This article is part of a broader series on climate tech here at Kfund - including the future of the grid, solar opportunities in Spain, and an overview of climate tech in Spain.
–
The news continues to roll in - This September was the world’s hottest on record by an ‘extraordinary’ margin, combining El Niño with the effects of climate change to produce unprecedented temperatures across much of the globe. This has continued into the Autumn, with Spain closing schools across the Canary Islands on 10th and 11th of October due to record 38.5 degree heat.
On this theme, Swedish climate VC Pale blue dot recently shared their thinking around the 2009 planetary boundaries concept, overviewing the nine boundaries needed to sustain a “safe operating space” for humans on earth, and the outlook is bleak. We have now surpassed six of these, with only ozone depletion, aerosol loading and ocean acidification remaining.
While this is a morbid note to start on, it highlights the now-more-than-ever importance of investment into technologies and solutions that will help us not only mitigate and reverse the effects of climate change, but also live with the conditions that we are going to have to suffer for the decades to come.
An area receiving considerable attention in recent months has been that of climate fintech - a macro-category that covers the convergence points between financial services, financial technologies, and solutions focused on climate change.
This is a space we have become increasingly interested in at Kfund because of the pressing market need for such solutions. In our view, we are currently facing a square peg, round hole problem with many areas of the climate tech stack - that many of the solutions required (in removal, offset, behaviour change, emissions tracking, etc.) are neither currently effectively incentivised in the market, explicable to non-experts, nor well understood by those needed to fund them.
However, the climate fintech space is beginning to address many of these problems and provide a much needed interlocutor between the legacy world of financial services and the myriad of climate-focused solutions - both physical and digital - emerging in the market.
As such, we felt there was an opportunity to provide a broad overview of the climate fintech space (building on the excellent work done by others in recent months), and highlight the areas within the stack that we find most interesting, as ever with a focus on relevant examples coming from Southern Europe.
Establishing a clean taxonomy for the space is difficult, due to the fact that climate fintech both encompasses the “greening” of fintech (e.g. providing a climate angle to the traditional financial services stack), along with the financing of climate (e.g. how to provide capital, insure projects, and track the progress of investments into climate projects).
Broadly, we have cut the space into seven macro categories:
For excellent maps on the space, have a look at Berlin-based AENU’s recent climate fintech map, or CommerzVentures 2023 Climate Fintech report.
Project finance refers to the instruments and products that help fund climate-focused initiatives - be those business operations, infrastructure, new technologies or nature-based solutions.
This is an area requiring considerable innovation, given the first-of-a-kind problem faced by many climate projects, combined with the lack of appetite for certain investment areas due to complexity and adverse macro conditions (e.g. those in the wind sector currently driven by rising interest rates).
As the World Economic Forum recently noted regarding green hydrogen, “financiers want to invest and there is an increasing appetite for financing clean hydrogen projects, but there remains a lack of understanding as to the fundamentals of these projects”.
The most effective solutions in this market are focusing on solving financing for specific verticals, such as Agreena (Copenhagen), a business that has built a verticalized product focused on farmers - helping them to access financing through the sale of carbon credits. The tool combines a tech product that allows farmers to establish a baseline for their own activity, with internationally recognised verification standards and an ability to sell credits on the voluntary markets.
Of note in Spain are nTeaser (Madrid) and Alter-5 (Madrid), both funding marketplaces for renewable energy projects. Alter-5 focuses on connecting large-scale institutions with securitised bundles of small-to-medium scale solar and wind projects - tackling the lack of qualified deal-flow on the part of financial institutions, who are more comfortable with large-scale projects than investing in bundles of smaller developments.
Driving liquidity in the Spanish market is also Pontio (Madrid), a financing tool for B2C solar players, providing capital to solar installers looking to offer financing to their customers but lacking the funding pools required. This is a space we expect to continue growing in Spain, bringing in funding tools for tangential areas such as home retrofitting, electric vehicles, and biodiversity projects.
While on the B2C side, notable Spanish examples include Crowmie (Valencia) and Fundeen (Madrid), both allowing retail investors to write cheques into crowdfunded renewables projects - harder marketplaces to build due to the increased fragmentation of B2C and lower margins, but ones with considerable upside potential if the network effects can be achieved.
And while slightly tangential, Crowdfarming (Madrid) is also worth mentioning - allowing individuals to pre-purchase harvests directly from farmers, in effect providing advances for crops and allowing greater stability of financial planning for small-to-medium sized growers across Europe.
We observe that solutions that provide a combination of transparency, security and access to top-tier transition projects will help large, slower moving financial institutions become comfortable with investing in these assets - vital in the process of green transition.
Spanning the gap between project financing and sustainable investment is Solid.World (Tallinn), a commodities financing platform building the infrastructure to underpin green commodities markets. The tool enables liquidity providers (e.g. banks) to generate returns through enabling transactions between carbon project developers and buyers.
Stepping a layer back, sustainable investment allows retail and professional investors to dedicate funds to securitised green products.
This is a difficult market and one with notable failures such as clim8 (London) that shut down in early 2023 - as retail investor appetite for ESG investing has not kept pace with expectations.
However, Carbon Equity (Amsterdam) is seeing traction allowing small-ticket access to climate and impact VC, along with Circa5000 (Liverpool/London), allowing retail investors to access impact funds or bundles of impact investments as they would invest in stocks or ISAs.
Perhaps a difficulty faced here has been the difficulty around the broader “ESG” space in investing, as recently noted by the Financial Times, combined with the fact many existing B2C investment propositions, e.g. legacy financial institutions or start-ups such a Moneybox (London) or Nutmeg (London), already provide ESG or impact investment options in their portfolio distributions, amongst a wider range of products.
We observe little activity in this space in Southern Europe currently, and remain wary of new entrants in a space that is relatively well covered by green / ESG products from legacy financial institutions. However, opportunities are there for businesses who can build high investor trust, clearly elucidate the value-add of impact investing, and provide consistently competitive returns.
The quantity of natural disasters has increased more than five-fold in the last 50 years, causing up to €340bn of global losses annually. This is driving various start-ups to provide data and analytics related to climate scenarios, transition pathways, and physical risk assessments to both prepare for and mitigate the effects of adverse weather.
This is a busy space, with start-ups building products designed for specific industries (e.g. risk around mortgages, insurance companies) or the data layer to sit below these applications, providing access to various public or private data sources.
Best in class players across Europe include ClimateX (London), an API-based tool providing credit risk solutions based on emissions and climate pathways, with a focus on mortgage providers, or Mitiga Solutions (Barcelona) who have developed an AI-driven platform to predict the risk and potential damage of extreme weather events and hazards.
Worth mentioning in the region are also Woza Labs (Bizkaia), building a variety of ready-to-use geospatial data solutions (including risk, sustainability and agricultural products), Lobelia Earth (Barcelona) building both proprietary climate datasets and risk algorithms, or Eoiliann (Turin), another API-based solution predicting vulnerability of buildings an broader economies.
Providing the infrastructure layer for financial institutions are both Arcturus.io (London) and Dovetail (London). The former is building both a risk-management tool to plot out portfolio scenarios, as well as wider data management products for banks across analytics, emissions calculations, and decarbonisation. While the latter provides scenario analysis for financial risk - matching climate change impacts with portfolio decisions.
For Kfund, this space has considerable potential, and we're interested in those companies building their own risk algorithms on a combination of public and private datasets, or indeed sourcing/developing novel datasets to provide percentage point advantages in accuracy vs. competitors. We are also confident in those players developing sector or segment specific solutions in large markets (e.g. mortgages), with a focus on integrating into existing tools and platforms as seamlessly as possible.
Worth noting here is also the overlap between climate and the budding area of space tech, including players such as OroraTech (Munich), using its own small-scale satellites and sensors to provide wildfire risk analysis.
Closely linked to risk analytics and data products are the insurers working to provide products focused on the impacts of climate change.
The B2B space has both verticalized solutions, including Neptune Flood (Florida), focused on the high (and ever increasing) flood risk in the southern state, or Jumpstart (Oakland) with an earthquake specific product, alongside parametric products such as Arbol (New York) or Descartes (Paris), offering a variety of insurance products that scale versus the magnitude of natural catastrophes and weather events.
Of note is also Kita (London) - helping finance the growth of carbon removals and offsets, providing a portfolio of insurance products that reduce carbon risk - in turn incentivising more investment in the space.
While on the B2C side, we see residential products such as Hometree (London), offering home energy insurance including boiler cover, or Enzo (Heidelberg), providing a digital-first home insurance product to German consumers.
We are yet to see considerable activity in this space in Southern Europe, but expect region-specific B2B products to emerge around the areas of wildfire, crop failure and sea level rise (disasters to which the Iberian peninsula is particularly vulnerable), along with B2C products focused around home retrofitting.
Carbon accounting and ESG can be seen as sibling spaces, with the former focusing on the measurement of carbon emissions from an organisation, while the latter covers the stakeholder and regulatory reporting requirements across the areas of environmental, social and governance factors - in many ways an umbrella term that can include carbon accounting.
The carbon accounting space was one of the more active early areas in the climate fintech stack, with CommerzVentures noting over $970m raised across the US and Europe in 2022.
At-scale successes include Persefoni (Arizona), Watershed (San Francisco), Plan A (Berlin) and Sweep (Paris) that have now raised more than €220m collectively, offering variations on the theme of scope 1-3 emissions tracking, reduction and reporting.
This is a large and ever-growing market, as local and international regulation pulls more and more businesses into carbon accounting and reporting, alongside stakeholder pressure on businesses to report their emissions more clearly, and work to actively reduce these as they grow.
In Spain, Kfund portfolio company BCome (Barcelona) offers a sustainability platform for textile and apparel businesses, empowering them with data and tools to build responsible supply chains, guarantee transparency and bring this information through to the final customer. Also of note in the Spanish market is Dcycle (Madrid), a fast-growing accounting player offering both emissions measurement and lifecycle analysis, as well as actionable tools for multinational companies to improve their carbon footprint.
From an investment perspective, we are confident there is still considerable room for growth in this space - with businesses differentiated on the speed and ease of onboarding and data collection - as well as interesting opportunities in non-English speaking markets, or sectors involving complex regulation and highly specific data sources.
While ESG as an investment category is having a tough 2023, regulatory tailwinds (such as incoming 2024 EU-wide regulations) are driving growth in this market as more and more types of institutions are being driven to report their ESG performance.
While the aforementioned carbon accounting businesses are largely moving upstream and broadening their product suites to cover more ESG areas, right now best-in-class ESG examples include Atlas Metrics (Berlin), Sustaind (Berlin), Novisto (Montreal) or Clarity AI (Barcelona).
Of equal note is Climate Aligned (London) that works on the investor side, by leveraging a gen-AI driven platform to collect and analyse sustainability and ESG data for potential investments - focusing on interrogating these claims to ensure an avoidance of greenwashing.
Focusing on financial services segments we are fans of Apiday (Paris) and Kara (New York / Barcelona) capitalising on the growth of both venture capital and private equity as an asset class, alongside the difficulty faced by these firms in gathering heterogeneous and distributed ESG data across portfolios, or Datia (Stockholm) building a similar product for wider-financial services.
Much like carbon accounting, we’re interested in players here who are focusing on large and growing consumer segments, and can drive user engagement through streamlined onboarding, education around data capture for clients, and clean but powerful data visualisation for different stakeholder groups.
Carbon offsetting is the process of reducing or removing carbon dioxide from the atmosphere, in order to compensate for emissions made elsewhere, while trading is the sale or purchase of the credits generated in these processes.
It is important to note the difference between the voluntary and compliance carbon markets here - the former being a free market for carbon offsets, not established by governments, and the latter being established by governments as a means of achieving their carbon reduction targets (e.g. the European Union’s Emissions Trading System).
Nearly all start-ups operate in the voluntary markets, which, as of mid-2023, are little more than a rounding error of the latter - $2-3bn vs. more than $850bn. Much has been written around the controversy of the voluntary markets, making this a space that many investors are wary of touching as of late 2023.
From a VC perspective, there is little differentiation around marketplaces - and given the opacity of the space in recent years - many investors are still reluctant to act here. Notable players include Pachama (San Francisco), or Cur8 Earth (London), the former an early mover in the sector, and the latter having gained traction focusing on a rigorous vetting process of the projects offered to buyers.
Of note in Spain is ClimateTrade (Valencia/Miami), whose strong performance in Southern Europe reflects the trend of buyers favouring credits generated within or near to their home market - a trend we expect to continue in years to come.
However, this space remains difficult as the downgrading or junking of many credits issued in recent years is driving reluctance on the part of credit-purchasers to buy, leaving marketplaces in a bind with reduced corporate activity.
This said, interesting activity is occurring in the tech and processes surrounding tracking, registering and verifying these assets. Lune (London) and Patch (San Francisco) have built the software infrastructure layer for carbon markets, with the latter providing inventory management software for developers on the supply side, then API integrations on the demand side for purchasers to connect their credits to internal systems.
BeZero Carbon (London) is a notable example of a ratings agency in the space, bringing a financial-services outlook to the assessment of the quality and validity of assets. Puro (Helsinki) and Isometric (London) are building registry products for the tracking of assets, with the latter combining this with a scientific tool to help buyers validate assets more rapidly. Isometric’s model is based on asking the credit buyer to pay for the measurement, reporting and verification (MRV) process - intending on re-structuring the market to solve built-in problems around validity when the seller is also the one paying for verification.
There is limited activity in the Southern European markets here, with registries and verification tending towards winner-takes-all or at least oligopolistic markets, and start-ups in the marketplace space struggling to find traction.
Lastly, sustainable banking refers to traditional retail banking products with a climate focus, while behaviour change is the use of financial products or reward mechanisms to positively influence consumer behaviour.
On the former, Tandem (London), Green Got (Paris) and Helios (Paris) are green-focused retail banks, while Aspiration (Marina del Rey), is a carbon-credits marketplace that has moved into offering a climate-focused consumer debit card. Their product both offers benefits (e.g. automatic offsetting, charity donations) to users, but also incorporates tracking for the impact of individual spending.
Doconomy (Stockholm) is building the enabling layer to this space, working with financial institutions to integrate carbon calculations and behaviour change into financial products, acquiring Dreams Technology (Stockholm) back in March 2023 to incorporate the latter’s financial wellbeing tools into the product.
Much like impact investing, this space remains difficult given not only the complexity of building a retail bank in the first place, but also the fact the customer segment for an impact-focused product is considerably smaller than for generalist accounts. We observe the lack of activity from the large, well funded neo-banks and fintech challengers as evidence this market remains immature across much of Europe.
—
As noted in the introduction, while innovations in software will help mitigate the problems we face, they must be combined with the physical processes of reducing and removing emissions to have any hope of getting near net-zero targets.
These are not traditional “tech” areas (nor ones many VCs are comfortable investing into) - but as one expert we spoke to noted - for every euro spent in the secondary carbon markets currently, we are seeing €10 in investment into the direct removal markets. The collaboration and combination of software approaches with real-world nature-based and science-based companies such as Charm Industrial (specialists in bio-oil sequestration, San Francisco), Eion (enhanced rock weathering, New Jersey), Planetary (ocean alkalinity enhancement company, Dartmouth), Brilliant Planet (a microalgae burial company, Harpenden) or Airmyne (direct air capture, Berkeley) will be the key to undoing the damage man has done to the planet.
Given the breadth of this work, we couldn’t hope to be exhaustive with the companies and business models featured, and the categorisation certainly leaves considerable room for overlap. However, if you think we’re missing something obvious, or there are companies we should be speaking to - please do get in touch - max@kfund.vc.
As ever, big thanks to everyone who was kind enough to help with this piece - Jaime Novoa, César Traseira, Nacho Puell & Carina Szpilka (Kfund), Maex Ament (Crane.Earth), Juanjo Mestre (Dcycle), Ted Christie Miller (BeZero Carbon), Ben Field (Patch), Borja Moreno de los Rios (Silence VC), Alban Bressand (Reforestrum), Alex Comninos (Ymbu Agroflorestal), Miguel de Ros (MadBlue), Charles Millon (Apiday), Miriam Roure (Kara), Jaume Ayats Soler (All Iron), Melina Sanchez (AENU), Miguel Solana (Alter-5), Fernando Dávila (Crowmie), Gonzalo Urculo + Juliette Simonin (Crowdfarming), Amy Varney & Louis Millon (Systemiq), Lukky Ahmed (ClimateX), Jonathan McCullagh (Arcturus), Sebastian Priolo (Woza Labs), Alejandro Martí (Mitiga), Stenver Jerkku (Solid World) & Jorge Lasauca Grande (Pontio).
–-
Cover image: Midjourney 5.2 “A bank for climate focused solutions. Style of Wes Anderson. Symmetry, colour, light --ar 3:2”
This article is part of a broader series on climate tech here at Kfund - including the future of the grid, solar opportunities in Spain, and an overview of climate tech in Spain.
–
The news continues to roll in - This September was the world’s hottest on record by an ‘extraordinary’ margin, combining El Niño with the effects of climate change to produce unprecedented temperatures across much of the globe. This has continued into the Autumn, with Spain closing schools across the Canary Islands on 10th and 11th of October due to record 38.5 degree heat.
On this theme, Swedish climate VC Pale blue dot recently shared their thinking around the 2009 planetary boundaries concept, overviewing the nine boundaries needed to sustain a “safe operating space” for humans on earth, and the outlook is bleak. We have now surpassed six of these, with only ozone depletion, aerosol loading and ocean acidification remaining.
While this is a morbid note to start on, it highlights the now-more-than-ever importance of investment into technologies and solutions that will help us not only mitigate and reverse the effects of climate change, but also live with the conditions that we are going to have to suffer for the decades to come.
An area receiving considerable attention in recent months has been that of climate fintech - a macro-category that covers the convergence points between financial services, financial technologies, and solutions focused on climate change.
This is a space we have become increasingly interested in at Kfund because of the pressing market need for such solutions. In our view, we are currently facing a square peg, round hole problem with many areas of the climate tech stack - that many of the solutions required (in removal, offset, behaviour change, emissions tracking, etc.) are neither currently effectively incentivised in the market, explicable to non-experts, nor well understood by those needed to fund them.
However, the climate fintech space is beginning to address many of these problems and provide a much needed interlocutor between the legacy world of financial services and the myriad of climate-focused solutions - both physical and digital - emerging in the market.
As such, we felt there was an opportunity to provide a broad overview of the climate fintech space (building on the excellent work done by others in recent months), and highlight the areas within the stack that we find most interesting, as ever with a focus on relevant examples coming from Southern Europe.
Establishing a clean taxonomy for the space is difficult, due to the fact that climate fintech both encompasses the “greening” of fintech (e.g. providing a climate angle to the traditional financial services stack), along with the financing of climate (e.g. how to provide capital, insure projects, and track the progress of investments into climate projects).
Broadly, we have cut the space into seven macro categories:
For excellent maps on the space, have a look at Berlin-based AENU’s recent climate fintech map, or CommerzVentures 2023 Climate Fintech report.
Project finance refers to the instruments and products that help fund climate-focused initiatives - be those business operations, infrastructure, new technologies or nature-based solutions.
This is an area requiring considerable innovation, given the first-of-a-kind problem faced by many climate projects, combined with the lack of appetite for certain investment areas due to complexity and adverse macro conditions (e.g. those in the wind sector currently driven by rising interest rates).
As the World Economic Forum recently noted regarding green hydrogen, “financiers want to invest and there is an increasing appetite for financing clean hydrogen projects, but there remains a lack of understanding as to the fundamentals of these projects”.
The most effective solutions in this market are focusing on solving financing for specific verticals, such as Agreena (Copenhagen), a business that has built a verticalized product focused on farmers - helping them to access financing through the sale of carbon credits. The tool combines a tech product that allows farmers to establish a baseline for their own activity, with internationally recognised verification standards and an ability to sell credits on the voluntary markets.
Of note in Spain are nTeaser (Madrid) and Alter-5 (Madrid), both funding marketplaces for renewable energy projects. Alter-5 focuses on connecting large-scale institutions with securitised bundles of small-to-medium scale solar and wind projects - tackling the lack of qualified deal-flow on the part of financial institutions, who are more comfortable with large-scale projects than investing in bundles of smaller developments.
Driving liquidity in the Spanish market is also Pontio (Madrid), a financing tool for B2C solar players, providing capital to solar installers looking to offer financing to their customers but lacking the funding pools required. This is a space we expect to continue growing in Spain, bringing in funding tools for tangential areas such as home retrofitting, electric vehicles, and biodiversity projects.
While on the B2C side, notable Spanish examples include Crowmie (Valencia) and Fundeen (Madrid), both allowing retail investors to write cheques into crowdfunded renewables projects - harder marketplaces to build due to the increased fragmentation of B2C and lower margins, but ones with considerable upside potential if the network effects can be achieved.
And while slightly tangential, Crowdfarming (Madrid) is also worth mentioning - allowing individuals to pre-purchase harvests directly from farmers, in effect providing advances for crops and allowing greater stability of financial planning for small-to-medium sized growers across Europe.
We observe that solutions that provide a combination of transparency, security and access to top-tier transition projects will help large, slower moving financial institutions become comfortable with investing in these assets - vital in the process of green transition.
Spanning the gap between project financing and sustainable investment is Solid.World (Tallinn), a commodities financing platform building the infrastructure to underpin green commodities markets. The tool enables liquidity providers (e.g. banks) to generate returns through enabling transactions between carbon project developers and buyers.
Stepping a layer back, sustainable investment allows retail and professional investors to dedicate funds to securitised green products.
This is a difficult market and one with notable failures such as clim8 (London) that shut down in early 2023 - as retail investor appetite for ESG investing has not kept pace with expectations.
However, Carbon Equity (Amsterdam) is seeing traction allowing small-ticket access to climate and impact VC, along with Circa5000 (Liverpool/London), allowing retail investors to access impact funds or bundles of impact investments as they would invest in stocks or ISAs.
Perhaps a difficulty faced here has been the difficulty around the broader “ESG” space in investing, as recently noted by the Financial Times, combined with the fact many existing B2C investment propositions, e.g. legacy financial institutions or start-ups such a Moneybox (London) or Nutmeg (London), already provide ESG or impact investment options in their portfolio distributions, amongst a wider range of products.
We observe little activity in this space in Southern Europe currently, and remain wary of new entrants in a space that is relatively well covered by green / ESG products from legacy financial institutions. However, opportunities are there for businesses who can build high investor trust, clearly elucidate the value-add of impact investing, and provide consistently competitive returns.
The quantity of natural disasters has increased more than five-fold in the last 50 years, causing up to €340bn of global losses annually. This is driving various start-ups to provide data and analytics related to climate scenarios, transition pathways, and physical risk assessments to both prepare for and mitigate the effects of adverse weather.
This is a busy space, with start-ups building products designed for specific industries (e.g. risk around mortgages, insurance companies) or the data layer to sit below these applications, providing access to various public or private data sources.
Best in class players across Europe include ClimateX (London), an API-based tool providing credit risk solutions based on emissions and climate pathways, with a focus on mortgage providers, or Mitiga Solutions (Barcelona) who have developed an AI-driven platform to predict the risk and potential damage of extreme weather events and hazards.
Worth mentioning in the region are also Woza Labs (Bizkaia), building a variety of ready-to-use geospatial data solutions (including risk, sustainability and agricultural products), Lobelia Earth (Barcelona) building both proprietary climate datasets and risk algorithms, or Eoiliann (Turin), another API-based solution predicting vulnerability of buildings an broader economies.
Providing the infrastructure layer for financial institutions are both Arcturus.io (London) and Dovetail (London). The former is building both a risk-management tool to plot out portfolio scenarios, as well as wider data management products for banks across analytics, emissions calculations, and decarbonisation. While the latter provides scenario analysis for financial risk - matching climate change impacts with portfolio decisions.
For Kfund, this space has considerable potential, and we're interested in those companies building their own risk algorithms on a combination of public and private datasets, or indeed sourcing/developing novel datasets to provide percentage point advantages in accuracy vs. competitors. We are also confident in those players developing sector or segment specific solutions in large markets (e.g. mortgages), with a focus on integrating into existing tools and platforms as seamlessly as possible.
Worth noting here is also the overlap between climate and the budding area of space tech, including players such as OroraTech (Munich), using its own small-scale satellites and sensors to provide wildfire risk analysis.
Closely linked to risk analytics and data products are the insurers working to provide products focused on the impacts of climate change.
The B2B space has both verticalized solutions, including Neptune Flood (Florida), focused on the high (and ever increasing) flood risk in the southern state, or Jumpstart (Oakland) with an earthquake specific product, alongside parametric products such as Arbol (New York) or Descartes (Paris), offering a variety of insurance products that scale versus the magnitude of natural catastrophes and weather events.
Of note is also Kita (London) - helping finance the growth of carbon removals and offsets, providing a portfolio of insurance products that reduce carbon risk - in turn incentivising more investment in the space.
While on the B2C side, we see residential products such as Hometree (London), offering home energy insurance including boiler cover, or Enzo (Heidelberg), providing a digital-first home insurance product to German consumers.
We are yet to see considerable activity in this space in Southern Europe, but expect region-specific B2B products to emerge around the areas of wildfire, crop failure and sea level rise (disasters to which the Iberian peninsula is particularly vulnerable), along with B2C products focused around home retrofitting.
Carbon accounting and ESG can be seen as sibling spaces, with the former focusing on the measurement of carbon emissions from an organisation, while the latter covers the stakeholder and regulatory reporting requirements across the areas of environmental, social and governance factors - in many ways an umbrella term that can include carbon accounting.
The carbon accounting space was one of the more active early areas in the climate fintech stack, with CommerzVentures noting over $970m raised across the US and Europe in 2022.
At-scale successes include Persefoni (Arizona), Watershed (San Francisco), Plan A (Berlin) and Sweep (Paris) that have now raised more than €220m collectively, offering variations on the theme of scope 1-3 emissions tracking, reduction and reporting.
This is a large and ever-growing market, as local and international regulation pulls more and more businesses into carbon accounting and reporting, alongside stakeholder pressure on businesses to report their emissions more clearly, and work to actively reduce these as they grow.
In Spain, Kfund portfolio company BCome (Barcelona) offers a sustainability platform for textile and apparel businesses, empowering them with data and tools to build responsible supply chains, guarantee transparency and bring this information through to the final customer. Also of note in the Spanish market is Dcycle (Madrid), a fast-growing accounting player offering both emissions measurement and lifecycle analysis, as well as actionable tools for multinational companies to improve their carbon footprint.
From an investment perspective, we are confident there is still considerable room for growth in this space - with businesses differentiated on the speed and ease of onboarding and data collection - as well as interesting opportunities in non-English speaking markets, or sectors involving complex regulation and highly specific data sources.
While ESG as an investment category is having a tough 2023, regulatory tailwinds (such as incoming 2024 EU-wide regulations) are driving growth in this market as more and more types of institutions are being driven to report their ESG performance.
While the aforementioned carbon accounting businesses are largely moving upstream and broadening their product suites to cover more ESG areas, right now best-in-class ESG examples include Atlas Metrics (Berlin), Sustaind (Berlin), Novisto (Montreal) or Clarity AI (Barcelona).
Of equal note is Climate Aligned (London) that works on the investor side, by leveraging a gen-AI driven platform to collect and analyse sustainability and ESG data for potential investments - focusing on interrogating these claims to ensure an avoidance of greenwashing.
Focusing on financial services segments we are fans of Apiday (Paris) and Kara (New York / Barcelona) capitalising on the growth of both venture capital and private equity as an asset class, alongside the difficulty faced by these firms in gathering heterogeneous and distributed ESG data across portfolios, or Datia (Stockholm) building a similar product for wider-financial services.
Much like carbon accounting, we’re interested in players here who are focusing on large and growing consumer segments, and can drive user engagement through streamlined onboarding, education around data capture for clients, and clean but powerful data visualisation for different stakeholder groups.
Carbon offsetting is the process of reducing or removing carbon dioxide from the atmosphere, in order to compensate for emissions made elsewhere, while trading is the sale or purchase of the credits generated in these processes.
It is important to note the difference between the voluntary and compliance carbon markets here - the former being a free market for carbon offsets, not established by governments, and the latter being established by governments as a means of achieving their carbon reduction targets (e.g. the European Union’s Emissions Trading System).
Nearly all start-ups operate in the voluntary markets, which, as of mid-2023, are little more than a rounding error of the latter - $2-3bn vs. more than $850bn. Much has been written around the controversy of the voluntary markets, making this a space that many investors are wary of touching as of late 2023.
From a VC perspective, there is little differentiation around marketplaces - and given the opacity of the space in recent years - many investors are still reluctant to act here. Notable players include Pachama (San Francisco), or Cur8 Earth (London), the former an early mover in the sector, and the latter having gained traction focusing on a rigorous vetting process of the projects offered to buyers.
Of note in Spain is ClimateTrade (Valencia/Miami), whose strong performance in Southern Europe reflects the trend of buyers favouring credits generated within or near to their home market - a trend we expect to continue in years to come.
However, this space remains difficult as the downgrading or junking of many credits issued in recent years is driving reluctance on the part of credit-purchasers to buy, leaving marketplaces in a bind with reduced corporate activity.
This said, interesting activity is occurring in the tech and processes surrounding tracking, registering and verifying these assets. Lune (London) and Patch (San Francisco) have built the software infrastructure layer for carbon markets, with the latter providing inventory management software for developers on the supply side, then API integrations on the demand side for purchasers to connect their credits to internal systems.
BeZero Carbon (London) is a notable example of a ratings agency in the space, bringing a financial-services outlook to the assessment of the quality and validity of assets. Puro (Helsinki) and Isometric (London) are building registry products for the tracking of assets, with the latter combining this with a scientific tool to help buyers validate assets more rapidly. Isometric’s model is based on asking the credit buyer to pay for the measurement, reporting and verification (MRV) process - intending on re-structuring the market to solve built-in problems around validity when the seller is also the one paying for verification.
There is limited activity in the Southern European markets here, with registries and verification tending towards winner-takes-all or at least oligopolistic markets, and start-ups in the marketplace space struggling to find traction.
Lastly, sustainable banking refers to traditional retail banking products with a climate focus, while behaviour change is the use of financial products or reward mechanisms to positively influence consumer behaviour.
On the former, Tandem (London), Green Got (Paris) and Helios (Paris) are green-focused retail banks, while Aspiration (Marina del Rey), is a carbon-credits marketplace that has moved into offering a climate-focused consumer debit card. Their product both offers benefits (e.g. automatic offsetting, charity donations) to users, but also incorporates tracking for the impact of individual spending.
Doconomy (Stockholm) is building the enabling layer to this space, working with financial institutions to integrate carbon calculations and behaviour change into financial products, acquiring Dreams Technology (Stockholm) back in March 2023 to incorporate the latter’s financial wellbeing tools into the product.
Much like impact investing, this space remains difficult given not only the complexity of building a retail bank in the first place, but also the fact the customer segment for an impact-focused product is considerably smaller than for generalist accounts. We observe the lack of activity from the large, well funded neo-banks and fintech challengers as evidence this market remains immature across much of Europe.
—
As noted in the introduction, while innovations in software will help mitigate the problems we face, they must be combined with the physical processes of reducing and removing emissions to have any hope of getting near net-zero targets.
These are not traditional “tech” areas (nor ones many VCs are comfortable investing into) - but as one expert we spoke to noted - for every euro spent in the secondary carbon markets currently, we are seeing €10 in investment into the direct removal markets. The collaboration and combination of software approaches with real-world nature-based and science-based companies such as Charm Industrial (specialists in bio-oil sequestration, San Francisco), Eion (enhanced rock weathering, New Jersey), Planetary (ocean alkalinity enhancement company, Dartmouth), Brilliant Planet (a microalgae burial company, Harpenden) or Airmyne (direct air capture, Berkeley) will be the key to undoing the damage man has done to the planet.
Given the breadth of this work, we couldn’t hope to be exhaustive with the companies and business models featured, and the categorisation certainly leaves considerable room for overlap. However, if you think we’re missing something obvious, or there are companies we should be speaking to - please do get in touch - max@kfund.vc.
As ever, big thanks to everyone who was kind enough to help with this piece - Jaime Novoa, César Traseira, Nacho Puell & Carina Szpilka (Kfund), Maex Ament (Crane.Earth), Juanjo Mestre (Dcycle), Ted Christie Miller (BeZero Carbon), Ben Field (Patch), Borja Moreno de los Rios (Silence VC), Alban Bressand (Reforestrum), Alex Comninos (Ymbu Agroflorestal), Miguel de Ros (MadBlue), Charles Millon (Apiday), Miriam Roure (Kara), Jaume Ayats Soler (All Iron), Melina Sanchez (AENU), Miguel Solana (Alter-5), Fernando Dávila (Crowmie), Gonzalo Urculo + Juliette Simonin (Crowdfarming), Amy Varney & Louis Millon (Systemiq), Lukky Ahmed (ClimateX), Jonathan McCullagh (Arcturus), Sebastian Priolo (Woza Labs), Alejandro Martí (Mitiga), Stenver Jerkku (Solid World) & Jorge Lasauca Grande (Pontio).
–-
Cover image: Midjourney 5.2 “A bank for climate focused solutions. Style of Wes Anderson. Symmetry, colour, light --ar 3:2”
