Singapore leads ASEAN’s climate fintech revolution amid climate crisis

The climate crisis is a crucial challenge for Southeast Asia, a region that is among the most vulnerable to global warming, but which also contributes significantly to its cause. Against this backdrop, a new generation of fintech startups is emerging from the region, which seeks to meet these challenges and capture opportunities for the transition to a more sustainable economy.

A new report from Integra Partners, an early-stage venture capital firm based in Singapore, looks at the risks of global warming in Southeast Asia and the climate change imperative, and makes a case for why climate fintech is poised to take off in the region.

Southeast Asia has a population of approximately 680 million people, and the countries are experiencing rapid economic growth. However, it is also expected to be one of the regions that could be hardest hit by climate change, the report shows.

Citing findings of a 2019 research produced by Climate Central, a scientific organization based in New Jersey, it notes that two of Southeast Asia’s largest cities, namely Bangkok and Ho Chi Minh City (HCMC), could be underwater by 2050 amid rising sea levels.

More than 20 million people in Vietnam, or nearly a quarter of the population, and over 10% of Thai citizens will be affected.

Map of Bangkok and Ho Chi Minh City from sea level rise and moderate flooding given uncontrolled pollution by 2050, Source: Integra Partners, January 2023

Swiss Re, one of the world’s largest reinsurers, estimates that ASEAN could lose 37% of its gross domestic product (GDP) by 2048 at a temperature increase of 3.2°C and relative to a world without climate change. The firm estimates that Indonesia, Malaysia, the Philippines, Singapore and Thailand could lose economic output of more than seven times their 2019 GDP by 2050.

Change in GDP by 2050 with different temperature increases compared to a world without climate change, Source: Integra Partners, January 2023

In Asia, governments and business have woken up to the imperative and launched several initiatives to build the region’s climate resilience, notes the Integra Partners report.

By 2021, 20% of companies in Asia (449 companies) had approved commitments on Science Based Targets initiatives (SBTi), making the continent the second largest adopter of the corporate emission reduction initiative.

In addition, eight of the ten countries in Southeast Asia have committed to net zero targets by at least 2050, the report notes.

Share of companies from each region with approved SBTi commitments, 2021, Source: Integra Partners, January 2023

A nascent sector

The urgency of tackling climate change and support from the public sector has given rise to a new category in the fintech industry. So-called climate fintech, a transversal sector that covers the intersection between climate, finance and technology, utilizes digital technologies and financial product innovations to facilitate climate measures and drive decarbonisation.

These companies operate in multiple segments, including carbon accounting software, carbon management platforms, environmental, social and governance (ESG) standards reporting, impact investing, and climate risk management and insurance.

Globally, Europe has been a leader in the field, supported by favorable guidelines and government initiatives.

In Asia, although the climate fintech sector remains small, increased awareness of sustainability issues and growing demand for related products and services set the stage for the emergence of a thriving climate fintech sector, Jonas Thuerig, head of start-up incubator and accelerator F10 Singapore, wrote in a recent guest post on the Singapore Business Times.

Asia is ideally suited to support climate fintech companies because the region is home to one of the world’s most dynamic fintech ecosystems worldwide, he said, adding that in many cases Asia already has the infrastructure to “leap other economies and take in use climate-focused fintech solutions almost immediately.”

“Asia may remain some way behind other fintech markets in tackling climate challenges, but we can take heart from the path that impact investing in the region has taken in recent years,” Thuerig wrote.

“We believe there is a lot of untapped market potential in the climate fintech space, and given the small numbers in the region, it’s the smaller firms that have a new, unique opportunity to make a significant impact.”

Singapore leads climate fintech innovation in Southeast Asia

In Southeast Asia, Singapore leads the region in climate fintech innovation, Thuerig said, due to early support from the government and regulators.

In 2020, the Monetary Authority of Singapore (MAS) launched Project Greenprint, a collection of initiatives aimed at leveraging technology and data to enable a more transparent, reliable and efficient ESG ecosystem to enable green and sustainable finance.

Especially in the area of ​​climate fintech, last year Singapore introduced the Point Carbon Zero program, an initiative aimed at driving innovation, incubation and scaling of climate fintech solutions in Asia. The program, which runs under MAS’ Project Greenprint, is a joint venture between the central bank and Google Cloud.

Although a relatively new and small segment of the wider fintech industry, climate fintech has grown rapidly in recent years, driven by growing investor appetite and a supportive regulatory landscape.

Venture capital (VC) funding for climate fintech startups reached a new record of $2.9 billion in 2022, a sum that is 2.4 times more than what was raised in 2021, new data from CommerzVentures, Corporate venture the capital part (CVC) of Commerzbank in Germany, show. The figure underscores the momentum of the space at a time when fintech funding is slowing amid a global VC investment contraction.

Climate Fintech funding volume in USD million, Source: Climate Fintech 2023, CommerzVentures, February 2023

Featured image credit: Edited from Freepik here and here