Green Innovation Opportunities

Germany’s startups are becoming more and more sustainable and green. Together with the experience and know-how of corporates, climate change can succeed

By Stefan Gross-Selbeck, Global Managing Partner, BCG Digital Ventures

This piece was originally published on Inside, German Startup Association.

In 2021, corporate VC funds invested around 21 billion euros in companies in the climate technology sector — more than twice as much as in 2020. This is very good news, not only for the financed companies. Because stopping climate change is the central challenge we are facing worldwide. And only with a joint effort can we accomplish this task in the time that is still available to us. Tackling the climate crisis together and resolutely means, among other things, that startups and established companies bring their respective strengths to the table. Because both sides have a lot to offer — and a lot to gain.

Because the urgent goal of decarbonization, net zero emissions and a sustainable economy results in a gigantic transformation process. This affects large established companies as well as small start-ups — and offers immense opportunities for both and for Germany as a location for innovation. The BCG study on climate paths 2.0 shows , for example, that drastic upheavals must and will take place by 2030, from the complete replacement of systems in heavy industry to renewable heat solutions and a conversion of the power grid.

On the right track — but not there yet

It is gratifying that the recently published Green Startup Monitor 2022 of the German Startup Association eV shows that we have already started and are making good progress. For example, almost every third startup in Germany is “green” and more than three quarters of them consider it important or very important to have a positive social or ecological impact. And: The development and production of green technologies is becoming increasingly important. Such hardware-based digital business models now make up almost 30 percent of green startups, and the trend is rising. These are technologies that, on the one hand, fit well with “German Engineering” and, on the other hand, are often more difficult to reproduce than purely software-based solutions if they are successful.

Numerous opportunities — let’s use them!

Among the different sectors, energy and agriculture already have a strong scene of sustainable startups. Around two thirds of the startups here can now be classified as green. This is very important because without these two areas we cannot stop global warming. They are essential for achieving climate neutrality as soon as possible. However, there is still room for improvement in the travel industry (share of green startups 18%) and in construction and real estate (25%) — also sectors with a powerful lever in terms of climate.

If we really want to prevent the effects of climate change, green innovations must not be limited to selected and obvious areas. Instead, they must be implemented as comprehensively as possible and in all economic sectors. At BCG Digital Ventures, we have identified ten areas of opportunity in the area of ​​climate and environment. In addition to nationwide electrification or decarbonization of our energy supply, these ten fields also include areas that have received too little attention to date. For example, even more activity in the field of food production is conceivable here. Be it more environmentally friendly fertilizers or plant-based and synthetic protein suppliers that can make meat consumption superfluous or greatly reduce it.

Together instead of against each other

The decarbonization of supply chains, a cross-sectoral circular economy or “greener” financial products also offer a huge potential for untapped innovation opportunities. And these are by no means reserved for startups alone. On the contrary, I am convinced that it is also worthwhile for many established companies in Germany to keep an eye on these fields. Many of these corporates are in a good starting position and know the challenges of the respective industry very well.

So who should know better what hurdles there are to overcome, for example, in the production of lower-emission cement or concrete? What is the best way to develop batteries with a higher energy density? Or how carbon dioxide is fished out of the atmosphere with so-called direct air capture technologies (DAC)? The knowledge and often decades of research experience of successful traditional companies paired with the pioneering spirit and unconventional thinking of the new generation of startups is a promising and sustainable combination.

A healthy environment and a healthy economy need not be mutually exclusive. On the contrary, they are mutually dependent. Likewise, startups and established companies are not irreconcilable adversaries. Rather, it is about finding out how they can learn from and support each other on their way to a more sustainable world with net-zero emissions.

Various measures are important so that we can further advance the innovative ability of green startups in Germany and thus accelerate the green transformation of the German economy: The sectors mentioned with a low proportion of green startups such as construction, finance or tourism must be specifically stimulated. We need more practicable solutions for government funding of green startups — ideally integrated into the funding of university start-ups. Because universities are a fertile environment, especially for green start-ups and sustainability innovations. In addition, politicians should focus more on promoting transformation-oriented startups and give them better support. This exceptionally innovative,

Of course, part of the emissions that have to be reduced in order to achieve climate targets can be achieved using existing technology. However, in a 2021 BCG study it came to the conclusion that around 35% of these necessary reductions require technological innovations and breakthroughs. However, closing this “technology gap” will require $100 to $150 trillion over the next 30 years — $3 to $5 trillion annually. Fortunately, more and more companies understand that climate-friendly and sustainable products and business models are more than image cultivation and good marketing: They are also lucrative. It is now important that Germany and Europe shape this green transformation as locations and that important innovations can develop and thrive here. Then not only the climate change will succeed, but also the transformation towards a future-oriented and sustainable economy.

Stefan Gross-Selbeck is Global Managing Partner of BCG Digital Ventures and a member of the board of trustees of the startup association.

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