Navigating Climate Risks and Capital Barriers for Black-Owned Businesses
By Ritika Sah
Climate change is no longer a distant threat; it is a present-day crisis disproportionately impacting vulnerable communities and businesses. Among the most affected are Black-owned businesses in the United States, which face a dual burden: heightened exposure to climate risks and systemic financial barriers that hinder adaptation and resilience.
Despite the rising awareness of climate change’s economic consequences, Black entrepreneurs remain significantly disadvantaged in securing the capital and resources necessary to mitigate these risks. If policymakers and investors fail to address these inequities, the result will be further economic exclusion, loss of generational wealth, and deepened racial disparities. However, through intentional policies, inclusive financing mechanisms, and strategic business resilience planning, Black-owned businesses can play a leading role in shaping a sustainable and equitable economy.
Climate crisis amplified by systemic barriers
McKinsey report highlights Black Americans actively contribute across all sectors of the U.S. economy, from business ownership and employment to consumption and production. However, existing economic disparities could worsen due to climate change. Additionally, over 20 million Black Americans reside in the Southwest and Southeast regions that are more prone to extreme heat events. According to the Federal Emergency Management Agency (FEMA), nearly 40% of small businesses are unable to reopen after experiencing a disaster, highlighting the significant challenges they face in recovering from unexpected disruptions. Furthermore, a CNBC/SurveyMonkey Small Business Survey reveals that the majority of small business owners do not view environmental factors as a critical consideration in their decision-making processes.
Source: Crunchbase news
Yet, despite these risks, Harvard Technology Review highlighted that Black entrepreneurs receive only 1.2% of total U.S. venture capital funding. In another study by the Federal Reserve, Black entrepreneurs face business loan denial rates that are twice as high as those of white business owners. Another McKinsey article indicates that Black-owned businesses start with approximately three times less capital than their white-owned counterparts, a gap that persists as firms mature. This undercapitalization hampers their ability to make necessary investments in sustainable practices and infrastructure.
Systemic barriers to climate adaptation
The financial and structural barriers limiting Black-owned businesses' climate resilience are deeply rooted in systemic disparities. Small Business Administration (SBA) disaster loans have historically been less accessible to Black business owners due to systemic inequities in the lending process, such as disparities in credit scores and loan approvals. These barriers have resulted in Black homeowners and business owners receiving fewer federal relief loans than their white counterparts, making post-disaster recovery significantly more challenging. Black entrepreneurs face systemic barriers that hinder their ability to secure the funding required for such sustainability-focused investments. According to the Federal Reserve's 2022 report on Small Business Credit, Black business owners experience higher loan denial rates than their white counterparts, even when they meet the same financial qualifications.
These barriers not only increase vulnerability but also stifle innovation and growth in the emerging green economy. If left unaddressed, climate change will continue to widen the racial wealth gap, limiting economic mobility for Black entrepreneurs.
Bridging the gap by policy solutions for climate resilience
As shifts in U.S. policy threaten the progress made under Diversity, Equity, and Inclusion (DEI) initiatives, expanding access to green finance for Black entrepreneurs is both an economic necessity and a policy imperative. To counteract systemic inequities, policymakers must prioritize inclusive climate finance and infrastructure investments:
Expanding access to green finance for Black entrepreneurs: Providing access to capital that contains tailored green finance mechanisms are essential to ensuring their participation in the growing sustainability economy. To support Black Entrepreneurs in the green economy, we must expand access to green finance. The US Small Business Administration can introduce SBA Climate-Resilient Loans that provide low-interest loans to help Black-owned businesses invest in climate adaptation, making sustainability more equitable.
Strengthening infrastructure in Black business districts: Black business districts have long been engines of economic mobility, yet they face disproportionate risks from climate change due to underinvestment in resilient infrastructure. Federal climate adaptation funds, particularly from the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA), must prioritize these historically marginalized communities. Investments in flood control, urban cooling solutions like green roofs, and sustainable transportation infrastructure would not only protect Black-owned businesses from climate threats but also create thriving, low-carbon commercial hubs that attract further investment.
Strengthening sustainable supply chain for black green businesses: A truly equitable green economy requires more than just access to funding; it demands a seat at the table in high-value supply chains. Government and corporate procurement policies should prioritize contracts with Black-owned businesses offering sustainable solutions, from renewable energy services to eco-friendly manufacturing. Initiatives such as the Minority Business Development Agency’s Green Business Program should be expanded to help Black-owned firms scale within emerging green industries.
The intersection of climate change and systemic inequities presents both challenges and opportunities for Black-owned businesses. While climate risks disproportionately impact historically marginalized communities, these businesses also have the potential to drive economic and environmental transformation through targeted investments in climate resilience and green entrepreneurship.
However, achieving this requires a supportive policy and investment environment. The evolving landscape of U.S. climate initiatives, including shifting federal commitments such as the Paris Agreement withdrawal and broader policy debates, can create uncertainty regarding access to funding, infrastructure development, and regulatory support for small businesses. These dynamics underscore the need for deliberate strategies that expand access to green financing and strengthen public infrastructure.
With a concerted effort from policymakers, investors, and corporate leaders, Black entrepreneurs can play a pivotal role in building a more sustainable and inclusive economy. Ensuring equitable access to climate-related opportunities will not only support business resilience but also contribute to a broader economic transition that is both sustainable and just.
Ritika is a Master of International Business (MIB) student at the Fletcher School, specializing in banking, finance, and sustainability. She is passionate about driving sustainability and social impact through innovative solutions.