Cleantech startups and the SDGs: A taxonomy and state-of-play for impact investors

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Published: 15/7/20

Achieving the Sustainable Development Goals (SDGs) is expected to take significant and well-targeted investment. Fortunately, institutional investors have allocated significant volumes to sustainable investments, and are increasingly pledging to invest in alignment with the SDGs and other sustainability goals. There are also plenty of opportunities for the private sector to contribute towards the SDGs while generating suitable returns for shareholders, further suggesting that investment is likely to flow to sustainable development outcomes. However, targeting these investments continues to be a contentious process, and investors and governments continue to look for ways to identify supportive investments, enable and encourage private capital allocation to these investments, and measure and demonstrate alignment.

As we have noted before, investment in early-stage businesses provides one obvious way for investors to lean into sustainable development. We largely focus on cleantech startups (i.e. high-growth businesses deploying environmentally beneficial technology), which are particularly effective at contributing to the SDGs because they're often purely focused on relevant problems. Furthermore, they have the potential to scale rapidly, generating outsized impact on issues like climate change, biodiversity loss and ocean plastic. Investing in cleantech startups is also more likely to meet 'additionality' criteria, an important but difficult hurdle for impact investors.

But determining which cleantech startups contribute to which SDGs (if any) isn't straightforward. Part of the problem is that startups are private and, as such, there is a lack of data available on startups and what exactly each one does. Part of the problem is the complex, overlapping and interrelated nature of the SDGs and their 169 targets and 231 unique indicators. And another part is the shortage of guidance necessary to know when an action is significant for an SDG.

In this report, we've created a taxonomy to try to make SDG-aligned investing in startups easier, with a particular focus on cleantech startups and the environmental SDGs. We've created thirty-seven categories of cleantech startups, covering most types of startups in Australia that contribute towards the environmental SDGs. For each of these categories, we've assigned an SDG they primarily contribute towards as well as any SDGs they secondarily support.

We've also categorised over 300 Australian cleantech startups against the taxonomy and analysed the results. This allowed us to assess the distribution of Australian cleantech startups by focus area as well as differences between startups focusing on each environmental SDG.

We find that over two-thirds of cleantech startups in Australia are clean energy startups, which contribute to four specific SDGs (sometimes more). About 80% of cleantech startups are led by men, and only about 10% of cleantech startups are deep tech startups (i.e. based on new scientific discovery or meaningful engineering innovation). We also find that the 'Life below water' SDG is the best-served SDG when secondary impacts of cleantech startups are considered. On the other hand, we find that while the 'Responsible consumption and production' SDG has the second-largest number of startups primarily targeting it, the fewest startups contribute towards this SDG when secondary impacts are taken into account.
While there are proportionally more clean energy startups in Australia than other cleantech startups, many more are needed to decarbonise the energy sector. The evident contrast with other SDGs is indicative of the extent of the even greater shortage in other areas, with more startups in all categories needed to help achieve the SDGs. At EnergyLab, we are working to address these shortages through a range of internal and external programs designed to increase the number of cleantech startups, within and outside the energy sector. We're also working to address the gender imbalance through initiatives such as our Women in Clean Energy Fellowship.
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