Climate fintechs accelerate mainstream adoption of climate technology
The growing effects of climate change present unprecedented challenges to the world economy. The United Nations reports that climate-related disasters result in an annual average economic loss ranging from $250 billion to $300 billion. Furthermore, a study in Nature Communications predicts that if current trends continue, global GDP will decline by 10% to 14% by 2050.
These alarming numbers underscore the critical need for inventive solutions, and Climate fintech is now emerging as a decisive player by offering the necessary tools and platforms to reshape the financial sector’s attitude to climate risks and opportunities.
Revolutionizing the financial landscape and energizing the shift to combat climate change
Even with challenges such as a lack of standardized ESG reporting, limited access to high-quality climate risk data and regulatory obstacles that are likely to slow the adoption of new technologies, climate fintech has the potential to transform the entire climate technology sector and be an integral part of the solution to combating climate change.
AI-powered tools can analyze ESG data, empowering investors
Climate fintech enables the efficient flow of capital towards sustainable projects, improves transparency in ESG reporting and improves risk management by leveraging advanced technologies such as artificial intelligence, machine learning and blockchain.
Through fintech platforms, investors can connect to green bonds and renewable energy projects, facilitating the financing of large-scale low-carbon initiatives. In addition, AI-powered tools can analyze ESG data to empower investors to make informed decisions in line with climate goals. Advanced analytics platforms that assess climate-related risks also allow organizations to make strategic decisions about resilience and adaptation measures.
With carbon dioxide emissions reaching a staggering 36.4 billion tonnes in 2019 and global temperatures rising by 1.2°C since the pre-industrial era, the race against time to invest $1.8 billion in climate adaptation measures by 2030 intensifies. Climate fintech is central to mobilize resources and direct investments towards low-carbon, climate-resilient projects in the midst of this crisis.
With a whopping $303.5 billion invested in renewable energy in 2020 and the global green bond market exceeding $1 billion in cumulative issuance, climate fintech platforms that support organizations and connect investors to sustainable initiatives are poised to tap into these growing markets. In an era of escalating climate risks, climate fintech solutions empower businesses and financial institutions to make informed decisions about climate resilience and adaptation strategies, becoming an indispensable weapon in the fight against climate change.
Climate fintech: enabling financing towards sustainable initiatives
Climate fintech solutions facilitate the flow of investments towards environmentally friendly projects and initiatives that are in line with the climate-focused goals of these investors. Netherlands-based Carbon Equity offers a climate venture capital and private equity investment platform that enables investors to gain exposure to climate technology companies across climate sectors such as energy generation, heavy industry, transport, buildings and the carbon economy.
Investors can invest alongside world-class climate funds in North America and Europe (early venture capital and later growth and acquisition funds) and track portfolio companies in real time through its app. The company recently launched its second Climate Tech Portfolio Fund at €75 million. Its first climate technology portfolio fund closed in December 2022, exceeding its target size by raising 42 million euros, 60% above its initial goal of 25 million euros.
Swedish crowdfunding platform Trine enables investors to channel funding to off-grid solar companies in emerging markets, giving them the capital to deliver clean, affordable and stable power where it’s needed most. So far, over 13,000 investors have invested over 81 million euros in solar energy projects through the company’s platform.
Altar5 is a leading Spanish technology and financial platform that provides direct access to a wide range of sustainable investments with different risk-return profiles. The company provides financing for renewable energy projects of all sizes and at all stages, including development, construction or operation. At the end of 2021, the European Investment Fund (EIF) granted the company a loan guarantee of 105 million euros to facilitate access to capital markets for the development and construction of renewable energy projects mainly located in Spain.
Expedia joins the mainstream adoption of climate technologies
Climate fintech can support and accelerate the growth of climate technology initiatives by providing the necessary financial support, data analysis and risk assessment tools.
Sustainalytics, a Netherlands-based company acquired by MorningStar, is a leading provider of ESG research, assessments and data. Their data helps investors and financial institutions evaluate the sustainability performance of companies, enabling them to make informed investment decisions that are in line with their environmental and social goals. Sustainalytics’ expertise in ESG research and assessments is essential for investors who want to integrate sustainability into their investment strategies.
Ecoligo, a German solar financing platform, is a good example of how climate fintech can accelerate the adoption of clean energy technologies by offering a crowdfunding model that enables companies in emerging markets to access affordable solar energy.
Their accessible and affordable financing for solar energy projects helps advance the transition to clean energy while creating new investment opportunities for individuals looking to invest in sustainable technologies. This business model has the ability to unlock the enormous potential of solar energy in emerging markets, and accelerate the transition to a low carbon economy.
Promote transparency and accountability
Climate fintech solutions that monitor and report ESG metrics can help investors assess the impact of their investments and ensure compliance with their climate-related goals.
Carbon Delta, acquired by MSCI Inc in 2019, is a Swiss provider of climate risk analysis tools that enable investors to quantify the impact of climate change on businesses and their assets. Today, the company quantifies investment risk for over 25,000 companies along a range of climate changes. Through its analytics platform, the company provides users with valuable information to assess their portfolios’ exposure to climate risk, helping them make informed decisions that are in line with their environmental and financial goals.
Backed by funding from, among others, the Allianz Group, the German state of Hesse, Commerz Real AG and Accenture, the German global data provider Arabesque S-Ray provides a unique tool that allows anyone to monitor the sustainability of over 7,000 of the world’s largest companies. The company leverages AI and big data to provide investors with insight into companies’ ESG performance, allowing them to make more informed decisions that align with their sustainability goals.
Based in Germany, Atlas Metrics is an ESG accounting technology company headquartered in Berlin. The company supports companies and financial institutions in collecting, managing and reporting environmental, social and governance data in full compliance with the world’s leading ESG standards.
UK-based Util uses AI to gather sustainability intelligence at scale for financial institutions. Util’s recently launched platform enables users to explore and compare the impact of 50,000 listed companies against the UN’s Sustainable Development Goals (SDGs). The company recently announced the closing of a $6 million investment round led by Eldridge late last year.
Support decentralized climate adaptation work
Climate fintech tools that assess climate-related risks can help companies, financial institutions and governments better understand their exposure to the consequences of the climate crisis, enabling more informed investments in adaptation measures.
The London-based climate intelligence and analysis company Cervest provides businesses and authorities with actionable insight into climate risks and adaptation opportunities. The company’s innovative tools enable businesses to make informed decisions about climate resilience strategies by providing a detailed analysis of their climate-related risks.
Climate X, another UK-based company, is a leading provider of climate risk management services. Through its advanced predictive modeling technology, the company projects and predicts the impacts of climate change and extreme weather events, enabling companies to develop effective climate risk management strategies.
Plan A, a German climate risk management platform, offers data-driven insights and tools for companies to understand and reduce their carbon emissions, reduce climate risk and adapt to the effects of climate change. Plan A’s innovative platform enables companies to track and monitor their sustainability performance, providing the information needed to make informed decisions about climate risk management strategies.
The future of climate technology depends on cooperation
The future direction of the climate fintech sector will involve increased cooperation between fintech companies, traditional financial institutions and regulatory bodies. This collaboration will play an important role in driving the adoption of climate fintech solutions, standardizing ESG reporting and ensuring compliance with global climate goals – all of which are crucial to the sector’s long-term success.
Partnerships with banks and other traditional financial institutions will facilitate the integration of climate fintech solutions into existing financial systems, accelerate their adoption and maximize their impact.
Climate fintech companies should prioritize data quality and standardization to enable more accurate risk assessments and ESG reporting. This will help build trust with investors and other stakeholders, and drive the introduction of climate fintech solutions. Developing scalable and accessible solutions will also be critical for climate fintech companies to reach a wider audience and maximize their impact on sustainable finance and climate resilience.
Lee Chin Jian is vice president of investment bank DAI Magister
