Fintech
The Climate Fintech Scorecard: Germany is in first place, but the reality is that Europe beats the United States
Climate fintech is a big part of the UK booming fintech sector. While this should be a source of national pride, there is a cloud on the horizon. Our research has shown that for the first time, the The United Kingdom has lost its dominance on funding for climate fintech startups last year. Indeed, German climate fintech startups have received over three times and VC funding from the UK, which received $710 million compared to the UK’s $210 million.
This is the first time the UK has been overtaken in three years and by quite a significant margin. So should we be worried about a decline in the UK’s climate fintech sector?
The quick answer: no. I can assure any concerned Brits reading these findings that the thing to focus on is not a perceived fall from grace for the UK’s climate fintech sector. The real conversation to have is how climate-vibrant Europe’s fintech sector has become, especially compared to the US, and what this means for the European investor landscape.
Bounce harder
In bull years it is relatively simple to assess the strength of sectors by examining financing activity both by number of deals and by overall size of financing. The opposite is true in difficult years, such as 2023. In these situations, it is equally important to monitor the resilience of climate fintech by measuring its comparative performance during a year of significant headwinds.
In 2023, financing volumes in climate fintech saw a reduction of 19%. Meanwhile, the broader venture capital market has contracted by 38% over the same period, underscoring both the quality of founders in this space and the strength of the market. interest in climate fintech solutions.
The growth of climate fintech in Europe
Germany’s increase in climate fintech financing last year can largely be attributed to the concentration of capital-intensive startups emerging from the country, particularly in the fields of renewable energy financing, carbon management and of heat pump installation companies such as ENPAL AND 1Komma5which has jointly attracted over €400 million from global investors.
This concentration of large rounds was responsible for finally pushing Germany ahead of the UK, indicating that there is still strong demand for fintech solutions that help companies manage, plan and reduce their carbon footprint. In addition to Germany and the UK, this demand has also been met by countries such as the Nordics and France which have been successful in the climate fintech sphere, with large rounds for startups such as ClimateView and the Ecosystem restoration standards.
While it might be tempting to focus on the UK’s relegation in the table, that would be a mistake. UK startups are equally likely to secure similar sized funding rounds during 2024 in Series B or later, which will put them back in top spot. A more significant trend to consider is that the United States, despite the traditional advantages it enjoys for startups – such as access to capital, talent and customers – is largely behind Europe, as it has been for the past three years.
Viewers might assume that U.S. startups are outperforming their international competitors, as they tend to do in most industries. Instead, our figures show that at $1.3 billion, European climate fintechs raised 1.5 times more than their US counterparts in 2023. Going further, German and UK climate fintechs combined, raised more than their counterparts overseas ( 910 million dollars versus 881 million dollars).
Climate fintech is one of the very few tech sectors in Europe to have a clear advantage over the US in terms of growth and venture capital funding. What conclusions can we draw from it?
The European consensus on climate
Climate fintech in Europe has certainly benefited from Europe’s strong network of carbon emissions and disclosure regulations, such as CSRD, which will take off this year. In addition to creating a positive market environment for reducing emissions, these regulations will inevitably generate demand for climate fintech solutions that can help companies stay compliant.
Contrary to the norm, it is the United States that has an inconsistent patchwork of regulations that make life difficult for fast-growing businesses, in contrast, Europe’s wide range of regulatory standards provides a much stronger foundation for climate fintechs.
Regulations, however, are only part of the picture. A factor not to be underestimated is the broad social consensus in Europe on the urgent nature of the climate crisis. This naturally provides greater confidence to businesses across the region and results in more startups and investments.
These factors have helped produce a dynamic and competitive climate fintech ecosystem across Europe, where every year several countries have a good chance of taking first place. It can be fun to celebrate who comes first that year, especially if you’re German. Ultimately, it is more important to celebrate how European climate fintechs are leading a global vanguard, providing essential innovations to facilitate decarbonisation at a colossal speed and scale.