FinTech for the Future: A Breeding Ground for Unicorns
Why the fiercest carbon fighters will build the most valuable businesses
As venture investors, a key part of our job is to predict what kind of companies will be desirable for acquirers or public markets in five to ten years.
Trying to make such long-term predictions can turn out to be a humbling experience. The number of unknowns is almost infinite, while simply extrapolating current trends rarely leads to exceptional returns.
However:
If there is one prediction that I feel truly confident about, it would be that climate change will fundamentally transform business, societies and our lives within this decade.
It will also open up massive opportunities for new startups, not least in the FinTech and InsurTech spaces.
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The science behind climate change is firmly established. In fact, scientists in the 1970s and 1980s correctly predicted the climate change that would occur between then and today.
Despite the overwhelming evidence for man-made climate change, humanity has done very little to contain it. The upshot of that inaction is that annual carbon emissions increased from 22 billion tons in 1987 to 36 billion tons in 2017.
2019 and the first months of 2020 saw climate crisis disasters of unprecedented severity, with cyclones Idai and Kenneth killing thousands in Africa, and apocalyptic bushfires in Australia burning more than twelve million hectares of land. Among the lower-impact events were the unparalleled heat waves that gripped Europe, and the unusual drought experienced in large parts of the continent.
Scientists predict that this is just a taste of what is going to happen over the coming decade.
Long term, the economic damage and human suffering caused by climate change will vastly outweigh any short-term costs associated with reducing carbon emissions.
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The current corona pandemic has a silver lining, as it highlighted our collective ability to drastically change our behavior in the face of danger. And despite the pandemic, climate change awareness has risen to new all-time highs.
With some deplorable exceptions, governments and societies around the world have realized that massive action is needed to reduce carbon emissions — and that the time to start is now:
California plans to achieve that target by 2045.
Japan and Canada have committed to an 80% reduction within that time frame.
And pressure on the governments of other large carbon-emitting nations is increasing.
The Carrot and Stick Approach to Decarbonizing
Commiting to decarbonization is one thing. But to achieve it, a broad range of measures are needed during the next few years.
Governments will therefore use a carrot and stick approach to drive the decarbonization of the energy sector, industry and transportation, and to steer consumer behavior.
Measures under this system will likely include:
- Expansion of carbon pricing schemes (“cap and trade market”)
- Establishment of large-scale carbon offsetting programs
- Financial accountability for carbon emissions
- Regulations and incentives for consumers to reduce their individual carbon footprint
The complexities of implementing each of these measures will create massive opportunities for new and existing FinTech and InsurTech startups.
In the following, I will explain each measure in more detail, and highlight the respective entrepreneurial opportunities. I will also include short portraits of FinTechs and InsurTechs that have already started addressing these opportunities:
Carbon pricing (“cap and trade”): Carbon credits have been the world’s top-performing commodity and are an emerging global asset class, spawning ecosystems of related products, services and enabling technologies.
Carbon offsetting: A rapidly-growing market creating opportunities for big data analytics, regulatory technologies (RegTech), InsurTech, PSD2 “account information services”, and Neo Banks.
Startups: Descartes Underwriting, Greenly, Tomorrow
Financial accountability for carbon emissions: Investors are pressuring companies to disclose climate-related information and act on it. FinTechs serving corporations and investors will help to achieve this imperative.
Startups: Planetly, KlimaMetrix
Reducing the carbon footprint of individual consumers: Governments will seek to influence consumer choices, thereby creating a huge opportunity for startups helping consumers to adopt a low-carbon lifestyle. Real-time consumer payment data may be a good starting point.
Startups: AliPay’s “AntForest”, By Miles (CommerzVentures portfolio), Greenly
Decarbonization & FinTech: The macro view: Who will be the winners and losers in a decarbonized economy, from a FinTech standpoint?
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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.
