Building a green

business: Lessons from

sustainability start-ups
Green tech and climate technology companies are rapidly altering the
competitive landscape. With sustainability now a business imperative,
incumbents need to move quickly—or risk being left behind.

by Harry Bowcott, Philipp Ernst, Anna Heid, and Philipp Hillenbrand

© Tom Werner/Getty Images

April 2022
 Sustainability has become an imperative—for
companies, as well as for the planet. A decade ago,
reducing environmental impact was merely a “nice
to have” for organizations. Today, leaders face ever-
increasing pressure from employees, customers,
and investors to act decisively on environmental
issues. It’s now a necessity—as well as a genuine
and enormous business opportunity.
There’s a problem, though: too many incumbents are
lagging, perhaps unaware of the boom in climate
technologies—or, more likely, unconcerned about it.
Around the world and across all sectors, emerging
climate technology companies are changing
the game when it comes to how organizations
can and should approach sustainability. They’re
increasingly well funded, and, as one CEO told us,
they’re “moving quickly and boldly. You can’t make
small things in a small way—you have to think about
making something massive.”
We’ve seen this pattern before—notably in the
realm of digital disruption. Rewards often flow
disproportionately to first movers or, at a minimum,
to companies at the forefront of addressing
the disruptive threat. So what can established
companies do? They can understand what makes
disruptors different, lay a foundation for taking
action, and prioritize four imperatives:
— set a “North Star”: a bold sustainability vision
that sets them apart
— double down on talent and culture
— flex their operating model, with leaders role-
modeling a bold experimental mindset
— take an agile approach to risk capital, knowing
commercialization of products and services
won’t happen overnight
Incumbents hold numerous advantages over
disruptors, from access to capital to deep
institutional knowledge. While it can be difficult for
incumbents to apply the playbook of the start-up
world,¹ it is possible. By learning what makes their
emerging competitors tick, they can learn how to be
faster, compete more effectively, and win.
1
Philipp Hillenbrand, “How traditional companies can overcome legacy obstacles to business building,” McKinsey, December 19, 2019.
2 Building a green business: Lessons from sustainability start-ups
Three eras of sustainability
It’s hard to imagine today, but until little more than
a decade ago, sustainability was a niche issue for
many organizations. Concern about the changing
global climate—and the effect of human activity
on emissions—had been gathering momentum
and urgency over decades, but in 2011, just 20
percent of companies in the S&P 500 published
sustainability or corporate social responsibility
(CSR) reports. And while these reports paid lip
service to sustainability, tangible action was rare.
Then the wave accelerated. Greenhouse-gas
reductions stemming from 1997’s Kyoto Protocol
were implemented from 2008 to 2012 for select
countries, and in 2011, the groundwork was laid for
what would become the sweeping Paris Agreement,
sealed in 2015. The rapid increase in public and
investor awareness, coupled with the emergence of
policies driving decarbonization, sparked immediate
action: by 2013, the number of S&P 500 companies
publishing a sustainability or CSR report more than
tripled to 72 percent.
In the past five years, sustainability has emerged
as a critical value driver. As it became apparent
that existing efforts may not be sufficient to
cap temperature increases, businesses began
to recognize the opportunity of addressing the
challenge. Organizations began adopting and
promoting environmental, social, and governance
(ESG) measures, and from 2020 to 2021 alone, the
number of companies committing to science-based
sustainability targets tripled. Finally, corporate
newcomers fostering sustainability as a strategic
lever to create value began to appear, and we
started to see the rise of “climate unicorns.”
This leads to today. If the first era viewed
sustainability as an idealistic domain and the
second era viewed it as a value driver, this third
era views tech-enabled sustainability not only as a
business opportunity but also as a necessity.
Just as the emergence of the technology sector
challenged incumbents to rethink their business
models—or to have disruptors rethink them on
 their behalf—the rise of new companies driven by
deep tech poses a significant threat to incumbents
that are too slow to embed sustainability into their
corporate DNA.
The threat of climate technology
disruptors
We’ve long examined the way incumbents
respond—and don’t respond—to disruptors.² And
we understand the dilemma they face: threats to
traditional business models often don’t become
truly visible until long after incumbents need to
begin marshaling their forces, and it requires
courage to take steps to emulate emerging threats
by disrupting your own, still-profitable operations.
Yet that’s the inflection point many incumbents are
at today when it comes to climate technologies.
We see ten families of climate technologies as
critical to meeting the net-zero challenge, including
renewables, batteries and energy storage, building
technologies, industrial-process innovation, and
sustainable fuels.³ The good news for incumbents is
most relevant technology is still at an early maturity
stage—or even unproven. The bad news, however,

2
 hris Bradley and Clayton O’Toole, “An incumbent’s guide to digital disruption,” McKinsey Quarterly, May 18, 2016.
C
3
For more, see Bernd Heid, Martin Linder, and Mark Patel, "Delivering the climate technologies needed for net zero," McKinsey, April 18, 2022.

Exhibit 1

Start-ups
Start-upsare
aredrawing
drawingon
onfive
fivebuilding
building blocks
blocks to
towin
win in
in tech-enabled
tech-enabled
sustainability.
sustainability.

Relevance of building blocks from idea and build…

5. Test-and-try mentality at breakneck speed

Encouraging an experimental mindset among employees and implementing frequent
organizational restructuring at aggressive speed to meet changing business needs

4. Strong empowerment and risk taking

Empowering employees across all levels of the organization to make decisions and make
things happen, as funded by risk money that rewards taking the right risks (project potential
is often declared impossible given immature tech, enormous capital expenditure intensity,
and product-market fit that isn't proven until years later) and does not punish failure

3. Transversal technology
Combination of transversal tech to bring the best of enabling
and decarbonization tech to the sustainability space
2. Deep technology understanding with bold future aspiration
Scientific curiosity and interest to research (long term) and deeply understand
modern technology (eg, spin-offs) with aspirations for a bold new future

1. Genuinely driven by purpose and passion to make the world

more sustainable
Clear sustainability-driven purpose shared across the organization
that guides corporate action and attracts inspired talent

… to scaling

Building a green business: Lessons from sustainability start-ups 3

 is companies are beginning to capture the business
opportunity of climate technologies by drawing on
five building blocks (Exhibit 1):
1. Genuinely driven by purpose and passion
Climeworks, the Swiss company developing
technology to directly and permanently
capture CO2 from the air, was started in
2009 with “a small laboratory device and a
bit of stubbornness,” CEO and cofounder Jan
Wurzbacher told us. “But we wanted to build up
a company which really has an influence—which
makes something big—and climate change
is one of the biggest, if not the biggest, topic
humanity is currently dealing with. We really
wanted to take the hard way and the long way
and build up and enter a new industry over the
next 30 years.”
This deep sense of purpose is common across
disruptive start-ups in the climate technologies
sector. For many, that belief helps early on,
when funding is tight and technology is still
being developed. Yet it can also persist long
after those concerns have faded. “There’s an
atmosphere of support,” Wurzbacher said.
“Everyone really knows the greater cause for
what we’re doing, and that’s very helpful. We
have to be careful that we really stay disciplined
in terms of what we plan and what we deliver
versus our plans.”
2. Deep technological understanding with
bold future aspiration
Succeeding in any industry requires deep
knowledge, being a disruptor requires deep
knowledge empowered by creative thinking, and
being a start-up in the climate space requires
not just knowledge and creativity but also
deep technological understanding. In some
4 Building a green business: Lessons from sustainability start-ups
respects, companies know the rules—and then
break them. “We focused on making ethanol
in the first instance—nothing fancy, nothing
groundbreaking—but with a very, very novel
process,” Sean Simpson, cofounder and chief
scientific officer of LanzaTech, told us.
Both Simpson and CEO Jennifer Holmgren
have acquired vast additional knowledge
as LanzaTech has developed its process of
producing chemicals and fuels, including
sustainable aviation fuel. “My cofounder, the
late Richard Forster, and I did a lot of reading,”
Simpson said. “We were both biologists—we
didn’t know anything about engineering. We
approached biology with deep knowledge, but
we also knew that no one had ever scaled gas
fermentation. So that was the place that we had
to bring smart people in.”
3. Transversal technology
Few disruptors work alone while trying to
independently crack seemingly insurmountable
problems. TAE Technologies, for example,
collaborated with Google AI, using machine
optimization and data science to achieve
the major goals for its fusion platform.
LanzaTech has married synthetic biology with
bioinformatics and AI, as well as machine
learning with engineering. And Carbon
Engineering, which, like Climeworks, is focused
on commercializing the direct air capture
(DAC) of CO2, has combined DAC technology
with hydrogen generation to deliver near-
carbon-neutral synthetic fuels—and has
partnered with LanzaTech.
Pulling in complementary technologies and
collaborating with companies that fill gaps
in specialized knowledge is a feature of start-
 ups in this space. While companies are highly
competitive, there is a sense that they are
together seeking to place big, bold bets—driven
by a shared purpose of sustainability. “You have
to bridge the gap between different disciplines,”
said Michl Binderbauer, the CEO of TAE
Technologies, which is developing commercial
technology based on nonradioactive nuclear
fusion power. He urges people to work in niche
areas of expertise, arguing the combination
of deep individual knowledge adds up to a
process that “will work better in the end—higher
quality and faster.”
4. Strong empowerment and risk-taking
One common belief among start-ups is that
larger, traditional organizations struggle to
empower disruptive technology because
their organizations are, by default, risk averse.
Binderbauer notes that academics also
prefer situations with less risk. “They want
predictability,” he said. “What drove people to
us was saying, ‘You can do things here quickly
that you couldn’t do in ten years in your
academic job.’”
PsiQuantum cofounder and CEO Jeremy O’Brien
said it “just didn’t compute at all” when people
questioned why he would leave academia to
start a company seeking to develop a fully
functioning quantum computer. “The crazy thing
to do would be to spend 20 years, crack the
problem, and then decide—oh, I’m just going
to stay in academia and not build a quantum
computer because you can’t build a quantum
computer in a university, right?” O’Brien told
us. “I left academia to start PsiQuantum when
my cofounders and I realized that we could
leverage semiconductor manufacturing to build
a useful quantum computer on a sensible time
Building a green business: Lessons from sustainability start-ups
and money scale, a machine capable of creating
world-changing advances in climate, healthcare,
energy, and beyond.” PsiQuantum has received
$665 million in investment capital to date and is
valued at more than $3 billion.
For others, the risk is less personal and more
systemic. Carbon Engineering—founded in
2009 by Harvard professor David Keith—is
seeking to develop and commercialize
technology to capture CO2 directly from the
atmosphere. Its vice president of strategic
development, John Bruce, said that while the
science pointed Keith to the opportunity, the
company is taking the risk that the world may not
do anything with the technology. “Our biggest
competitor is actually complacency and not
addressing net zero,” Bruce told us. “I don’t think
it’s a technology question. Can we remove CO2
at scale? I think we can figure that out between
us and many other technologies. The question is
whether we will pay for it as a society.”
5. Test-and-try mentality at breakneck speed
Binderbauer said because TAE Technologies’
purpose was to achieve “dramatic” rather
than incremental change, it had to take a trial-
and-error approach. “You don’t necessarily
know everything up front,” he said. “You’re
not designing for that. You have the vision of
where you want to go: finding a solution to the
generation of power that’s completely free of
carbon and radioactivity in the space of fusion.
That defined the product we were aiming for.
But we then began a journey toward this fairly
tight vision statement that actually ended up
being much more rocky than I thought.”
It took a decade for TAE Technologies to
evolve from running tabletop experiments
to building something at scale, all the time
5
 working to convince investors of the merits of its
technology and approach (today, the company
holds more than 1,400 patents). Development
also took years for Climeworks, with engineers
predicting the project would be very difficult
or even impossible—skepticism greeted with
what Wurzbacher called “persistent optimism.”
“We were a little bit like the two crazy guys,”
he said of himself and cofounder Christoph
Gebald. “Either you are full speed ahead or
nothing.” There was also another motivator
for Binderbauer: “There’s no better force
than knowing we’re going to run out of money
tomorrow if we don’t deliver. You earn the living
for tomorrow by what you do today. That’s very
different to an established company.”
Green business building:
How incumbents can respond
Looking at the history of many climate technology
companies may prompt an obvious question: What’s
different now? For incumbents, the answer is almost
everything. Not only is the technology increasingly
advanced, but three other major factors have
altered the competitive landscape.
First, the price of carbon is rising while the cost of
renewables continues to fall, making sustainable
energy solutions increasingly competitive (and,
in some cases, cheaper than traditional energy).
Second, public pressure to take decisive action to
avert climate catastrophe demands real behavior
change by companies—because actions speak
far louder than words. And the third factor is driven
by the first two: capital is pouring into the
sustainability space.
This is why we believe incumbents are at an
inflection point. Most have fallen behind new
companies in the race toward tech-enabled value
creation. They’re encouraged to act now or risk
being left behind while others build competitive
advantage and own the future. But where should
they start? Our green business–building catalyst
model recommends implementing a three-step
6 Building a green business: Lessons from sustainability start-ups
approach that can be customized to each company’s
circumstances (Exhibit 2).
1. Prepare: Clear the decks
Charting a new course often requires letting
go of the past—or at least parts of it. While
incumbents have access to capital and deep
institutional knowledge of logistics, distribution,
and infrastructure, their accumulation of
processes, technology, and hierarchy often
puts them at a disadvantage compared with
start-ups. That traditional corporate mindset
needs to change. Ensuring it won’t come back
requires a new structure and processes that
fully support your vision and team—which
includes role-modeling a bold experimental
mindset. “Bureaucracy allows you to run a
100,000-people entity,” Binderbauer of TAE
Technologies said. “But sometimes you have
to be a bit cavalier. I’m not saying you do rogue
stuff, but you have to take risks.”
One factor that helps breed confidence around
taking risks is having a deeply personal mission.
Climate technology companies tend to take on
bold objectives and— because it’s personally
meaningful to them—ensure they get done end
to end. Imagine a start-up wanting to change an
element on its website. It’s usually as easy as a
single person (or two) making the change.
Now imagine that process at an incumbent,
where tasks are highly specialized and experts
work on single small pieces in a chain of steps
to get something done. Making that same
website change may require marketing to check
compliance with guidelines, legal to give input
on wording, a product manager to submit a
ticket, a tech lead to plan implementation and
assign a developer, a front-end developer to
write the code and hand it to an infrastructure
team, the infrastructure team to connect it to
the back-end code, quality assurance to test
interdependencies, and so on. Minor changes
end up taking months to implement because
Exhibit 2

A three-step approach can help incumbents keep pace with new companies in the
race toward tech-enabled
A three-step value
approach can helpcreation.
incumbents keep pace with new companies
in the race toward tech-enabled value creation.
Ideal approach, implementation subject to individual context

Prepare: Set up: Grow: Revolutionize the investment

Clear the decks Create the right environment and partnership approach

Be willing to start with a clean Set the vision, pace, and culture within a Screen and invest in tech-enabled sustainability
sheet: separate (legal) entity that is: start-ups at the pre-seed level by:

Release the traditional
corporate mindset,
establishing a new culture
with a bold experimental
approach
Set stretch objectives that
are deeply personal,
inspiring talent with an
entrepreneurial mindset to
go the extra mile
Aimed at a “North Star”: a bold
sustainability vision that sets you
apart and aims to put your agile, new
group in prime market position
Able to attract new, fully agile talent
with an entrepreneurial mindset in a
careful combination of internal and
new hires
Based on lean structures and
processes that support the ambition
of the new entity
Taking an agile approach to risk capital,
knowing that commercialization of products
and services won’t happen overnight
Mitigating the elevated risk and investment
profile through alliances and partnerships,
even with potential competitors
Resetting expectations around the
time it may take to realize a return,
as investing early requires a
commitment of several years

specialists are isolated from the bigger picture—
the “why” of what they’re doing.
2. Set up: Create the right environment
You need a “North Star”: a bold sustainability
vision that sets you apart and aims to put
your agile, nimble new group in prime market
position. It’s about identifying and harnessing
the passion that drives start-ups, where
traditional consideration of pure business
fundamentals—whether a great idea actually
has a clear path to commercialization—is often
balanced by revolutionary zeal. After all, no one
truly owns these sustainability spaces. “You’re
anticipating a problem in the future with a fully
new technology that no one has cracked yet,”
Bruce of Carbon Engineering said.
That spirit extends to people: hand-select a
cross-functional team of entrepreneurial digital
and sustainability talent in a careful combination
of internal employees and new (start-up) hires.
Each member needs to be able to operate at
speed—and independently, if appropriate—and
be genuinely driven by purpose and passion
around the vision you’ve set. “I constantly try
to not only empower my people to take fast
decisions—I expect them to do so,” said Carlota
Pi Amorós, the CEO and cofounder of Spanish
green-tech start-up Holaluz, where a team
constantly implements ideas to reinforce the
company’s culture. “It’s these small efforts that
remind everyone how to act on a day-to-day
basis. Every single person is expected to act as
entrepreneurs and not to become employees, no
matter how big or fast we grow as a company.”
3. Grow: Revolutionize the investment and
partnership approach
Commercialization of products and services
won’t happen overnight. “I believe in our
technology, and we ended up hitting our
development milestones on time. That said, I
didn’t realize that we would need as much more
work as we ended up needing,” said Talmon
Marco, the CEO of H2Pro, an Israeli start-up
developing cheaper hydrogen fuel produced

Building a green business: Lessons from sustainability start-ups 7

 by sustainable energy. When technology is
immature, long development and product-
testing times will inevitably delay any payoff
until well into the future, which requires taking
an agile approach to risk capital (for example,
undertaking funding releases over time). “I like
to say that the typical Climeworks shareholder
counts a quarter as being 25 years and not
three months,” Wurzbacher said. “That basis is
just simply not given in the corporate world,
in most cases.”
A shift in mindset is required to make this
happen. Think of your current competitors
as future allies. Who could bring essential
strengths to build something that makes
owning a fraction of a joint endeavor have a
bigger value than a stand-alone effort? Who
are the unusual allies from totally different
industries that might become partners? And
what funding, growth, and financing models
exist beyond typical M&A or joint-venture
structures?

For incumbents, such time horizons may seem

daunting—at least in isolation. One way to
mitigate the higher risk of this approach
and investment profile is through alliances
and partnerships that may ordinarily not be
considered. For example, auto manufacturers
might collaborate to invest in something
they all need, such as batteries for electric
vehicles. By working together, they can
share the risk and the costs associated with
developing a core technology.
Incumbents have inherent strengths that most
start-ups simply can’t compete with. But it’s not
easy to actively disrupt a successful existing
business model. We believe the experience of
emerging climate technology companies holds
lessons for established companies. The challenge
now is to act before it’s too late.

Harry Bowcott is a senior partner in McKinsey’s London office, Philipp Ernst is a senior expert in the Hamburg office,
Anna Heid is a consultant in the Zurich office, and Philipp Hillenbrand is a partner in the Barcelona office.

The authors wish to thank the following industry leaders who generously gave their time and insight to this article:
Michl Binderbauer, TAE Technologies CEO; John Bruce, Carbon Engineering vice president of strategic development;
Talmon Marco, H2Pro CEO; Jeremy O’Brien, PsiQuantum CEO and cofounder; Carlota Pi Amorós, Holaluz CEO and cofounder;
Sean Simpson, LanzaTech cofounder and chief scientific officer; and Jan Wurzbacher, Climeworks CEO and cofounder.

Copyright © 2022 McKinsey & Company. All rights reserved.

8 Building a green business: Lessons from sustainability start-ups