Climate Startups Can Power a Green Transition. But They Need a Different Playbook

Today’s global challenges of prolonged fuel crises, rising consumer prices, dwindling natural resources and new workforce pressures demand disruptive innovators willing to test new technologies and business models that enable countries to rapidly transform their economies.  

Accelerating these national economic transitions requires a new playbook, and climate startups are one of the most important tools countries have to meet their decarbonization and climate resilience goals.  

Climate startups are early-stage ventures delivering innovative solutions to cut emissions, build resilience and drive the low-carbon transition. These startups not only innovate in technology, but also in how they deliver services, design markets, organize production and structure governing institutions. They are faster, leaner and more willing to try new things than large companies that dominate the global economy. Ultimately, climate startups are often better suited to drive climate innovation, particularly where speed, flexibility and experimentation matter most. 

Failure rates are high for all startups, and typically only 20% to 30% survive. Those that do succeed can dramatically influence how large companies behave and reshape the marketplace. Support systems for these early ventures are key to their survival, with grants playing a key role in helping them scale. If we are to meet our climate goals, we must understand the critical enablers within startup ecosystems, including how limited amounts of concessional capital can leverage larger amounts of private investment. Doing so could unlock the innovation cycles needed to create and bring to market the technologies and business models that will enable a more sustainable future.

Climate Startups Can Power a Green Transition

Emerging markets and developing economies (EMDEs) are embracing the innovation agenda to stay globally competitive, build resilience and achieve their economic transformation goals. At the same time, high-income countries are developing the technologies that can power these transitions. Working together, these players can drive tremendous change, enabling large portions of the global economy to rise from poverty while reducing resource consumption, emissions and pollution.  

Climate startups sit at the intersection of these trends. They adapt and deploy innovative technologies to local markets while creating economic and climate benefits.

Small- and medium-sized enterprises (SMEs) account for up to 90% of the world's businesses and generate 60% to 70% of global employment. Climate startups that mature into locally embedded SMEs anchor jobs, diffuse new solutions and build domestic industries — outcomes EMDEs need regardless of climate considerations.  

Cities in Latin America, Asia and Africa are rapidly ascending the global rankings of successful startup ecosystems — rankings traditionally dominated by the United States and EU — and are gaining prominence as new centers of innovation. In these regions the case for climate startups is particularly strong, as these countries face some of the highest costs of climate disasters while also confronting the imperative to grow, expand energy access and lift people out of poverty. Entrepreneurs from EMDEs often report strong motivation to make a difference in the world and are more likely to meet sustainability standards. This reflects the needs and demands of their communities, which push entrepreneurs to develop creative solutions.

There are already strong examples of climate startups in EMDEs. In Kenya, BasiGo's experience with its pay-as-you-go electric bus model, alongside other EV startups, has advanced the country's e-mobility policy, contributing to a 22% reduction in electricity tariff costs. Stride, a rooftop solar startup, in Vietnam developed technical standards for solar installers that improved industry quality and enabled it to raise $15 million in Series B funding. These startups did not just deliver climate solutions; they also shaped the regulatory environment that made those solutions viable and created the conditions for other startups to scale. 

Why Climate Startups Need a New Playbook

A fast-growing technology company, usually in software or fintech, requires relatively little upfront investment and can scale quickly with favorable unit economics, making it attractive to venture capital investors.

But most climate startups do not fit this model.

They are often capital-intensive and infrastructure-dependent. A clean cooling system, a battery recycling facility or a solar irrigation product requires hardware, supply chains and pilot demonstration sites. These ventures may also depend on physical systems that they do not own or control, such as grids, transport networks, buildings and water infrastructure. Development cycles run for years, capital requirements are higher and proof of concept takes longer. McKinsey finds that deep tech startups typically require about 35% more time to scale revenue than software-based startups.

Climate startups pursue two goals at once. They aim for both commercial viability and intentional climate impact through mitigation, adaptation and resilience. This hybrid model creates tensions that investors and policymakers are still learning to navigate. It often requires complex tracking and reporting systems across multiple impact metrics that are costly and time-consuming to build.

They also operate in markets that neither reward the efficiencies they create nor penalize the climate and health harms they help prevent. For example, Ikhala, a South Africa-based startup, sells a platform that monetizes compliance and carbon market reporting, with revenue depending on developments in international carbon markets. BatX, a Colombian energy storage startup, struggles to scale its business refurbishing EV batteries business in a market where regulations favor disposal over reuse. Because many climate solutions reduce emissions, pollution and resource depletion — externalities that markets do not price — startups often find it hard to capture that value and must compete with lower-cost incumbents.

They also face regulatory complexity from day one. Climate startups depend heavily on regulatory frameworks to convert public benefits into revenue. Climate ventures work across energy, transport, waste, water and land use — sectors with extensive regulations written with incumbents in mind. Approval pathways for novel technologies are often unclear, and long timelines for policy shifts can delay or prevent climate businesses from becoming viable.  

In EMDEs, climate startups face specific structural constraints, such as limited risk-tolerant capital, thinner ecosystem support, infrastructure gaps and smaller domestic markets. This leads to higher investment requirements and longer timelines. Relative to their peers in high-income countries, EMDE ventures often need to generate higher levels of revenue to secure follow-on investment. The relatively small market size and low customer incomes mean that it can take EMDE startups longer to reach required revenue levels.

What a New Climate Startup Playbook Must Include

The $1 billion, 100x hypergrowth benchmark that has shaped investor expectations, accelerator programs and the broader conversation about what a successful startup looks like is the wrong yardstick for most climate startups in EMDEs.

Not every climate startup needs to be a unicorn, and many climate ventures will mature into thriving small- and medium-enterprises. Locally rooted, regionally relevant, sustainably profitable startups should be the success metric rather than billion-dollar unicorns.  

These businesses generate jobs, benefit people and the environment. A solar dryer manufacturer serving smallholder farmers, a circular packaging company supplying domestic supermarkets, a clean cooling startup deploying across local industrial parks: these are not failures because they didn’t reach unicorn status. They are the right size for the markets they serve. Moreover, these climate startups are offering practical pathways to a lower‑carbon economy even where domestic regulations lag.

Growth itself follows multiple pathways. High-growth paths take two routes. In the acquisition path startups are acquired by a large firm as an adjacent product or service offered to their existing large customer set — think of solar and wind, which were first pioneered by innovative startups and are now major business lines in global energy companies. The second is organic, where the company grows rapidly and becomes a market shaper — think of how Tesla helped accelerate the global electric vehicle industry, with all major manufacturers now developing their own EV lines.

Medium-growth firms are also important and their paths includes scaling up through expanding production or geographic reach, scaling deep by embedding solutions more firmly within local contexts, institutions and practices, and scaling out by replicating or adapting solutions across settings, markets or services. These distinctions matter in EMDEs, where locally anchored or regionally replicated climate solutions may generate substantial impact without rapid expansion of any specific startup.

Grants and other concessional finance instruments are key to venture formation and enable the critical early phase, from pilot-stage concepts to investable business, as seen in the most successful global innovation ecosystems. The U.S. National Science Foundation grants have unlocked private sector investment at a rate of 18 times ($18 for every grant dollar invested), while EU Framework programs have unlocked investment at a rate of 5.8 times and the Innovate UK Investor Partnerships at a rate of 10 times.

Local market context is another key to venture success. Locally rooted climate enterprises are uniquely positioned to bridge the climate-development gap because they identify needs from within and design solutions tailored to the socio-economic, infrastructural and cultural realities of their operating environments. Research consistently shows that adaptation measures introduced without consideration of local context experience low uptake or create new sources of vulnerability, while community-based and locally embedded approaches yield stronger resilience outcomes.

The same principle applies to financing and market design. Climate ventures in EMDEs must tailor their business models to customers with lower purchasing power. This necessitates fintech and pay-as-you-go technologies to enable affordability. It also requires financial approaches that support the pre-financing of assets, including blended finance approaches combining debt, equity, guarantees, insurance and foreign exchange hedging. All of this adds cost, complexity and time, underscoring the need for standardized approaches and stronger knowledge sharing. This is why Partnering for Green Goals and Global Goals (P4G), a WRI initiative accelerating climate startups, publishes business case studies for each of its portfolio companies. These case studies track a startup’s journey to investment and serve as valuable learning tools for other startups facing similar challenges. They’re also valuable for investors seeking a clearer understanding of both the startup and the country context in which it operates.

A New Climate Startup Playbook Needs Strong Ecosystems

Beyond startup level considerations, new climate businesses need the right ecosystem to grow and thrive, and effective stewardship to reduce bottlenecks and maintain momentum.  

A startup's ability to survive and scale depends not only on firm-level capabilities but on the broader ecosystem around it, which involves the interaction of the following enabling conditions: policy and regulation, finance, talent and capabilities, market access, entrepreneurial culture and support organizations such as incubators and accelerators.  

Each enabling condition has its natural stewards: governments and regulators set the rules; impact investors, venture capital, development banks and commercial investors supply capital; corporate and public buyers provide market access; universities and training programs build talent; founders and their success, along with their networks, shape entrepreneurial culture and attitudes toward risk; and accelerators, incubators and intermediaries connect and coordinate the various actors.

While each country has a unique ecosystem with different strengths and weaknesses across its enabling conditions, one common trend across all regions is the effect of policy and regulatory barriers, which can prevent climate businesses from reaching their full potential.  

In the 2025/2026 GEMS report, government policy (including both support and relevance, and taxes and bureaucracy) consistently falls below sufficiency across most participating economies. P4G has found that its National Platforms — public-private multi-stakeholder platforms in each program country that support enabling environment improvements — have been key to enabling its climate ventures to thrive, with 90% of its seed-stage portfolio generating revenue, 50% EBITDA (earnings before interest, taxes, depreciation and amortization) positive and a commercial capital leverage ratio of 5 times.  

The National Platforms’ ability to act as stewards of the ecosystem, identifying and addressing bottlenecks as well as opportunities for strengthening the enabling environment, has helped startups overcome key institutional and policy barriers.

As part of accelerating startups and improving the environments in which they operate, P4G is ready to flip the script and support the development of a stronger, more resilient startup ecosystem that can unlock a path to a sustainable future.  

Setting Climate Startups Up to Thrive

The key point is this: climate startups are a distinct kind of venture, with different needs and unique and valuable contributions to make — especially in EMDEs, where they sit at the intersection of climate, economic and development priorities. Recognizing those differences and supporting them through the systems that enable them is the first step toward building the conditions in which they can succeed.