The climate crisis is a defining challenge for Southeast Asia, a region that’s among the most vulnerable to global warming but which also significantly contribute to its cause. Against this backdrop, a new generation of fintech startups are emerging out of the region, seeking to address these challenges and capture opportunities for transitioning to a more sustainable economy.

A new report by Integra Partners, an early stage venture capital firm based in Singapore, looks at global warming risks in Southeast Asia and the climate change imperative, making a case for why climate fintech is poised to take off in the region.

Southeast Asia has a population of approximately 680 million people and its countries are seeing rapid economic growth. However, it is also expected to be one of the regions which could be most heavily affected by climate change, the report shows.

Citing findings of a 2019 research produced by Climate Central, a science organization based in New Jersey, it notes that two of Southeast Asia’s biggest cities, namely Bangkok and Ho Chi Minh City (HCMC), could be underwater by 2050 amid rising sea levels.

More than 20 million people in Vietnam, or almost one-quarter of the population, and over 10% of Thai citizens would be impacted.

Swiss Re, one of the world’s largest reinsurers, estimates that ASEAN could lose 37% of its gross domestic product (GDP) by 2048 in the event of a 3.2°C temperature rise and relative to a no-climate change world. The firm estimates that Indonesia, Malaysia, the Philippines, Singapore and Thailand could lose economic output totaling more than seven times their 2019 GDP by 2050.

In Asia, governments and the business community have woken up to the imperative and launched several initiatives to build up the region’s climate resiliency, the Integra Partners report notes.

In 2021, 20% of companies in Asia (449 companies) had approved Science Based Targets initiatives (SBTi) commitments, making the continent the second biggest adopter of the corporate emission reduction initiative.

Additionally, eight of the ten countries in Southeast Asia have committed to net zero targets by at least 2050, the report notes.

A nascent sector

The urgency to tackle climate change and support from the public sector have given rise to a new category in the fintech industry. So-called climate fintech, a cross-cutting sector covering the intersection of climate, finance and technology, leverages digital technologies and financial product innovations to facilitate climate action and drive decarbonization.

These companies operate in several segments including carbon accounting software, carbon management platforms, environmental, social and governance (ESG) standards reporting, impact investing, and climate risk management and insurance.

Globally, Europe has been a leader in the field, supported by conducive policies and government initiatives.

In Asia, though the climate fintech sector remains small, increased awareness of sustainability issues, and rising demand for relating products and services are setting the stage for the emergence of a thriving climate fintech sector, Jonas Thuerig, head of startup incubator and accelerator F10 Singapore, wrote in a recent guest post on the Singapore Business Times.

Asia is ideally suited to support climate fintech companies because the region is home to one of the world’s most dynamic fintech ecosystems worldwide, he said, adding that in many instances, Asia already has the infrastructure to “leapfrog other economies and adopt climate-focused fintech solutions almost immediately.”

“Asia may remain some way behind other fintech markets in tackling climate challenges, but we can take heart from the path that impact investing in the region has taken in recent years,” Thuerig wrote.

“We believe there is a lot of untapped market potential in the climate fintech space and, given the small numbers in the region, it is the smaller firms that have a new, unique opportunity to make a significant impact.”

Singapore leads climate fintech innovation in Southeast Asia

In Southeast Asia, Singapore is leading the region in climate fintech innovation, Thuerig said, owing to early support from the government and regulators.

In 2020, the Monetary Authority of Singapore (MAS) launched Project Greenprint, a collection of initiatives that aims to harness technology and data to enable a more transparent, trusted and efficient ESG ecosystem to enable green and sustainable finance.

In the climate fintech space specifically, Singapore introduced last year the Point Carbon Zero Programme, an initiative aimed at driving the innovation, incubation and scaling of climate fintech solutions in Asia. The program, which runs under MAS’ Project Greenprint, is a joint venture between the central bank and Google Cloud.

Though a relatively new and small segment of the broader fintech industry, climate fintech has grown rapidly over the past few years, driven by growing investor appetite and a supportive regulatory landscape.

Venture capital (VC) funding to climate fintech startups hit a new record of US$2.9 billion in 2022, a sum that’s 2.4 times more than what was raised in 2021, new data from CommerzVentures, the corporate venture capital (CVC) arm of Commerzbank in Germany, show. The figure underscores the momentum of the space at a time when fintech funding is declining amid a global VC investment contraction.

Featured image credit: Edited from Freepik here and here

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• Source: https://fintechnews.sg/70364/green-fintech/singapore-leads-southeast-asias-climate-fintech-revolution-as-the-region-battles-global-warming-risks/