Climate Fintech Catches On with Rising Funding Activity

Climate Fintech Catches On with Rising Funding Activity

by December 8, 2021

Climate fintech, a sector comprising digital innovations, applications and platforms that help tackle climate change, is rapidly taking off. Over the past year, at least 16 climate fintech companies have raised rounds, data from Crunchbase show, and now, one of the most prominent companies in the space is preparing to go public.

Climate fintech, also referred to as green fintech, is a new wave of fintech companies that focus on providing customers with environmentally-focused digital financial services and investment opportunities.

The landscape comprises players operating in various areas ranging from services related to environmental, social and governance (ESG) data, peer-to-peer (P2P) energy trading platforms and alternative financial markets for environmental assets.

Climate fintech is catching the attention of venture capital (VC) investors whom are becoming increasingly serious about climate technology more broadly. Data from Sifted suggest that investors have so far poured a record-breaking US$8 billion into Europe’s sustainable startup this year. The region is home to over 40 VCs focused on sustainability and climate tech.

Early data on climate fintech from Crunchbase suggest that financing activity is also accelerating with early stage rounds including seed and Series A multiplying. The largest funding recipient so far has been Xpansiv, a US marketplace for ESG commodities, which closed a US$100 million funding round in September from backers including Clean Energy Finance and Commonwealth Bank of Australia.

Xpansiv, which provides a liquidity hub for ESG-inclusive commodities including carbon offsets, renewable energy certificates (RECs) and differentiated fuels, said it had witnessed strong growth, recording 15 million tons of carbon traded on its platform in August 2021, a 812% increase compared to the prior corresponding period.

Doconomy, a Swedish startup that compiles and provides data around the climate impact of products, transactions and companies, raised a US$17 million round in September in what the company claimed to be the largest funding round ever for a European climate fintech.

Doconomy currently processes close to 90 million transaction impact calculations per month in 20 markets for clients including Klarna, Nordea and Standard Chartered.

And Clim8 Invest, a London-based platform for investing in a portfolio of public companies making an impact in tackling climate change, has raised over US$18 million to date from a mix of crowdfunding and seed money, according to Crunchbase.

The climate fintech sector is also in the midst of seeing a prominent player hitting the public market. Los Angeles-based Aspiration Partners, a green fintech that lets customers spend, save and shop in ways that protect the planet, is combining with InterPrivate III Financial Partners, a special purpose acquisition company (SPAC). The merger, which will value the company US$2.3 billion, will make Aspiration Partners the first sustainability-focused consumer financial services provider in the public markets.

Founded in 2013, Aspiration Partners provides products including savings accounts and investment vehicles with a pledge not to invest in fossil fuels. The company claims its revenue grew 700% over the past year and its customer base doubled to more than 5 million. Backers include actors Robert Downey Jr., Leonardo DiCaprio and Orlando Bloom, investment bank Allen & Co. and eBay co-founder Jeff Skoll.

The rush in funding activity around climate fintech comes amid regulatory development and rising demand for sustainable finance from investors.

The 2021 United Nations Climate Change Conference (COP26) culminated last month with the Glasgow Climate Pact, the first climate agreement explicitly planning to reduce unabated coal usage. It also includes pledges to reverse deforestation by 2030 and work towards all sales of new cars and vans being zero emission globally by 2040.

In July, the European Commission (EC) adopted a comprehensive package of measures to improve the flow of money towards financing the transition to a sustainable economy. The package includes the Sustainable Finance Strategy, which sets out several initiatives to tackle climate change, and other environmental challenges, while increasing investment and the inclusiveness of small and medium-sized enterprises (SMEs). It also includes the European Green Bond Standard proposal, which seeks to create a high-quality voluntary standard for bonds financing sustainable investment.

In Switzerland, the Green Fintech Network, a network of startups and experts in green fintech set up with the assistance of the State Secretariat for International Finance SIF, presented its action plan in April.

The plan includes proposals to set up a platform for sustainability data, establish an annual innovation challenge for green fintech startups, create a fund of funds dedicated to green fintechs, and pioneering the “green open finance” movement.


Featured image credit: Photo by Annie Spratt on Unsplash