planet at the COP26 conference. Her blunt statement, chanted by her supporters, provided a damning, yet worryingly accurate review of the state of play when it comes to tackling climate change - it’s time to stop talking and start doing.

“The real work”, she later tweeted, “continues outside these halls."

With the world’s ecological future on a knife edge, now more than ever, organizations, governments and other influential global institutions must step up. If they are not inclined morally, soon enough it will become mandated for them to serve the greater good by developing new, more sustainable, ways of doing business.

But it’s understandably difficult to commit to such efforts when their impact and potential for return on investment cannot be predicted. Whilst most well-intentioned companies do strive to make sure their business activities achieve more than lining the pockets of their backers, it is risky to direct heavy financial investment toward innovative, yet untested practices which may well prove to be ineffective or result in significant losses.

The problem intensifies further as our world faces an increasingly complex set of challenges to contend with. Aside from the ticking clock of climate change, socioeconomic issues such as inequality and poverty at national level, and economic development at an international scale have been further compounded by the coronavirus pandemic. The global upheaval has created a highly uncertain launchpad for new sustainably-focused ventures and innovations.

Unfortunately, solving such a significant global challenge will require a massive number of such projects to be launched – and to succeed. Even under the most stable of circumstances, the world’s markets are not all equipped to finance such efforts.

Research versus Remuneration

Take climate change for example. Whilst pledges were made at last year’s COP26 conference to phase down fossil fuel usage, reduce methane emissions and put a stop to deforestation, there is no single means – no one shot solution – which can be applied to meet these lofty goals. Wealthy nations can introduce new policies and invest in new technologies to meet their Net Zero commitments, but poorer regions will find it much harder to replicate such efforts, as significant financial investments need to be made.

Whilst some solutions will secure significant financial support, other small-scale projects, particularly those where the benefit and potential for profit may be more limited, will inevitably be far less appealing to investors. The aptly named “Valley of Death” explored by professor Ramana Nanda, highlights a key problem with turning innovative ideas into tangible products in even the most stable environments. Venture capitalists and investors are motivated to take a mature product to market, but there is a significant funding gap at the beginning of the innovation process where research and explorations are conducted, and results are used to design solutions that can work in a real-world environment.

When it comes to tackling the world’s most pressing issues, this investment in ideas, research and exploration is vital for progress to happen. It’s at this pivotal point that universities – business schools especially – must step in to encourage and bolster progress.

Business Schools Stepping Up

Research into key global sustainability challenges such as green energy storage and alternative fuel usage to fossil fuels, are natural topics for universities, and the minds housed within them, to explore. Bridging the disconnect between academic insight and industry action is where business schools can shine.

With their inherent role in supporting early-stage research projects, and their natural inclination to encourage exploratory thinking and push boundaries, universities hold a significant role in helping to overcome this barrier. By combining their efforts with business schools, and working alongside philanthropic venture capital, these institutions can create the right environment from which to encourage investors to take a chance on fledgling ideas. The very nature of such relationships builds the understanding that, even if such experiments fail to achieve a financial return, they are still worthwhile in serving the greater good by supporting the broader scientific community and improving our understanding of the issue at hand.

This is exactly the function of research centers such as the Institute for Deep Tech Entrepreneurship, which merges faculty expertise with industry insight to push new ideas from concept to reality and seeks to secure backing for those which make the transition successfully. Such an environment affords an otherwise rare opportunity for progress to those industries, economies and communities that typically are unable to secure such support, leveling the playing field and allowing room for small-scale innovations to make an impact.

Turning ideas into action

Research from business school colleagues Dr. Enrico Biffis and Dr. Erik Chavez and the Centre for Environmental Policy utilized machine learning technology and climate data to create a parametric insurance product for farmers in Tanzania which was implemented by a local insurer and helped to facilitate credit for many farmers who had previously not had the stability to access finance. Small-scale efforts like this can help developing economies to grow and become more sustainable.

Professor Tarun Ramadorai’s work explores how technology can reduce the cost of basic financial services to make small-scale investing and borrowing affordable to more people. The pandemic forced a significant shift towards utilizing and embracing new technologies. We’re now in a window in which we can capitalize on newfound trust and familiarity in such digital systems, and engage with new, more affordable financial products.

The solutions to all the world’s problems are out there, but we need to make sure people have access to the finance they need to get their work underway. Universities play a critical role in helping boost research and developing tools for greater financial inclusion.

This article was authored by Professor Francisco Veloso, Dean of Imperial College Business School.