FinTech for the Future: Reduce your emissions or risk getting fired — says BlackRock
Financial accountability for carbon emissions
The fixation of governments with short-term GDP growth is a major obstacle to creating a carbon-neutral economy. With the acceleration of climate change will come the realization that this approach is leading us to a dead end.
The Kingdom of Bhutan is showing the world that there are other yardsticks with which to measure a country’s health. Instead of GDP, Bhutan — which is also the world’s only net carbon-negative country — focuses on Gross National Happiness (GNH).
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Quarterly earnings have long been to investors what GDP growth is to governments. However, large global investors have been faster than most governments to realize that short-termism comes at a very high price.
In his latest annual letter to CEOs, BlackRock CEO Larry Fink claims that climate change has brought us to “the edge of a fundamental reshaping of finance” and “in the near future … a significant reallocation of capital.” BlackRock has committed to “place sustainability at the center of [its] investment approach.” Fink makes it clear that they will “vote against management and board directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
In fact, BlackRock recently voted against the re-election of two ExxonMobil directors for lack of progress in climate change action.
BlackRock is far from being the only powerful public markets investor to adopt such a position. The world’s largest pension funds — including the Japanese Government Pension Fund and Norges Bank Investment Management — are pushing in the same direction.
Demand for investments in climate-transparent companies is also driven by retail investors and regulation. According to MiFID II, financial advisors need to include ESG (Environmental, Social, Governance) factors in their suitability assessments. They also need to explain to clients how their ESG preferences are taken into consideration when compiling the list of financial products they can recommend.
In short, a company’s climate impact is increasingly seen as financially material by investors.
Therefore, companies will need to include relevant information in their financial accounts. The Task Force on Climate-Related Financial Disclosures has published guidelines for such disclosures. According to these guidelines, disclosures need to be material, auditable and replicable.
Startup opportunities:
Technology can play an important role in enabling climate-related disclosures and in making them auditable and replicable across companies and industries.
Satellite imaging can provide asset-level carbon emissions data. This can be supplemented by white-box AI that scours the web to construct climate impact information.
Ultimately, a company’s climate impact will serve as a measure of its risk exposure to regulations, future expenses and reductions in demand for its products.
Beyond disclosures, investors will look for a climate information edge when considering companies and industries.
AI startups can lend a hand by continually updating related predictions, which can be used to inform security selection and portfolio building.
Another opportunity is to provide large companies with climate impact reporting software that integrates with their existing IT infrastructure.
For small and medium sized companies, standalone carbon management software such as Planetly might offer a suitable solution. Planetly analyses a company’s carbon footprint and suggests measures for reducing it and possible offsetting opportunities.
KlimaMetrix is a startup offering automated carbon footprint analytics for companies, with a special focus on industries that face immediate regulatory pressure regarding carbon emissions, such as shipping, airlines and heavy industry.
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If you are building a FinTech or InsurTech company helping to Decarbonize our economies, we at CommerzVentures would be happy to hear from you. CommerzVentures is an independent venture capital fund sponsored primarily by Commerzbank Group.
