B2B startups win big as climate fintech funding soars to $1.2B

The news: Global climate-related fintech funding surged in 2021 to hit $1.2 billion, according to a CommerzVentures report. VC funding was three times higher than every other year combined.

How climate fintech funding looks:

• In 2021, European fintechs were ahead of the US in terms of total funding volumes—taking in $624 million versus $576 million. Europe is also home to four times more climate fintechs than the US.
• But the US enjoyed higher average funding per company. US firms raised the year’s two biggest rounds.
• Carbon accounting and climate risk management attracted the most funding last year, at $410 million and $302 million, respectively. 
• The most densely populated subcategories were carbon offsetting and carbon accounting: 101 startups operated in carbon offsetting, and 68 worked in carbon accounting.
• B2B startups raised $1 billion in 2021, six times more funding than B2C equivalents.

Why does this matter? Here’s why B2B startups and firms focusing on carbon offsetting and carbon accounting are attracting more interest among investors:

• Climate anxiety has pushed consumers to pay more attention to sustainable brands. Environmental, social, and governance (ESG) will be a major trend during 2022, but charges of greenwashing pervade the investment world—and regulators like the SEC are concerned ESG funds might mislead investors.
• B2Bs help large corporations meet new environmental regulations, targets, and disclosure requirements. They also ensure asset managers’ portfolios are actually green. Both of these are key investor priorities.  
• And demand for carbon accounting is growing: 62% of executives said it was important, per a Tink survey. Carbon accounting is used to measure how much carbon dioxide organizations emit (versus carbon offsetting, which compensates for emissions by funding equivalent carbon dioxide savings elsewhere). 
• With climate goals intensifying, companies are turning to carbon accounting and offsetting firms to manage their emissions. Investors recognize this, and funding is climbing accordingly. 
• Firms working in carbon accounting attracted more funding than those in carbon offsetting, suggesting investors see more upside in companies measuring CO2 levels than those actively minimizing emissions.
• Last month, The European Commission (EC) drafted a proposal for its much-anticipated sustainable investing taxonomy, which gives firms a metric to screen potential investments. While the proposal met with backlash for labeling nuclear and natural gas investments as green, common standards will likely stimulate further climate fintech funding growth.

The big takeaway: Green fintech funding is soaring, and the pace of growth shows no sign of abating. But funding is not spread evenly across the sector, and B2Bs startups and carbon accounting firms will garner a disproportionate amount of investment opportunities.