Green Finance, Member Exclusive

Green Finance Briefing: Sustainable lending solutions and the rise of climate fintech

  • New innovations in fintech are bridging the gap between financial institutions and understanding climate risks in loan portfolios.
  • We're also looking at startups that have launched over the past few years targeting the intersection of climate risks, sustainability, ESG, investments and banking.
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Green Finance Briefing: Sustainable lending solutions and the rise of climate fintech

Climate-focused fintechs are developing solutions to analyze lending portfolios through a climate lens

New innovations in fintech are bridging the gap between financial institutions and understanding climate risks in loan portfolios. Lenders can leverage software services to uncover climate-related risks, comply with a changing regulatory environment, and begin implementing more sustainable investment strategies.

Regulators have been stressing that the tools the financial system currently has at hand are insufficient for proper climate-related risk assessment. Investors, regulators and market participants need better data, including enhanced and transparent disclosures to create an accurate picture of financial risks posed by the changing climate. 

This gap in the market is being addressed by climate-focused fintechs that aim to help financial institutions with assessing their loan portfolios’ climate-related risks. 

One such company is Aquaoso, a software as a service cloud-based platform, which uses data science and machine learning to help financial institutions make informed decisions on their loan portfolio from a climate perspective. 

The fintech has developed tools for lenders to fill out due diligence components of climate risks related to loans. Lenders can analyze their portfolios as a whole by bringing in bank data into Aquaoso’s platform, and pinpoint where they're most at-risk within their loan portfolio. 

Companies can also use this capability to undergo stress testing inside of their portfolio and do scenario analysis, which can then be used to report up from a regulatory standpoint. This feature is becoming increasingly meaningful as government watchdogs have been stressing the importance of such exercises for financial institutions, and regulations in this area are expected to change under the current administration. 

Cervest is another company that developed an open and AI-powered climate intelligence platform for businesses, investors, and financial regulators. Its first product, Earthscan, enables companies to calculate the combined climate events (floods, fires, extreme heat, etc.) to their specific global assets and disclose that financial risk accurately.

Another product the firm is developing is EarthCap, which embeds climate intelligence in transaction-level decisions to build personalized asset portfolios, as well as find opportunities or vulnerabilities within that portfolio.

Read the full article here.

Chart of the week 

A plethora of startups have launched over the past few years targeting the intersection of climate risks, sustainability, ESG, investments and banking.

Here’s a quick airplane view of the climate fintech industry (not exhaustive).

Source: Citi Ventures

Quote of the week

BlackRock’s CEO Larry Fink openly urged companies to start adapting to climate change and its consequences in his latest letter to chief executives. He defended accusations that his strategy is woke and influenced by leftist politics, arguing that looking at sustainable investments is just plain capitalism.

Here are some excerpts from the letter:

“We focus on sustainability not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients. That requires understanding how companies are adjusting their businesses for the massive changes the economy is undergoing.”

“I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt, regardless of what industry they are in.”

“The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators – startups that help the world decarbonize and make the energy transition affordable for all consumers."

“Every company and every industry will be transformed by the transition to a net zero world. The question is, will you lead, or will you be led?”

What we’re reading 

  • Citigroup sets rare hard target to reduce energy-sector emissions (Reuters)
  • Top North American banks form consortium to address climate risks (Finextra)
  • Citi Ventures, IKEA invest in carbon footprint tracking solution provider Doconomy (ESG Today)
  • Vanguard plans launch of impact investing equity fund (ESG Today)
  • CDP: Corporates more than twice as likely to disclose environmental impact if asked by investors (edie)

What we’re writing 

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