How innovation and venture can lead policy
Across the media coverage of COP 29 in Baku, one theme stands out amidst the usual chorus of disagreement and disillusionment: the glaring gap in resources the Global South desperately needs to have even a fighting chance at climate justice. Touted as the “climate finance COP,” the summit’s headline commitments – whether the $1 trillion sought by developing countries or the $300 billion per annum ultimately pledged by wealthy nations – leave one critical question unanswered: What do these pledges really mean?
The answer is, unfortunately, not much. The previous $100 billion commitment was met two years late – and in today’s political climate, nations like the US are increasingly turning toward protectionist policies. As the Indian delegation representative Chandni Raina told the closing session of the summit, “I regret to say that this document is nothing more than an optical illusion.” COP increasingly resembles a Model UN simulation rather than a tangible vehicle for global action.
The failure of COP underscores the growing urgency of a capitalist approach to climate investing. As someone who grew up in a socialist regime, I’ve seen firsthand the strengths and limitations of government action in driving economic growth. Good intentions falter when they fail to align with market dynamics and capital flows. Socialist economies like China’s didn’t take off until the 2000’s, when “socialism with Chinese characteristics” welcomed capitalist ventures. From McDonald’s and KFC to Louis Vuitton and OMEGA, market-driven demand fueled growth.
The failure of COP underscores the growing urgency of a capitalist approach to climate investing.
The Myth that Impact Sacrifices Profit
So how can the private sector take a leading role in climate investing? Despite abundant innovation in this space, traditional Wall Street remains largely indifferent. Common refrains like “the returns aren’t there” or “it’s too risky” often reflect a lack of understanding of the very real market opportunity.
Tom Chi, Managing Partner of At One Ventures, challenges the myth that impact sacrifices profit. At an impact investing event last week, he noted, “In 85% of cases we’ve diligenced — over 7,000 companies — profits and impact align.” With a science and engineering background, Chi runs a deep tech venture capital firm that invests in businesses with superior unit economics that are also net positive. Chi attributes big organizations’ inertia in part to their innate preferences for implementers over innovators. Established firms optimize for predictable returns, not fresh solutions, leaving them poorly equipped to tackle systemic challenges such as climate change. According to Chi, the alignment of unit economics with impact investing is not just possible — it’s happening.
Be a Policy Taker, Then a Policy Shaper
As the US policy environment grows less certain, many question whether we have the right policies to combat climate change effectively. Michael Sheldrick, co-founder of Global Citizen and a policy entrepreneur, advises against building businesses solely on policies that can shift. “Building a business based on policy predictions is rarely the best strategy,” he said at the event with Chi. Instead, businesses should aim to demonstrate viability regardless of the policy environment. Once they’ve proven viability, they’re in a stronger position to influence policy.
Greg Jackson, CEO of Octopus Energy, a startup that has become the UK’s largest home electricity provider, exemplifies the success of this strategy. Despite a 2015 ban on onshore wind development in England, Octopus Energy thrived by focusing on customer adoption in Scotland and Wales. By offering free real-time smartphone notifications for when wind energy would be less expensive and people or businesses could save money, they built a strong business case for renewables. Over time, as customers associated lower energy prices with wind farms, public attitudes and policy shifted. This success contributed to the UK government lifting the ban in 2024. Today, Octopus Energy is valued at $9 billion after raising $370 million from investors such as Generation Investment Management and CPPIB in May 2024.
“In 85% of cases we’ve diligenced — over 7,000 companies — profits and impact align.”
As Jackson puts it, “Be a policy taker to prove your business case before you scale into a policy shaper.” By demonstrating profitability and public support in smaller markets, Octopus Energy unlocked opportunities in England and helped reshape the UK’s energy policy.
Shifting Capital Toward Climate Solutions
The path to $300 billion in annual climate finance is fraught with challenges. Governments face internal pressures such as inflation, labor shortages, and the politicization of climate issues, complicating their ability to lead on climate action. Canadian Prime Minister Justin Trudeau’s carbon tax exemplifies this tension. While designed to combat climate change, the tax has faced political backlash amid a cost-of-living crisis. Such policies can only succeed when they start with superior unit economics that benefit citizens directly.
The global capital markets, estimated at $256 trillion in 2023, dwarf the $1 trillion climate finance target, which represents a mere 0.4% of these markets. Redirecting even a fraction of this capital toward climate solutions requires compelling storytelling and demonstrable success. Leaders like Chi and Sheldrick underscore a simple yet profound truth: Climate investing isn’t about sacrificing profit or making policy predictions; it’s about investing in people and businesses with economics that already work – and work better for businesses, economies, people and planet.
The status quo — dominated by large corporations and traditional financial institutions — is not incentivized to embrace fresh perspectives. It falls to those who have succeeded in climate investing to amplify their stories, showcasing viable paths to both profit and impact. Only then can we hope to channel capital flows naturally toward climate solutions and achieve the scale required to bridge the funding gap.
*Disclaimer: The author is married to Michael Sheldrick.
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Featured photo source: Octopus Energy
