A deep dive into the world of climate fintech with firstminute Capital – Maddyness UK

Climate fintech is a cross-cutting sector covering the intersection of climate, finance and digital technology.

Efforts to mitigate such risk will require a fundamental retooling of our global economy and coordinated action across public and private stakeholders.

Financial product innovation and applied technologies such as big data, artificial intelligence, distributed ledger technologies make capital availability, data gathering and processing much faster, transparent and cost effective.

Financing requirements for the transition to a low-carbon economy and for meeting the objectives of the Paris Agreement are estimated to be in the range of $3–$5T of investment per year globally over the next 30 years for the decarbonisation of 10 sectors representing 75% of global emissions.

Additionally, climate finance needs are expected to not be linear over the next three decades as a lack of urgent action today will result in higher future investments.

The global fintech market is projected to grow steadily at a compound annual growth rate of about 23% reaching a market size value of $324B by 2026.

Spending behaviour is indeed strongly tied with carbon emissions, and the conscious consumer needs to be provided with tools to make sustainable decisions.

These include new lending structures such as P2P lending for capital accessibility, AI and big data models for credit analysis and Blockchain-based platforms for transparent and intermediaries-free green loan issuance.

The growth of ESG investment is driven by multiple factors, including regulatory pressure, increased sustainability-related education of the population, shift of capital to the younger generation, decreasing fees and superior returns performance, with the majority of ESG funds outperforming the wider market over the last decade.

Asset managers and owners are leading the movement presenting $100T in AUM as members of the Principles of Responsible Investment , with many also signing the Net-Zero Asset Owner Alliance.

In today’s ever changing world, dividends derived from GHG intensive activities are offset by substantial sustainability risks.

In this context, climate risk analysis does not imply fighting climate change but rather ensuring the maximum return on investment despite climate change.

The collection of large data gathered from edge computing devices such as sensors and satellites and from more traditional technologies such as Cloud and public databases has fostered new enriched datasets for processing and insights extrapolation.

Interconnected decentralised microgrids are known as smart grids, where electricity flow is decided using technological solutions such as smart meters, smart appliances and renewable energy sources.

As the flow of capital increases towards decarbonisation, accurate carbon data and reporting is pivotal ensuring systematic financial supervision and providing actionable insights to private and public stakeholders.

Such growth is facilitated by international efforts to align climate monitoring and taxonomies between corporates and states within agreed frameworks.

Insurance companies are the largest group of asset owners on the planet after pension funds with over $30T in AUM.

As risk managers, insurance companies have access to the latest climate models which are used as inputs to their catastrophe risk models and loss-prevention systems, reducing costs of labour and maximising speed of claims payments.

Decentralised technologies have the potential to foster sustainability-related changes by exploiting the benefits of blockchains, such as immutability and transparency.

Despite the controversy, blockchains are considered vital enablers in tracking carbon emissions and consumptions.

Secondly, banks have already started to implement blockchain technology to help with green bonds issuance by creating smart contracts with built-in encryption features, making a transfer of value virtually fraud-proof.

The climate fintech market is in its early stages and growing, with over 75% of companies having raised USD $10M or less.

For climate fintech, increasing data availability and policy changes are creating space for growth, however the taxonomies, data standards, and national and industry policies are still being established.

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