Kaan Akin, Managing Partner and Chief Commercial Officer at Tenity, highlights the impact of tightening regulations and looming net-zero deadlines on corporate sustainability efforts, pointing to a growing interest in climate fintech startups as a means to address these challenges. The urgency for large corporations to reduce emissions, decarbonize supply chains, and provide accurate sustainability data is more pronounced than ever. In this context, climate fintech starts to emerge as a crucial sector, developing tools to help financial services, corporations, and public sectors operate sustainably. These solutions range from emissions measurement to carbon offset management and reporting on Environmental, Social, and Governance (ESG) programs.
On the surface, the climate fintech sector appears poised for rapid growth. The urgent need for innovative solutions to quantify and mitigate climate impact is clear, which should open up opportunities for startups in this niche. Recent reports indicate that investments in European climate fintech remain steady, predominantly favoring early-stage businesses despite broader economic challenges. For instance, UK startups raised $180 million in 2023, accounting for a significant portion of the global total, while German startups also saw slight increases, albeit influenced by a couple of hefty funding rounds. French investments dipped, but overall, the market maintains a steady performance.
However, challenges loom over the horizon, particularly concerning late-stage financing. There has been a significant disparity in funding, with early-stage startups attracting 48% more capital than their later-stage counterparts in 2023. Notably, a lack of Series C and D deals in the first half of 2024 indicates a scarcity of growth capital. This raises questions about whether this trend reflects broader financial caution or if it’s a specific issue for climate fintech. Conversations with Kaan Akin indicate that while broader fintech experiences similar challenges, climate-specific apprehensions stem from the still-emerging nature of many startups, which often lack substantial revenue generation.
The slow progression to later-stage funding can be attributed to the cautious approach being taken by venture capitalists. Many climate tech startups are still in developmental phases, with investors awaiting evidence of a viable revenue model before committing further capital. Akin underscores the necessity of validation at the earlier funding stages, as many companies experiment with their models, leading to uncertainty in proving their market fit. This exploratory phase might eventually lead to consolidation in the sector, where a few market leaders could emerge while others falter or get absorbed.
Despite the challenges, the overall market potential for climate fintech is substantial. Matthew Blain of Voyager Ventures emphasizes that regulatory demands for robust accounting and analytics solutions are fueling investment interest. The European Union’s cross-border adjustment requirements necessitate better understanding and reporting of carbon footprints, not just within companies but across entire supply chains. This trend is being recognized in the market, showcasing an increasing reliance on carbon accounting in procurement processes and bolstering the need for innovative solutions like those being developed by climate fintech startups.
As the climate tech landscape evolves, particularly in Europe, there is a positive sentiment regarding its potential to lead in this sector. With $5.6 billion invested in European climate startups and scaleups in the first half of 2024 alone, growing environmental concerns, particularly in light of frequent extreme weather events, are expected to drive demand for climate fintech solutions. Ultimately, Kaan Akin and industry experts agree that climate fintech will be integral to meeting global sustainability goals, enhancing corporate accountability, and addressing the challenges of climate change.
