Climate FinTech: Climate and Financial Technology, Combined

18.10.2022

World’s Climate Status

According to the August 2022 Global Climate Report of the National Centers for Environmental Information (NCEI) under the National Oceanic and Atmospheric Administration, the surface temperature during the mentioned month was recorded as the sixth (6th) highest for August for the past one hundred and forty years (143 years). The measured temperature was 0.90 degree Celsius (0.9 C), or 1.63 degrees Fahrenheit (1.62 F), higher than the average of 15.6 degrees Celsius (or 60.1 degrees Fahrenheit) from 1901 – 2000.

August of 2022 can be described as warmer than the average condition around most European countries, North America, Southern Asia, and Southeastern Asia. The climate is also the same for some parts of Northern Africa and South America, along with the Arabian Peninsula and northern Oceania.

As concluded, 2022 is becoming a year of warmth, with a 10.5 per cent chance of ranking among the top five warmest years and highly probable to be in the top ten rankings.

These are all because of climate change, and it is not reversible. It is affecting our planet with crucial risks to human beings and natural ecosystems.

Financial Technology (FinTech) Today

Based on the Financial Technology report of CBInsights for quarter two (Q2) of 2022, the investments in financial technology dropped by thirty-three per cent (33 %) quarter-over-quarter (or QoQ), amounting to approximately 20.4 billion United States dollars (USD 20.4 billion). It is the lowest recorded level since quarter 4 (Q4) of 2020.

Following the same trajectory, more than one hundred million United States dollars (USD 100 million) in fundraising rounds have been figured for the total transactions (about four per cent, 4 %) and investments (about forty-seven per cent, 47 %), smaller than what it was during the same time in 2021.

During the Quarter II of 2022, here are some of the highlights of the financial technology industry:

  • A 45-per cent drop in investments amounts to 9.7 United States billion dollars (USD 9.7 billion).
  • Only twenty (20) fintech unicorns emerged, a record-breaking since the usual number is 30 in quarter four of 2020. Some of the unicorn startups are KuCoin (which is worth 10 billion United States dollars, USD 10 B), Coda Payments (around 2.5 billion United States dollars, USD 2.5 B), and Newfront Insurance (which is worth 2.2 billion United States dollars, USD 2.2 B).
  • Mergers and Acquisition transactions also dropped by about thirty per cent (30 %), with a total of 181 trades from 257 in quarter 1 of 2022. Contradictory to this, the Wealth Technology industry jumped by around twenty four per cent on the same transactions QoQ.

More information on the Q2 – 2022 Financial Technology Report can be found on this link.

What is Climate FinTech?

Given that there are a number of industries that widely affect the world’s climate negatively, more institutions are also developing new strategies for doing their business to help the environment. One of those industries is financial technology. Here is where the climate fintech comes in.

Climate FinTech: Climate and Financial Technology, CombinedClimate fintech is where real-world climate, finance, and virtual technology intersect. According to https://www.climatefintech.cn/, technological innovations, applications, and tools are the essential key for the financial correspondents and channel between all the partners and shareholders looking out for global decarbonisation, meaning a low-carbon economy.

Now, as climate change brings about the economic and political danger to the world’s economic stand, several financial services companies are going an extra mile to help ease the climate change. Some of the note-worthy directives are the following:

  1. Instead of investing in non-renewable energy sources like oil and gas, entrepreneurs shifted to renewable ones like solar energy, wind, geothermal, bioenergy, and others.
  2. Investing in emission and behavior testing equipment for the business and individuals.
  3. Funding newly built infrastructures to establish insurance.
  4. Developing projects with carbon credits that uses fewer greenhouse gasses.

Some of the financial technology intuitions that started the big move are listed below:

  • FloodFlash: This London-based company is the first ever-insurance technology company that offers parametric flood insurance to as many people as possible. They combine computer models, cloud software and virtual sensors to build a flood cover that can protect their clients. For this, consumers have two parameters needed to be determined, and those are (1) the measure of water depth and (2) the total sum insured.
  • Repurpose Global: Known as an economy innovator, repurpose Global has the tag line “World’s Leading Plastic Action Platform”. They help local creators bring ethical waste management assistance to locations that do not have enough access to medical care worldwide. For more information, you can visit their website at https://repurpose.global/.
  • Betterview: This company is where significant Property and Casualty (P&C) insurance companies rely on when it comes to Property Intelligence and Risk Management. Throughout the client’s policy lifecycle, Betterview will lessen the risks and provide operational innovations and efficient inspection to create a customer experience with more transparency. Regarding climate fintech, they are now offering information to reduce companies’ costs and waste. You can check their services at https://www.betterview.com/.
  • CAPE Analytics: An Artificial Intelligence (AI) – Powered Property Intelligence insurance company, CAPE offers essential perspectives to provide improved decision-making and protection of lives, livelihoods, and environment for buildings around the United States of America (USA).
  • Ando Money: As claimed to be the leader in sustainable banking, this mobile banking institution was founded with the objective of helping the environment due to climate change. One of their strategies is instead of investing in fossil fuels as most banks do, they exclusively shift their investments into green initiatives. That is, projects encouraging the reduction of carbon.

Why is there a need?

In one of the countries in Oceania, Australia, it was recorded that general insurers pay out approximately 3.89 United States dollars to 300,000 claims as victims of bushfires, floods, and storms during the summer of 2019 – 2020. Indeed, climate change is now evident in the irregular weather conditions that increase insurance costs. Further, the Australian Climate Council published a research study concluding that eight years from now, in 2030, one out of twenty-five (1:25) houses and infrastructures will not qualify for insurance.

The new Prime Minister of Australia, Anthony Albanese, was put into the seat because he promised that there would be a significant change in the country’s climate policy when elected. Now, climate change is becoming a crucial subject in most geographies since there have been droughts, floods, and bushfires in several years.

What are the Authorities up to

Climate FinTech: Climate and Financial Technology, CombinedSingapore, The Garden City, is now collaborating with the World Bank and International Emissions Trading Association (IETA) to lead and present the Climate Warehouse. The objective is to share information and lessen the multi-counting of carbon credits by gathering and connecting the different carbon credit registries in the world.

In addition, the Cloud Computing Services, Google Cloud, and the Monetary Authority of Singapore (or MAS) have introduced a program to help and assist the financial in Point Carbon Zero Programme. Their target is to grant access to the most comprehensive and detailed data relating to climate, enabling a more effective and efficient funding usage for sustainable investments.

On the other hand, the United States of America (USA) has introduced a climate bill. This bill passed by the United States Senate is under the Inflation Reduction Act of 2022 which aims to reduce the costs of prescription drugs, health care, and energy. It is probably a crucial and remarkable highlight for the financial sector. To back this claim up, as much as 375 billion United States dollars (USD 375 billion) is allotted to fund the various action plans targeting to decrease the level of carbon emission in the USA. The major strategy they intended to use is by investing in renewable energy resources and the privilege of having tax discounts for customers so they can acquire EVs.

These show that the government, specifically, the legislative body is substantially making efforts in increasing the funding for the clean technology industry.

FinTech Solutions in Helping the Climate

Now that climate risk assessments are being measured and are included in companies’ financial statements, it is deemed necessary to have capital-efficient solutions which target the removal of those risks off the balance sheets.

Climate FinTech: Climate and Financial Technology, CombinedArbol, a technological insurance company that focuses on producing parametric protection solutions due to unforeseen weather damages, is helping the corporate sector in managing risks from temperature, rainfall, and other disastrous weather events. They are the first ever to offer this kind of products and services the sole purpose is to manage climate risks. They have what they call “Arbol’s Captive + Parametric solution” which specifically turns risks from calamities into auto insurance through their parametric architecture.

With regards to major companies, the expectation is for them to have notable benefits that will segregate climate hazards/exposures based on the parametric measures.

Furthermore, customers have recently levelled up their demands by requiring green business strategies from companies. For the financial services sectors like banks, this issue has been their medium to gain more customers wherein their main marketing strategy is to invest in projects for sustainable development. During the previous year, in 2021, there is approximately 100 billions United States dollar-worth of investments in renewable energy resources, which record-breaking measure of funding to assist the shifting of the industry into an economy with lower carbon.

Simultaneously, the government are making efforts in passing bills to help the climate by requiring more green initiatives from the financial sector, however, this may take a lot more time than expected to be passed into law. The key here is to give privileges to the institutions that will invest in green projects, instead.

The technological status of renewable energy is indeed improving, having renewable resources become more affordable than fossil fuels. This is a great opportunity to take and the public is a huge force to bulldoze this up, for a more environmental-friendly financial technology industry.

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