CommerzVentures, the corporate venture capital (CVC) arm of Commerzbank in Germany, has released its latest report on climate fintech, sharing findings of 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 out to a fast-evolving climate fintech ecosystem that’s marked with increasing maturity, soaring VC funding activity, and the rise of new, exciting sub-sectors like natural capital accounting and decentralized finance/climate (DeFi x climate).

H1 2022 was a record-breaking period for climate fintech funding, data from the report show, with total funding raised amounting to US$1.8 billion. The sum represents already 1.5 times what was secured by climate fintech companies during the whole year 2021, the report notes, and underscores the “extraordinary momentum of the space”, especially considering this year’s downturn in fintech funding.

Climate fintech funding volume in US$m, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022

Europe leads in climate fintech funding

In H1 2022, Europe surpassed the US significantly in climate fintech funding and deal count, 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 US$1.4 billion in 48 rounds during the period, against US$401 million through 15 deals for the US.

Climate fintech funding volumes and deals in the EU vs the 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 H1 2022 with US$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 UK with US$426 million, Finland with US$136 million, and Denmark with US$35 million.

Climate fintech funding by country (top 10) in US$m, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022

A maturing sector

Looking at startup funding stages, the analysis found that the climate fintech industry is maturing, with an increasing number of later stage rounds being closed. In H1 2022, 30% of financing recorded were Series B rounds or later, a proportion 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 risks; and Sweep helps businesses track their carbon emission.

Carbon accounting continues to be the preferred sub-sector

In H1 2022, carbon counting continued to be the most attractive space for VCs in climate fintech, with companies in space securing a total of US$673 million in raised funds.

Climate risk management came in second with S$385 million, and carbon offsetting, third with US$245 million.

Climate fintech funding volume in US$m by space, Source: Climate Fintech H1 2022 Update, CommerzVentures, Oct 2022

The period also saw new segments starting to attract the interest of investors. DeFi x climate and natural capital accounting are two emerging sub-sectors that secured their first rounds of funding in H1 2022, closing a total of US$73 million and US$17 million, respectively.

DeFi x climate is a nascent category that comprises startups building the infrastructure and the tools for the tokenization of carbon. Startups in this space include Toucan, a company that allows anybody 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 enabling the analysis and monitoring of biodiversity. Such companies include Natural metrics, a developer of molecular methods for biodiversity monitoring, and Cecil, a company that provides a platform for natural asset management.

Building on the vibrant VC market of H1 2022, CommerzVentures expects the climate fintech industry to continue witnessing explosive growth in 2023 and maturing. Later stage rounds should increase in volume and number, especially in more developed segments like climate risk management, carbon offsetting and carbon accounting, the report says. Additionally, more developments will occur in new categories including DeFi x climate as more companies enter the space and leverage Web3 infrastructure to build innovative solutions, it concludes.

Climate fintech, a cross-cutting sector covering the intersection of climate, finance and digital technology, has quickly picked up momentum over the past few years. Total funding in 2021 surpassed the billion mark to reach US$1.2 billion, a figure that’s 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 that’s 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 policy-making, according to an earlier 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 overarching aim of making the European Union (EU) climate neutral in 2050, as well as the implementation of the Sustainable Finance Disclosures Regulation (SFDR), which mandates climate disclosures by companies.

Featured image credit: Edited from Unsplash