Climate Fintech funding increases, totaling USD 1.8 billion in H1 2022
CommerzVentures, the Corporate venture capital (CVC) arm of Commerzbank in Germany, has released its latest report on climate fintech, sharing the findings from an analysis of 528 climate fintech startups across Europe and the US with scalable business models to provide an overview of the sector’s growth across geographies, sub-sectors and funding stages.
The Climate Fintech H1 2022 Update, released in October, points to a rapidly developing climate fintech ecosystem characterized by increasing maturity, growing VC funding activity and the emergence of new, exciting sub-sectors such as natural capital accounting and decentralized finance/climate (DeFi x climate ).
H1 2022 was a record period for climate fintech funding, data from the report shows, with total funding raised at $1.8 billion. The sum already represents 1.5 times what was secured by climate fintech companies during the entire year 2021, the report notes, underscoring the “extraordinary momentum of the space”, especially considering the year’s decline in fintech funding.
Climate Fintech funding volume in USD million, Source: Climate Fintech H1 2022 Update, CommerzVentures, October 2022
Europe is a leader in climate fintech financing
In H1 2022, Europe significantly surpassed the US in funding and number of climate fintech deals, with companies in the region securing 3.5 times more VC funding and 3 times more funding rounds than those in the US.
European climate fintech companies raised a total of $1.4 billion in 48 rounds during the period, compared to $401 million through 15 deals for the United States.
Climate Fintech funding volumes and deals in EU vs US in US$m, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022
Within Europe, France took the lion’s share, attracting the most funding in the first half of 2022 with USD 733 million. This was mainly driven by the US$500 million growth financing closed by EcoVadis, a French carbon accounting platform.
France was followed by the United Kingdom with $426 million, Finland with $136 million and Denmark with $35 million.
Climate fintech funding by country (top 10) in USD million, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022
A growing sector
Looking at seed funding stages, the analysis found that the climate fintech industry is maturing, with an increasing number of later stage rounds closing. In H1 2022, 30% of funding was registered in series B rounds or later, a share that represents a threefold increase compared to 2021.
Funded climate fintech companies by stage, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022
Such rounds included EcoVadis’ US$500 million Series C, Deepki’s US$166 million Series C, Descartes Underwriting’s US$120 million Series B and Sweep’s US$73 million Series B.
Deepki is an environmental, social and governance (ESG) data intelligence platform for the real estate sector; Descartes Underwriting is a parametric insurance provider against climate risk; and Sweep helps companies track their carbon emissions.
Carbon accounting continues to be the preferred sub-sector
In H1 2022, carbon accounting continued to be the most attractive area for VCs in climate fintech, with companies in the space securing a total of US$673 million in funding raised.
Climate risk management came second with S$385 million, and carbon offsetting, third with US$245 million.
Climate Fintech funding volume in US$m per space, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022
During the period, new segments also began to attract interest from investors. DeFi x climate and natural capital accounting are two new sub-sectors that secured their first funding rounds in H1 2022, closing $73 million and $17 million respectively.
DeFi x climate is a nascent category that includes startups building the infrastructure and tools for carbon tokenization. Startups in this space include Toucan, a company that allows anyone to tokenize their carbon credits, and Single.Earth, a platform where users can trade natural resources as tokenized virtual goods, as well as carbon credits and biodiversity offsets.
Natural capital accounting is another new category that includes companies that enable the analysis and monitoring of biodiversity. Such companies include Natural metrics, a developer of molecular methods for monitoring biodiversity, and Cecil, a company that provides a platform for nature management.
Building on the vibrant VC market in H1 2022, CommerzVentures expects the climate fintech industry to continue to witness explosive growth in 2023 and mature. Later stage rounds should increase in volume and number, especially in more developed segments such as climate risk management, carbon offsetting and carbon accounting, the report states. In addition, more developments will occur in new categories, including the DeFi x climate as more companies enter the space and leverage the Web3 infrastructure to build innovative solutions, it concludes.
Climate fintech, a transversal sector covering the intersection of climate, finance and digital technology, has rapidly gained momentum in recent years. Total funding in 2021 crossed the billion mark and reached $1.2 billion, a figure that is three times higher than all previous years combined, according to CommerzVentures.
In the domain, Europe has risen to leadership, now hosting more climate fintech companies than any other region and securing much of the capital being injected into the sector.
Part of the reason for Europe’s burgeoning climate fintech ecosystem is the region’s progressive top-down climate finance policies, according to a previous report by Swiss fintech and insurtech startup incubator and accelerator F10.
Such initiatives include the European Green Deal, a set of policy initiatives approved in 2020 with the overall goal of making the European Union (EU) climate neutral by 2050, as well as the implementation of the Sustainable Finance Disclosure Regulation (SFDR), which mandates climate disclosures by companies.
Featured Image Credit: Edited from Unsplash
