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Green Fintech 2.0 Shows Progress in the UK

Green Finance Report | Jul 5, 2024

CGFI Green Fintech 2.0 - Green Fintech 2.0 Shows Progress in the UK

Image: CGFI Green Fintech 2.0

How Green Fintech 2.0 is Driving Sustainable Finance

The latest report from the UK Centre for Greening Finance and Investment (CGFI), titled "Green Fintech 2.0" shows some meaningful progress in the green fintech sector. The report's data is based on 200 green fintech companies in the UK. This covers start-ups, SMEs, consulting firms, and other establishments like think tanks, universities, NGOs, and NPOs.

Trends and Drivers

  • ESG data is becoming more and more integrated into the operations of financial institutions. According to a Bloomberg study conducted in 2023, 92% of participants intended to spend more money on ESG data, with many seeing it as important for gaining a competitive edge.
  • Strong sustainability data is becoming more and more in demand due to new regulatory requirements in the US, EU, and UK. Mandatory climate-related disclosures are being introduced by the US SEC, while sustainable fund labelling requirements are outlined in the EU's Sustainable Finance Disclosure Regulation (SFDR).
  • Because of the growing financial implications of climate change, financial institutions are shifting their focus from only looking at emissions statistics to taking physical climate hazards into account. The Kunming-Montreal Global Biodiversity Framework and other policy pledges are bringing increased attention to financial hazards associated to nature.

See:  Fintech Can Combat Corporate Greenwashing

  • An explosion of data from sensors, UAV platforms, and satellites has resulted from a dramatic decrease in the cost of gathering climatic and environmental data. Artificial intelligence (AI) developments are improving data processing and modelling, boosting climate model predictiveness, and facilitating more effective ESG practice tracking.
  • In 2023, investments in climatetech broke records, totaling £5 billion, or 29% of all venture capital invested in the UK.
  • University, academic, and business collaboration is fostering the emergence of regional clusters in London, Leeds, Oxford, and Cambridge that serve as hubs for innovation.
  • Green fintech firms are being nurtured via specialty accelerator programs such as Barclays Rise and Plug and Play, which offer resources and networks to expedite growth.
CGCI distribution of companies by product category - Green Fintech 2.0 Shows Progress in the UK

Image: Green Fintech 2.0 (CGFI report)

Product Categories

The report classifies green fintech solutions into four main categories:

1. Digital ESG Data and Analytics Solutions (41% of businesses)

  • Non-traditional data sources, like satellite photography and social media.
  • Monitors and controls carbon emissions from supply chains and operations (16.2%).
  • Monitors ecosystem changes and incorporates information into financial reporting (10.6%).
  • Assigns a score to businesses or financial instruments according to sustainability standards (3.5%).

2. Green Regtech Solutions (15%)

  • Supports compliance and advisory for ESG reporting requirements (15.2%).

3. Green Digital Risk Analysis and Insurtech (29%)

  • Helps organizations identify and control financial risks associated with climate change (14.7%).
  • Focuses on the of financial risks associated with changes in ecosystems and biodiversity (8.6%).
  • Enhances environmental risk modelling and creates green insurance products (5.6%).

4. Other Green Fintech Solutions (14%)

  • Facilitates the trading of carbon offset credits to reduce emissions (11.1%).
  • Focuses on impact investing initiatives that have a beneficial social and environmental impact (3.5%).

Funding and Growth

Investment in green fintech is growing significantly.  A total of 99 companies received a total of £632 million in funding, according to the study. Important investment areas consist of:

  • Sustainability Reporting and Advisory Services:  £181 million
  • Carbon Offsetting and Trading: £153 million
  • Carbon Accounting: £76 million
  • Climate Risk Management:  £41 million

See:  Climate Inflation Discussion for a Sustainable Future

Several startup examples innovating with growth in the green fintech sector, such as:

  • Dodo: Based in London, Dodo leverages remote sensing and smart contracts to gather biodiversity data, securing funding from sources like SFC Capital and Climate KIC.
  • Treeconomy: This platform helps track and offset carbon footprints, supported by Innovate UK and other investors.
  • Watchkeeper: Acquired by Dataminr, Watchkeeper focuses on sustainability risk screening using real-time impact data.

Outlook

The outlook is promising with some confluence forming. The research demonstrates the vital role these technologies play highlighting growth in investments made in digital ESG data, sustainability reporting, carbon accounting, and climate risk management systems.

See:  MAS Launches ESG Data Platform To Simplify Sustainability Reporting (Project Greenprint)

It is however important to consider the challenges and several obstacles to overcome, including problems with data quality, regulatory compliance, technology integration, and economic volatility. Proactively addressing these issues will be essential to guaranteeing the sector's long-term influence and existence.


NCFA Jan 2018 resize - Green Fintech 2.0 Shows Progress in the UKThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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