Climate Capital has invested in 300+ climate startups since 2015. CC Insights shares what we are learning about the early stage climate tech ecosystem. Co-invest with us here.
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Climate fintech is a rapidly growing sector that utilizes financial technology to address climate challenges.
Companies are using data, risk analytics, payments, lending, and other financial tools to promote sustainable practices and finance climate-friendly projects.
The sector is expected to continue to grow rapidly in 2024, driven by increasing demand for sustainable products and services, as well as favorable government policies and regulations.
There will be a growing focus on adaptation and resilience investments in 2024, as businesses and governments look for ways to protect themselves from the impacts of climate change.
Emerging markets are particularly vulnerable to the impacts of climate change, but they also offer significant opportunities for investment in climate solutions.
The Inflation Reduction Act (IRA) is a landmark piece of legislation that will provide significant benefits to the climate fintech sector.
Introduction to Climate Fintech
Climate change is undoubtedly one of the most pressing issues facing our planet today. The consequences of inaction are dire, ranging from more extreme weather events to rising sea levels and disruptions to agriculture and ecosystems. While the transition to a low-carbon economy will require a concerted global effort, the financial sector has a critical role to play in mobilizing capital and driving innovation. Fintech is a major component of the business landscape. According to McKinsey, publicly traded fintechs represent a market capitalization of $550 billion. There are more than 272 fintech unicorns, with a combined valuation of $936 billion, a sevenfold increase from 39 firms valued at $1 billion or more five years ago. Can we use fintech to address the climate crisis? As a founder, fintech venture studio leader, and angel in fintech and climate tech, I believe the answer is yes.
This is where climate fintech comes in. According to Commerzbank, climate fintech investments reached $2.9 billion in 2022, up 2.4x from the prior year. Today, climate fintech is a rapidly growing sector that utilizes financial technology to address climate challenges. These companies are using data, risk analytics, payments, lending, and other innovative tools to promote sustainable practices and finance climate-friendly projects.
Four Ways Fintech Intersects with Climate
Data-driven decision-making for climate action
Data is at the heart of many climate fintech solutions. Companies can use data analytics to assess the environmental impact of investments and identify opportunities for financing sustainable projects. For instance, satellite imagery and machine learning can be used to assess the carbon sequestration potential of forests. This data is then used to inform investment decisions in sustainable forestry projects. For example, *Span develops a platform for home owners to track and manage their environmental impact.
Risk analytics for climate resilience
Climate change poses significant financial risks to businesses and investors. Companies can use risk analytics to help businesses and investors understand and manage these risks. This information can then be used to help businesses develop climate adaptation and mitigation strategies. For example, *Atmo provides analytics for resilience planning for industry and the public sector. Similarly, *FloodMapp, *Pano.ai, and *Kettle have solutions for particular industries such as insurance, reinsurance, and property management as well as the public sector.
Payments and lending for sustainable consumption
Climate fintech is also transforming the way we consume goods and services. Companies can use payments and lending solutions to encourage sustainable consumption habits. For instance, *Spring Free EV allows fleets to lease electric vehicles, while *Line.Build provides loans for energy-efficient home improvements such as heat pumps. *Future is giving cardholders a chance to decarbonize their lives and earn cash back on purchases from sustainable brands and circular economy purchases.
Lending: Matching investors and lenders to climate investments and projects
Climate fintech is also facilitating the flow of capital to climate-friendly projects. Companies can use online platforms to connect borrowers and lenders who are interested in financing sustainable projects. For example, *Mosaic is a growing solar finance marketplace, *NCX provides a platform for trading carbon credits that can unlock further liquidity, while *Carbon Collective is creating sustainable 401(k) retirement accounts, an area that is underserved by the traditional retirement services and asset management industry. *Enduring Planet provides non-dilutive financing to entrepreneurs & startups working on climate solutions.
The future of climate fintech
The climate fintech sector is still in its early stages, but it is rapidly gaining traction. As the urgency of addressing climate change intensifies, we can expect to see even more innovative solutions emerge in this space. Climate fintech has the potential to play a pivotal role in financing the transition to a low-carbon economy and building a more sustainable future. These are just a few examples of the many innovative climate fintech companies, including some that Climate Capital has invested in. We are committed to supporting companies that are using technology to address climate change and build a more sustainable future.
What Should We Expect from Climate Fintech in 2024?
Continued growth in climate fintech: The climate fintech sector is expected to continue to grow rapidly in 2024, as more and more companies develop innovative solutions to address climate challenges. This growth will be driven by increasing demand for sustainable products and services, as well as favorable government policies and regulations.
Increased focus on adaptation and resilience: In addition to mitigation, there will be a growing focus on adaptation and resilience investments in 2024. This is because the impacts of climate change are already being felt around the world, and businesses and governments are increasingly looking for ways to protect themselves from these impacts. This has significant implications for the insurance sector.
Greater focus on emerging markets: Emerging markets are particularly vulnerable to the impacts of climate change, but they also offer significant opportunities for investment in climate solutions. In 2024, we can expect to see more investment in climate-friendly projects in developing countries. Capital needs to be mobilized to do this.
More collaboration between the public and private sectors: Addressing climate change will require a concerted effort from both the public and private sectors. In 2024, we can expect to see more collaboration between these two sectors, as they work together to develop and implement innovative climate solutions. According to The Economist, in 2015 global installed solar capacity was 230 gigawatts; last year it was 1,050gw. In 2014 just 12% of energy-related carbon-dioxide emissions came under carbon-pricing programs and the average price per tonne was $7; today 23% of greenhouse-gas emissions do, and the price is around $32. New finance is needed here.
The Inflation Reduction Act (IRA) is a landmark piece of legislation that will provide significant benefits to the climate fintech sector. The IRA includes a number of provisions that will directly support climate fintech companies, as well as broader provisions that will create a more favorable environment for climate investing.
Closing Thoughts
Overall, the outlook for climate investments in 2024 is positive. The sector is expected to continue to grow rapidly, as more and more companies and investors recognize the opportunities for both financial and environmental returns. Fintech has been the key to unlocking value in many areas when embedded in value chains such as commerce and software. My expectation is that climate tech will evolve more rapidly from today’s narrative of mostly decarbonization to also profits and monetization thanks to the role of climate fintech. We reach a tipping point by 2030 of emissions falling under carbon-trading programs and net zero commitments coming due that require a rapid increase in capital and an opportunity for climate fintech to transform the economy and our lives.
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Note: Companies marked with an asterisk (*) are Climate Capital portfolio companies.
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