The Bright, New World of Climate Fintech

Climate Fintech is at the intersection of climate, finance, and digital technology. As climate change poses economic and political risks to the global economy, many financial service institutions are playing a key role in driving transformation. The notable imperatives are a) shift of investment dollars into renewable energy sources instead of oil & gas b) emissions and behavior tracking tools at business and individual levels c) financing of new infrastructure to develop insurance d) carbon credit trading.

Examples of fintech companies combatting climate change are:

  • FloodFlash: Parametric flood insurance available to the mass market.
  • rePurpose Global: Plastic Credit Platform financing innovators on the frontline.
  • Betterview: Property data platform that informs every transaction, to reduce risk, cost & waste
  • CAPE Analytics: Instant property intelligence for buildings across the US.
  • Ando: Redirects money from banking system into carbon-reducing projects.

The Pressing Need

In Australia, general insurers paid out $3.89 billion from over 300,000 claims due to bushfires, floods and storms in the summer of 2019-20. Climate change is already resulting in substantial weather uncertainty which will significantly push up insurance cost in Australia, opines Swiss Re. The Australian Climate Council has released a study which estimates that 1 in 25 of all homes and commercial buildings in the country will become effectively uninsurable by 2030.  Australia’s newly elected prime minister was voted into power on the promise of a big shift in climate policy. Climate change has become a key concern in many geographies after years of severe drought, record-breaking bushfire and flooding events.

Government Action and Legislation

Singapore is partnering the World Bank and International Emissions Trading Association to host the Climate Warehouse to connect various global carbon credit registries to facilitate information sharing on carbon credit projects and reduce the risk of double counting carbon credits. The Monetary Authority of Singapore (MAS) and Google Cloud have launched the Point Carbon Zero Programme to help the finance sector get access to granular climate-related data, for more efficient deployment of capital towards sustainable projects. This entails deploying the first open-source cloud platform dedicated to climate finance.

In the US, the climate bill included in the Inflation Reduction Act passed by the US Senate is likely to be a pivotal moment for the financial services industry. Nearly $375 billion is set to be invested in different strategies aiming to reduce the country’s carbon emissions, mostly through renewable energy investments and tax rebates for consumers to purchase EVs.  The legislation drastically increases deployment of capital in cleantech sector.

The Captive Solution

As climate risk increasingly gets measured on corporate balance-sheets, the need for capital efficient solutions to transfer that risk off-balance-sheet is growing. Arbol has set up the Climate Risk Insurance Company, a first-of-its-kind captive dedicated to climate risk management. It helps businesses and corporations manage a range of risks, like temperature, rainfall, and catastrophic storms. Arbol’s Captive + Parametric solution is intended to help corporations transfer climate risks into a captive insurance vehicle using a parametric structure. For large corporations, it is expected there will be significant benefits to segregating climate exposures on a parametric basis.

Consumers have upped the ante in demanding more climate action in recent years. For banks and financial services, this has been an avenue for increased customer acquisition, via investment in green projects. Last year, just over $100 billion was invested in clean energy assets, with record volumes of new capital deployed to support the transition to a lower-carbon economy. Regulatory bodies are equally active and busy drawing climate disclosure requirements, but most will take time to get enacted into law.  It is opportune to drive policy incentives to start investing in the clean energy transition that can catalyze private capital to further invest and generate outstanding returns.  Renewable energy technology has made remarkable progress with renewables becoming cheaper in many areas compared to fossil fuels. A concerted push from public policy could be all that it will take to transition to a much greener economy.

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