Climate FinTech: A Resilient Sector Amidst Global Tech Challenges

By Gloria Methri
November 15, 2024

The climate FinTech sector is emerging as a beacon of resilience in a landscape marked by a global tech downturn. According to the latest Climate Fintech Report by Tenity, which analyzed data from 750 startups worldwide, this sector is not only weathering the storm but also achieving remarkable milestones, particularly in terms of gender equity in funding.

Funding Parity for Female Founders

One of the standout achievements highlighted in the report is the attainment of funding parity for female founders in the climate FinTech space. Startups with at least one female founder or CEO have reached a significant milestone, securing 50.4% of venture funding at pre-Series B stages. This is a stark contrast to the broader FinTech industry, where women-led companies typically receive a mere 3.4% of venture funding.

During the period from 2022 to 2023, female-led climate FinTech startups averaged $5 million per transaction across 114 deals. This achievement is particularly noteworthy given that women co-founded or led one-third of climate FinTechs globally, a figure that surged to 45% among companies founded in 2023. This shift not only reflects a growing recognition of the importance of diversity in leadership but also underscores the potential for innovation that comes from varied perspectives.

Climate FinTech Funding Trends

Despite a 26% global decline in climate FinTech funding, which fell to $1.9 billion in 2023, the sector has outperformed the broader tech market, which contracted by 38% due to high interest rates and mass layoffs. Notably, the Europe, Middle East, and Africa (EMEA) region displayed remarkable stability, experiencing only a modest 2.2% drop in funding.

Europe’s Regulatory Landscape Spurs Growth

Europe’s stringent climate regulations, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR), are driving demand for integrated ESG (Environmental, Social, and Governance) Data & Analytics solutions. Among 106 climate FinTechs offering regulatory reporting capabilities, over 90% specialize in ESG data solutions. This regulatory environment is fostering innovation and encouraging startups to develop technologies that can help businesses comply with sustainability mandates.

The integration of cutting-edge technologies like artificial intelligence (AI), the Internet of Things (IoT), and geospatial analysis is revolutionizing real-time environmental monitoring and climate risk assessment. Digital Risk Analysis and Insurtech companies are at the forefront of this innovation, with firms like Planet Labs ($574 million) and ICEYE ($438 million) ranking among the top five most-capitalized entities in the dataset.

Challenges in Scaling

While Europe boasts an impressive 465 climate FinTech startups—more than three times the total in the United States—these companies face challenges in securing late-stage funding. Only 17 European startups have raised over $50 million, compared to 23 in the US, where these firms collectively amassed $3.9 billion, 44% more than Europe’s $2.64 billion.

Within Europe, the UK, Germany, and France dominate the landscape, accounting for half of all startups and 66.5% of capital raised between 2022 and mid-2024. Key trends in these countries include:

• UK: Seed-stage startups secured 36% of global funding in 2023, with early-stage funding up 48% compared to later rounds.
• Germany: Investor confidence is rising despite market volatility; average deal sizes grew by 40%.
• France: A turbulent market saw funding plunge 55% in 2023, even when excluding outliers.

The Future of Climate FinTech

Andrea Fritschi, Tenity’s Chief Investment Officer, emphasized the sector’s potential, stating, “Climate FinTech is not just showing resilience—it’s redefining inclusion in venture funding. From blockchain accountability in carbon markets to AI-powered risk assessments, the sector exemplifies innovation.”

As Europe leads in diversity and early-stage growth, the next significant challenge will be scaling these innovations globally to match the capabilities of US firms. The ongoing evolution of the climate FinTech sector is not just a response to current challenges; it represents a proactive approach to building a sustainable future through technology and inclusivity.