• Lee Chin Jian, Vice President at DAI Magister


• 19.05.2023 01:45 pm
#fintech

The intensifying effects of climate change are presenting unparalleled challenges to the global economy. The United Nations reports that climate-related calamities result in an annual average economic loss ranging from $250bn to $300bn. Furthermore, a study in Nature Communications predicts that if the current trends persist, the global GDP will decline by 10 to 14% by 2050. These disconcerting figures emphasise the critical necessity for inventive solutions and Climate fintech is now emerging as a crucial player by offering the necessary tools and platforms to reshape the financial sector’s stance on climate risks and opportunities.

Revolutionising the financial landscape and fuelling the shift to combat climate change

Even with challenges such as a lack of standardised ESG reporting, limited access to quality climate risk data, and regulatory hurdles likely to slow down the adoption of new technologies, climate fintech has the potential to transform the entire climate tech sector and be an integral part of the solution to combat climate change.

Climate fintech enables the efficient flow of capital towards sustainable projects, improving transparency in ESG reporting and enhancing risk management by leveraging advanced technologies such as artificial intelligence, machine learning, and blockchain. Through fintech platforms, investors can link up with green bonds and renewable energy projects, facilitating the financing of low-carbon initiatives at scale. Additionally, AI-powered tools can analyse ESG data to empower investors to make informed decisions aligned with climate goals. Advanced analytics platforms that assess climate-related risks also allow organisations to make strategic decisions on resilience and adaptation measures.

As carbon dioxide emissions hit a staggering 36.4 billion metric tons in 2019 and global temperatures rose by 1.2°C since the pre-industrial era, the race against time to invest $1.8 trillion in climate adaptation measures by 2030 intensifies. Climate fintech is pivotal in mobilising resources and steering investments toward low-carbon, climate-resilient projects amid this crisis.

With a whopping $303.5bn invested in renewable energy in 2020 and the global green bond market exceeding $1 trillion in cumulative issuance, climate fintech platforms that support organisations and connect investors to sustainable initiatives are poised to capitalise on these surging markets. In an era of escalating climate risks, climate fintech solutions empower businesses and financial institutions to make informed decisions on climate resilience and adaptation strategies, becoming an indispensable weapon in the battle against climate change.

Enabling financing towards sustainable initiatives

Climate fintech solutions facilitate the flow of investments toward environmentally friendly projects and initiatives that align with the climate-focused goals of these investors. Netherlands-based Carbon Equity provides a climate venture capital and private equity investment platform that enables investors to gain exposure to climate tech companies across climate sectors such as energy production, heavy industry, transport, buildings, and the carbon economy.

Investors can invest alongside world-class climate funds in North America and Europe (early-stage venture capital and later-stage growth and buyout funds) and track portfolio companies in real-time through its app. The company recently launched its second Climate Tech Portfolio Fund at €75m. Its first climate tech portfolio fund closed in December 2022, exceeding its target size by raising €42m, 60% above its original €25m goal.

Swedish crowdfunding platform Trine enables investors to channel financing to off-grid solar companies in emerging markets, providing them with capital to supply clean, affordable, and stable electricity where it’s most needed. Thus far, over 13,000 investors have invested over €81m in solar energy projects through the company’s platform.

Alter5 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 any stage, including development, construction or operation. In late 2021, the European Investment Fund (EIF) granted the company a €105m loan guarantee to facilitate access to capital markets for developing and constructing renewable energy projects mainly located in Spain.

Expediating the mainstream adoption of climate technologies

Climate fintech can support and accelerate the growth of climate tech initiatives by providing the necessary financial support, data analytics, and risk assessment tools.

Sustainalytics, a Netherlands-based company acquired by MorningStar, is a leading ESG research, ratings, and data provider. Their data helps investors and financial institutions evaluate the sustainability performance of companies, enabling them to make informed investment decisions that align with their environmental and social objectives. Sustainalytics’ expertise in ESG research and ratings is essential for investors seeking to integrate sustainability into their investment strategies.

Ecoligo, a German solar financing platform, is a prime example of how climate fintech can accelerate the adoption of clean energy technologies by providing a crowd-investment model that enables businesses in emerging markets to access affordable solar energy. Their accessible and affordable financing for solar projects helps promote the transition to clean energy while creating new investment opportunities for individuals who want to invest in sustainable technologies. This business model has the ability to unlock the vast potential of solar energy in emerging markets, accelerating the transition to a low-carbon economy.

Promoting transparency and accountability

Climate fintech solutions that monitor and report ESG metrics can help investors assess the impact of their investments and ensure alignment with their climate-related objectives.

Carbon Delta, acquired by MSCI Inc in 2019, is a Swiss climate risk analytics provider of tools that enable investors to quantify the impact of climate change on businesses and their assets. Today, the company quantifies investment risks for over 25,000 companies along numerous climate change scenarios. Through its analytics platform, the company provides users valuable information to assess their portfolios’ exposure to climate risk, helping them make informed decisions that align with their environmental and financial objectives.

Backed by funding from Allianz Group, the German state of Hessen, Commerz Real AG, and Accenture, among others, 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 corporations. The company leverages AI and big data to give investors insights into companies’ ESG performance, enabling them to make more informed decisions that align with their sustainability goals.

Staying in Germany, Atlas Metrics is an ESG accounting technology company headquartered in Berlin. The company supports companies and financial institutions to collect, manage, and report 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 to financial institutions. Util’s recently launched platform enables users to explore and compare the impact of 50,000 listed companies against the UN Sustainable Development Goals (SDGs). The company recently announced the closing of a $6m seed investment round led by Eldridge late last year.

Supporting decentralised climate adaptation efforts

Climate fintech tools that assess climate-related risks can help businesses, financial institutions and governments better understand their exposure to the consequences of the climate crisis, enabling more informed investments in adaptation measures.

London-based climate intelligence and analytics company Cervest provides businesses and governments with actionable insights into climate risks and adaptation opportunities. The company’s innovative tools enable businesses to make informed decisions on 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 modelling 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 businesses to understand and reduce their carbon emissions, mitigate climate risks, and adapt to the impacts of climate change. Plan A’s innovative platform enables companies to track and monitor their sustainability performance, providing the necessary information to make informed decisions on climate risk management strategies.

Climate tech’s future depends on collaboration

The future direction of the climate fintech sector will involve increased collaboration between fintech companies, traditional financial institutions, and regulatory bodies. This collaboration will play a vital role in driving the adoption of climate fintech solutions, standardising ESG reporting, and ensuring alignment with global climate goals – all of which are essential for the sector’s long-term success.

Partnering with banks and other traditional financial institutions will facilitate the integration of climate fintech solutions into existing financial systems, accelerating their adoption and maximising their impact.

Climate fintech companies should prioritise data quality and standardisation to enable more accurate risk assessments and ESG reporting. This will help build trust with investors and other stakeholders, driving the adoption of climate fintech solutions. Developing scalable and accessible solutions will also be vital for climate fintech companies to reach a broader audience and maximise their impact on sustainable finance and climate resilience.