Climate fintechs raise $1.2 billion as VCs race to cut carbon emissions

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  • Climate fintechs had a breakthrough year in 2021, securing $1.2 billion in the US and Europe.
  • Carbon accounting startups took the lion’s share, according to CommerzVentures’ funding analysis.
  • Partner Paul Morgenthaler tipped the market towards widespread consolidation.

Startups focused on measuring and mitigating carbon emissions had a breakthrough year in 2021, with investments reaching $1.2 billion in the United States and Europe in 2021, according to a funding analysis.

CommerzVentures, the venture capital arm of German bank Commerzbank, analyzed what it described as the rapidly developing “climate fintech” space – an umbrella term for


fintech startups

operating in carbon offsetting, carbon accounting, impact investing, carbon credit trading and other sub-sectors. It identified 228 European climate fintechs and 60 in the United States.

CommerzVentures did not perform a year-over-year analysis, simply noting that the 2021 funding figure was significantly higher than all industry funding in previous years.

Climate fintech financing table

CommerzVentures highlighted a notable increase in funding

CommerzVentures


Two major deals in the US included Xpansiv, a US carbon credits marketplace, which raised $100m in September 2021, while carbon accounting platform Persefoni raised $576m in October.

The largest funding rounds in Europe included CommerzVentures portfolio company Doconomy, which attracted $19 million, and French startup Sweep, which raised $22 million from Balderton Capital.

Both are carbon accounting startups, which typically track companies’ emissions output and have attracted the most funding overall, according to analysis by CommerzVentures. Some carbon accounting startups also offer offsets – to differentiate between the two, CommerzVentures examined whether the company’s business model focused on recurring revenue from software subscriptions or commissions from offsets.

Carbon accounting startups, said Paul Morgenthaler, CommerzVentures partner and head of climate fintech, typically want to go beyond offsets and help customers reduce emissions. Offsets alone are “often taken to be synonymous with greenwashing – and in many cases, it is just that.”

Carbon accounting table


CommerzVentures


Pure-play carbon offset startups like US startup Patch, which offers clients a portfolio of green projects to invest in, have received “relatively little” funding but have grown rapidly from a lower base, said Paul Morgenthaler, CommerzVentures partner and head of climate fintech.

A number of larger deals inflated total US investment.

US investments were dominated by a few larger deals.

CommerzVentures


As the carbon accounting market matures, Morgenthaler expects consolidation in some areas.

“Given the enormous complexity of Scope 3 emissions accounting, industry standards are needed, and specialist vendors can play an important role in establishing them,” he said.

Emissions are generally divided into three categories: Scope 1 covers direct emissions from owned or controlled sources, Scope 2 includes indirect emissions from electricity and other utilities, while scope 3 covers all other indirect emissions along the value chain.

Climate fintech funding volume in millions of dollars per space, according to analysis by CommerzVentures.

Climate fintech funding volume in millions of dollars per space, according to analysis by CommerzVentures.

CommerzVentures


There are already signs of consolidation.

Vaayu, founded in 2021, caters specifically to retailers. Its technology integrates with point-of-sale systems to extract logistics, operations and packaging data so retailers can monitor, measure and reduce their overall carbon emissions.

Carbon credits are also a rapidly emerging global asset class, Morgenthaler said. Startups trading carbon credits, each of which represents 1 metric ton of carbon dioxide or equivalent that will be eliminated or avoided, attracted $198 million across Europe and the United States in 2021, making it the third most attractive space. The second most funded sub-sector was climate risk management, raising $304 million.

Morgenthaler said there are also companies working to build industry-leading infrastructure for carbon tokenization.

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