Climate Fintech Is Fertile Ground For Seed And Early-Stage Deals

A few years ago, J.P. McNeill’s family decided to make a more concerted effort to help combat global warming. They sold their internal combustion cars, put solar on the roof, and modified their diets to favor more sustainable food choices.

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But when it came to finances, McNeill had a stark realization: While they were doing their part at home, the money in their checking and savings accounts was serving as collateral for the bank to extend financing to companies in some of the least environmentally friendly industries.

That observation motivated him to find an alternative. It culminated with the launch of Ando Money, a mobile banking app that uses deposits to invest only in green initiatives like renewable energy and sustainable agriculture.

“If you compare things the average person can do, putting money into an account solely investing in green assets has a 27x greater impact on reducing emissions than all these other activities,” McNeil said, comparing the impact to efforts like those his family undertook. To fund further expansion, the startup raised $6 million last month in a seed round led by TTV Capital.

Ando is one of a growing list of startups at the intersection of fintech and climate that have raised funding in recent months. Others are developing offerings including carbon-tracking debit cards, a robo-advisor platform for offsets, and products that make it easier for investors to value ESG (environmental, social and governance) assets.

Below, we take a look at where the money is going.

An early-stage crew

Recent investments are skewed heavily to the earliest stages. A list compiled using Crunchbase data found at least 16 companies that have raised rounds in the past year—virtually all seed or Series A. Take a look at the list below:

The largest funding recipient by far was Xpansiv, a marketplace for ESG commodities, which announced $100 million in new financing in September from backers including Clean Energy Finance Corp. and Commonwealth Bank of Australia. The fundraise follows several quarters of sharp growth, with Xpansiv estimating that carbon trading volumes on its exchange platform nearly quintupled year over year in Q2 of 2021.

Other noteworthy funding recipients include:

• London-based Clim8 Invest offers a platform for investing in a portfolio of public companies making an impact in tackling climate change. It’s raised more than $18 million to date from a mix of seed and crowdfunding.
• San Francisco-based Evergrow, a provider of carbon offtake contracts and project financing, raised $7 million in a seed round this month led by Congruent Ventures and XYZ Venture Capital.
• Doconomy, a Swedish startup that compiles and provides data around the climate impact of products, transactions and companies, raised a $17 million round in September. The company called it the largest financing to date for a European climate finance startup.

Tailwinds for growth

The spurt in early-stage dealmaking around climate finance coincides with several broader developments boosting demand for scalable approaches to clean energy project financing, offsets and other niches.

On the policy front, the United Nations’ COP26 climate conference culminated this month with the Glasgow Climate Pact, an agreement among nations to strengthen near-term climate targets and move away from fossil fuels faster. It includes pledges to reverse deforestation by 2030 and to work toward making all sales of new cars zero-emission globally by 2040.

While the pact falls far short of what climate activists had hoped to achieve, it does offer stronger assurance that governments will be on board with more capital-intensive efforts to promote clean energy and rein in carbon-spewing industries.

In the U.S., meanwhile, the Biden administration is pushing Congress to pass Build Back Better, an expansive bill that includes a provision to cut greenhouse gas pollution by over one gigaton in 2030. It also pledges $555 billion investment in clean energy initiatives across buildings, transportation, industry, electricity, agriculture and land use.

Carbon markets also look poised for growth. Today, participation of institutional investors in carbon markets remains limited, per a recent report co-authored by consultancy McKinsey. It estimates that carbon markets used by companies to comply with emissions mandates have a value of more than $100 billion, while voluntary compliance markets are far smaller, with a value of only $300 million in 2020.

Given that the top 100 global institutions have over $19 trillion under management, per the report, it’s easy to see how even a small allocation shift could lead to a multifold rise in the size of the carbon markets.

Of course, major shifts in financial behavior to support climate goals won’t happen overnight. But they are happening.

Back at Ando, for instance, McNeill reports that his climate-conscious banking app, launched earlier this year, now has over 30,000 customers. Naturally, its account holdings still comprise a miniscule share of the trillions in total U.S. bank deposits. But on the bright side for Ando, that leaves plenty of room for growth.

Illustration: Dom Guzman