Unlocking the Potential of Climate Fintech: Tenity's Exclusive Interview with CommerzVentures

At Tenity, we recognize that the intersection of finance and climate technology holds one of the greatest opportunities of our time—Climate Fintech. In collaboration with CommerzVentures, a leading venture capital firm driving investments in this emerging sector, we explore how the future of financial innovation can be leveraged to address climate challenges. Paul Morgenthaler, Managing Partner at CommerzVentures, shares his insights on how Climate Fintech is evolving, why Europe is leading the charge, and what it takes to build successful startups in this space.

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Backing one of the biggest opportunities of our time  

CommerzVentures is an independent venture capital firm managing €550 million across three funds, investing in Europe, North America, Israel, and Africa. Climate Fintech is a key investment focus, backing trailblazers such as Doconomy, Climateview, or Climate X. Paul Morgenthaler, Managing Partner at CommerzVentures, has been with the firm since its inception nearly 10 years ago and in this interview, he shares his expert insights.

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Can you tell us more about the strategic importance of Climate Fintech within your portfolio?

When we started with CommerzVentures, 10 years ago, the Paris Agreement hadn't been signed yet and climate was much less on the radar as it is today. Over time, the climate crisis manifested itself, and based on the Paris Agreement, more jurisdictions enacted legislation and regulations around climate. Additionally, more and more corporates committed to net-zero targets. At CommerzVentures, we envisioned that there would be an important role for Fintech companies to play. In early 2020, we started actively looking for startups in that space. However, back then we could only find a handful of companies.

Nevertheless, we always held the conviction that this would become big. Within four years, it has grown from a handful to more than 600 companies, showing the remarkable trajectory of Climate Fintech.

Sometimes it's not immediately obvious when a company qualifies as Climate Fintech, as it sits at the intersection of both climate and financial technology. We occasionally find ourselves debating whether a company is truly Climate Fintech or if it is solely focused on one of the two sectors.

How have the focus topics evolved over the years?

In the early days, many companies in this space focused on carbon accounting, carbon footprinting, and carbon markets. These areas saw the most activity initially and remain active today, but new areas have emerged over time.

One notable area of current activity is climate risk management, which encompasses both physical and transition risks. This also includes adaptation finance. Adaptation, a concept that was once considered somewhat controversial, has now gained broader acceptance. There is a growing recognition that, in addition to mitigating climate change, we also need to adapt to its impacts. This adaptation requires various financing solutions, and this is an area where we are seeing significant developments today.

Your 2024 Climate Fintech report shows that >40% of all financing rounds are still at the very early stage. What challenges do you see for early-stage climate fintech startups?

For most conventional fintech startups, their business model and revenue generation methods are quite clear. However, climate fintech companies often need to be more creative, and in some cases, their business models are not immediately obvious.

This raises the question: who pays? For some solutions, identifying a natural buyer isn’t straightforward. Even when there is a natural buyer, regulatory frameworks are still developing, making it discretionary for these buyers to engage. This also means that current budgets tend to be limited, especially in the carbon markets space, where we still need a regulatory breakthrough for the market to truly take off and for companies to establish clear business models. When we talk to early-stage founders, we emphasize this point. Founders often have an exciting product vision but may not focus as much on monetization and the actual business model. We work with them to ensure they understand that solving this aspect is crucial early on.

European Climate Fintechs have out-performed their US counterparts in terms of funding. What do you think contributes to this, and why is it gaining so much traction in Europe?

As a European-based entity, we find this incredibly exciting. Today, American investors reach out to learn from us, when it’s typically the other way around. There’s a clear reason for it: Europe is currently the biggest market. This market growth is driven by advanced regulations in Europe, which put companies further along in their climate journeys. European companies tend to be more intentional, with larger budgets and dedicated climate teams. Additionally, consumer awareness and willingness to act on climate issues are higher in Europe because society here has embraced the climate theme earlier than in the US.

All of this indicates that Europe is where the market is thriving, making it logical for startups to be based here. We observe that many US Climate Fintechs expand into Europe early in their journeys because they realize that Europe is a market they can't ignore if they want to scale.

In 2023, carbon market solutions have attracted significant funding. Why is the money flowing into this space?

There is a realization that by 2050, we need to remove 10 gigatons of carbon from the atmosphere. By 2030, we need to be in the gigatons already, particularly because current emission pathways are behind where they need to be. We need to remove more carbon; there is no way around that. It needs to happen, and it will happen. The question is about the timing. For example, if SBTI or similar bodies adopt voluntary carbon markets for scope 3 emission goals, this market could grow exponentially very quickly. If, as an investor, you believe that will happen in the medium term, it is an attractive market to invest in.

What other sectors or sub-verticals do you think will become more relevant?

I hinted at it a little bit already, but everything around climate risk management and adaptation is crucial. This sub-sector had a later start compared to others, but it is now growing very rapidly and for good reasons. The insurance sector faces numerous challenges related to climate change. They are not necessarily equipped to handle these because past data is not a strong indicator for future developments in this dynamic area. This, of course, creates opportunities for startups. I am always interested in meeting companies in this space.

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As the climate crisis continues to unfold, the convergence of fintech and climate solutions will play an increasingly critical role. At Tenity, we are committed to supporting the next generation of Climate Fintech innovators, who are not only driving financial growth but also making a meaningful impact on the world’s most pressing challenge. With partners like CommerzVentures, we are proud to be part of this journey, empowering founders to seize the opportunities and shape a sustainable future.

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Do you want to know more about Climate Fintech? Check Tenity Climate Fintech Report 2024 here https://www.tenity.com/climate-fintech-report