ClimateTech software for banks and fintech

ClimateTech software for banks and fintechs

We are confronted with it on a daily – if not hourly – basis: the shocking figures about how our world is changing. The dire consequences that will follow are everywhere to be heard. Another IPCC report made it clear just a few weeks ago.

Fortunately, an increasingly growing number of organizations are committing to making our world more sustainable. Net Zero commitments have sprung up like mushrooms since mid-2019 (source: BloombergNEF). Where most of the larger corporates have now set some form of net-zero commitment, it is now all about the integrity behind them.

Net zero committments by world's largest companies
Source: BloombergNEF, Climate Action 100+

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Regulation is complementing private sector initiatives to push corporates to enforce the targets they have set themselves:

  1. On a global level, the IFRS Foundation announced an International Sustainability Standards Board to complement its existing accounting standards on a global level.
  2. On a European level, the upcoming EU taxonomy regulation will require all European corporates and investors to be reporting on their climate goals alignment in a structured and standardized way.
  3. Specifically for financial institutions (FIs), ABN AMRO and other prominent banks are working on the Partnership for Carbon Accounting Financials (“PCAF”). This framework tries to harmonize the way FIs calculate emissions and already has over 250 FIs in its network.

Things are moving, but inefficiencies prevail. Our colleagues at ABN AMRO, their clients, and our own start-up and VC network are quite vocal about it. Economic agents of all sizes, including consumers, face difficulties to assess their carbon footprint and how to reduce it. Large (and soon smaller) organizations find it hard to understand what regulatory frameworks they should comply with. Investors struggle with limited information standardization in the market, making it hard to benchmark. Unfortunately, this list goes on.

At ABN AMRO Ventures, the CVC fund of ABN AMRO Bank, we believe that investing in tooling that supports carbon measurement/reduction/offsetting, ESG reporting, and data availability can provide significant value to the global ‘green’ transition.

ClimateTech (software) is emerging

European climate tech startups raised a record $11B in 2021: a 2.2x increase on 2020.
Source: Dealroom, The rise of European Climate Tech

We believe ClimateTech is on the verge of doing the same thing to sustainability as Fintech did to finance. European ClimateTech start-ups have raised a record of USD 11bn in 2021, more than doubling year over year. Larry Fink, the CEO of Blackrock, stated that he believes the next 1,000 unicorns will be in ClimateTech.

In order to understand where we could add value as a strategic fund of a bank, we drilled down into the sector and selected a few areas in which we have a strong conviction. The bank and our customers need solutions for carbon tracking & offsetting, software helping to enable climate transition, and data & rating providers. An introductory description and segmentation, including some of the key players, is given below. Note that some players in this non-exhaustive list could be categorised in multiple buckets – in emerging tech sectors, rigid segmentations rarely give the full picture.

Three interesting segments in ClimateTech

ClimateTech software segments
Source: ABN AMRO Ventures

Carbon tracking & offsetting

Consumers and businesses are becoming increasingly interested to include sustainable behaviour in their daily lives. However, as mentioned before, many do not know what their actual carbon footprint is and how to offset it. Carbon tracking & offsetting providers allow consumers and businesses to:

  1. Gain an understanding of how carbon-intensive their transactions and lives are
  2. Help them compensate the generated emissions.

Two interesting plays here:

  • Tracking software: software that tracks your carbon footprint through open banking. Daily payment transactions (classified in buckets) serve as the basis to calculate emissions. You are then able to offset emissions in one-offs or through a subscription. Start-ups to watch include Doconomy, Cogo, Yayzy, Ecolytiq, and Greenly.
  •  Offsetting tech: the integration of offsetting in the checkout process of a transaction. You have probably seen it before: a merchant suggests paying a fee on top of your bill based on the cost of the emitted carbon attached to the product and the transaction. The fee is reinvested in carbon offsetting projects to provide a Net-Zero balance. Some notable companies active in this space include Patch and CHOOOSE.

B2B transition software

As social and regulatory pressure grows on businesses to become more sustainable, the tools supporting this trend are in high demand as well. Organisations seek help to calculate their carbon emissions, reduce/offset those emissions, benchmark them against competitors, and receive guidance for regulatory reporting. The idea is the same for Corporates and SMEs, but the driving forces are somewhat different:

  • ESG reporting: the need for ESG reporting software is largely driven by regulatory changes, which are increasingly becoming legally binding (check the EU Taxonomy). Navigating the jargon and the complexity of the requirements can become a nightmare. Consultants and lawyers charge lofty fees for their help, but start-ups might change this. Emerging players such as Greenomy, NossaData and Worldfavor help corporates meet requirements and comply with international standards with time and cost-efficient software.
  • B2B carbon management: we see a growing amount of players creating one-stop-shop solutions to automate data collection, perform analysis, create reduction plans, benchmark against competitors and give access to offsetting. Some players focus on larger corporates more subject to regulatory urgency: check out companies such as Sweep, Persefoni, and Plan A. Other players focus on SMEs or verticalized sectors, where regulation is less pressing but data easier to capture. Some interesting companies include Watershed, Emitwise, CarbonChain, Normative and Pledge.

Data & rating providers

In 2020, 33% of overall assets under management in the United States are subject to some sort of sustainable investment strategy. However, the tooling and infrastructure for ESG investing are still largely in the making:

  • Company data & rating: ever had that disappointed feeling when you checked the composition of a “Green” ETF or Index fund? We did too. Luckily start-ups are trying to improve this, with more accurate methodologies and deeper insights to check how sustainable companies are and deliver on their claims. A few of those include Impak Finance, Util, NetPurpose, YvesBlue and our ex-portfolio company OpenInvest, acquired by JP Morgan.
  • Offsetting data & rating: plenty of players provide opinions and ratings about companies, but only a few do this for another asset class: carbon offsetting projects. This market is anything but transparent at the moment, with a lot of projects failing or not delivering over time. Rightfully so, offsetting is being criticized for enabling greenwashing. Yet, we believe offsetting will be a critical part of the race to net zero. We are not the only ones: McKinsey Sustainability teams expect demand for carbon offsets to increase up to 100x by 2050. Making sure these projects will fill their duty to help save the planet is key. Innovative start-ups to watch in the field include Sylvera, Pachama, and BeZero Carbon.

Concluding remarks

The world’s climate status is quickly deteriorating, and founders are fortunately conscious about it: a flurry of new technologies is popping up in all fields of sustainability. With stronger governmental focus after COP26, increased consumer and investor expectations and introductions of new regulations, ClimateTech is on the rise and here to stay. With its ambition to be “banking for better, for generations to come”, ABN AMRO has made sustainability one of its core strategic pillars. As the venture arm of the bank, we are continuously looking at exciting, innovative ideas.

We are of course very open to sharing thoughts on any of these topics, feel free to reach out to Marinus Oosterbeek or Erwin Saasen!

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Additional resources:

New IPCC report: Emissions can be halved by 2030 – Intergovernmental Panel on Climate Change (IPCC)
EU taxonomy for sustainable activities – European Commission
Enabling financial institutions to assess and disclose greenhouse gas emissions of loans and investments – Partnership for Carbon Accounting Financials (“PCAF”)