Credit: Nattanan Kanchanaprat
Funding for climate fintech hit record levels in 2022 with investment in carbon accounting and offsetting startups increasing several times over
Climate fintech startups banked a record $2.9bn in new funding in 2022, as investment defied considerable economic headwinds to more than double on 2021 levels.
That is according to new data from fintech specialist CommerzVentures, which reveals how multiple European markets enjoyed a surge in venture capital investment over the past 12 months as investors sought to tap into surging demand for fintech solutions that can support corporate decarbonisation efforts.
The report confirms that investment in carbon accounting tech more than doubled to $970m while carbon offsetting firms attracted $505m - over three times 2021 funding levels.
Moreover, investment in climate risk management grew slightly to $343m, sustainable banking funding hit $230m, while investment in firms specialising in ESG reporting solutions remained flat at $186m.
European climate fintechs raised 1.4 times more VC funding across 2.5 times as many financing rounds compared to their US counterparts. Firms based in France attracted a record $770m, overtaking the UK - which attracted $562m investment - as the highest in Europe.
CommerzVentures also flagged how both Icelandic and Swedish startups punched above their weight relative to their host country's economic size, with Icelandic firms receiving $117m in funding and Swedish climate-focused fintech businesses attracting a record $59m last year.
The analysis of 563 climate fintech startups is based on interviews with founders and C-Suite level executives, a review of 21 leading climate and fintech publications, and funding data from the likes of Pitchbook and Crunchbase venture capital databases.
CommerzVentures said the results underscored the "extraordinary momentum" across the climate fintech sector.
Jacqueline van den Ende, founder and CEO at Carbon Equity - an impact investment firm quizzed as part of the report - claimed that investors in climate fintech firms are being won over by "attractive financial returns" and the knowledge that they are part-owner of ground-breaking climate solutions.
"In the next 30 years, we need to transform from a fossil based economy to a fossil free one," she told CommerzVentures. "That means we need to transform everything from the way we eat, to the way we travel, to the way we live. The demand for fossil free or low carbon solutions will be huge because we have no other choice than to decarbonise."
News of record fintech investment comes off the back of an ONS report that detalied how the UK's Low Carbon and Renewable Energy Economy grew by more than 30 per cent in 2021.
It also follows the launch of last week of a new VC initiative, dubbed Cleantech for UK, which aims to better co-ordinate support for the next generation of sustainable startups.
Participants in the new coalition, including Bill Gates' Breakthrough Energy investment vehicle, represent combined funds worth more than £6bn.
