“FinTech for Future”: Why we invest in Climate FinTechs, and what type of teams we are looking to back
This Friday two years ago, a then 15 year-old Swedish girl called Greta took a cardboard with the inscription “Skolstrejk för Klimatet” (“School Strike for Climate”) and sat down outside her school.
Back then, who could have guessed that Greta would within a matter of months spark the global “Fridays for Future” movement, and inspire millions of people to walk out of schools and workplaces in protest?
The message that climate change is an existential threat to humanity is rapidly sinking in. An existential threat not only for future generations, but for generations currently alive. If we don’t act decisively now, one third of the world population will need to migrate during the next 50 years, as their homelands become uninhabitable.
The United States, China, Brazil, and India will be among the worst affected countries, and are set to lose vast areas of human habitat. These countries currently contribute enormously to global warming, with their governments partly still denying man-made climate change.
However, as the realities of climate change become increasingly apparent, it is inevitable that governments around the globe will be forced to act more decisively than they have so far (“Inevitable Policy Response”).
The need for immediate emission reductions is underlined by the following numbers: To reach the Paris target of limiting the global temperature increase to 2C, we can only emit an additional 400bn tons of CO2 in total (2020 emissions are projected at 35bn tons globally)
Decarbonizing the global economy will be very high up on the agenda of governments, corporations, and investors. It will also need to be driven by individual consumers.
FinTechs can play a crucial role in contributing to Decarbonization, by impacting each of the following drivers:
Carbon pricing: Carbon credits have been one of the best performing commodities over the last three years, and are a rapidly emerging global asset class. It will spawn ecosystems of related products, services and enabling technologies (eg. tokenization, exchanges, custody and brokerage, investment data and products).
Carbon offsetting: Companies and a growing number of consumers offset their emissions by paying for carbon reduction projects.
This is a rapidly growing market, but with a high level of confusion — creating opportunities for big data analytics, regulatory technologies (RegTech), InsurTech, PSD2 “account information services”, and Neo Banks.
Financial accountability for emissions: Companies’ climate impact is increasingly seen as financially material by investors. Technology can play an important role in enabling climate-related disclosures and in making them auditable and replicable. Climate impact management & reporting software is another key opportunity.
Influence consumer behavior: Governments will seek to influence consumer choices, creating a huge opportunity for startups helping consumers to adopt a low-carbon lifestyle. Real-time payment data is a starting point for analyzing consumer carbon footprints, and we see large opportunities for financial products with in-built incentives to lower carbon footprints.
When looking at startups within each of these opportunity spaces, we like to understand the following key factors:
- Size and immediacy of impact (with its technology, how much and how fast can this startup contribute to emission reductions?)
- Does the team have a knack for building a community (or even a movement) around its company?
- Do the founders have an authentic motivation, while being great at communicating it?
- Does the company have a robust business model to monetize emission reductions?
In short, we are looking to back true missionaries, whose technology has the potential for an outsized impact on carbon emissions. Think of Greta Thunberg with outstanding technical and commercial co-founders!
***
If you are building a FinTech or InsurTech company helping to Decarbonize our economies, we at CommerzVentures would be happy to hear from you. CommerzVentures is an independent venture capital fund sponsored primarily by Commerzbank AG.
