The Net-Zero Economy

Welcome back to Hiding in Plain Sight (HIIPS). As always, I'm excited to uncover the opportunities that are right before our eyes, waiting for entrepreneurs and forward-thinking Execs like you to seize them. In this edition, we delve into the net-zero economy and sustainable finance sectors, focusing on the incredible potential for new ventures and the transformational role of the banking and finance industry.

The Net-Zero Economy: The case for why this might be one of the biggest venturing opportunities of our generation

With countries responsible for 78% of global emissions committing to net-zero goals (18% in law, 38% in policy, 22% in public commitment), there's no better time to contribute to this monumental shift in corporate practices. From 2015 to 2021, the number of corporations adopting science-based targets has skyrocketed from 116 to 2,253, an astounding 1,842% increase.

Despite these impressive figures, the transition is far from complete. In 2021, only 9% of global companies achieved emissions reductions of over 4%, even though 63% set such targets. This presents a vast opportunity for new ventures in key sustainability verticals like transport, buildings, power, agriculture, and consumer products. By 2030, these verticals are projected to reach $12 trillion in annual sales.

Internal changes within established companies won't be enough; fresh ideas, technologies, and business models from new ventures and business units are needed to accelerate progress.

Zooming in on one industry: Banking & Finance

The finance and banking industry has a critical role to play in supporting the net-zero transition. ESG-orientated assets under management (AuM) are expected to grow at a 12.9% CAGR over the next five years, significantly outpacing the overall asset and wealth management market (4.3% CAGR). By 2026, ESG AuM is predicted to surge from $2.2 trillion in 2015 to $33.9 trillion, representing 21.5% of global assets.

Looking closer at specific opportunities and examples

We've identified four key innovation areas and 16 leading trends shaping the future of sustainability-related fintech, each with a real-world example of ventures making a difference:

1.ESG & Climate Data

• ESG scoring: Arabesque S-Ray evaluates companies' ESG performance using big data and machine learning.
• Impact measurement: Truvalue Labs (acquired by FactSet) leverages AI to analyse unstructured data and assess companies' ESG impact.
• AI/ML for data sourcing: Datamaran harnesses AI to monitor ESG risks and opportunities in real-time.
• ESG disclosure & reporting: Measurabl simplifies ESG data collection, management, and reporting.

2.Green Private Banking

• Green neobanks/-brokers: Aspiration offers sustainable banking and investment options for eco-conscious consumers.
• Active ownership enablement: Say enables shareholders to participate in corporate decision-making, promoting responsible business practices.
• Alternative assets investments: Swell Investing provides access to impact-driven investment portfolios.
• Green cashback systems: ecolife offers cashback rewards for eco-friendly purchases, incentivizing green consumer behaviour.

3.Financing Decarbonization

• Revenue sharing for good: RSF Social Finance supports social enterprises through innovative financing models.
• Energy transition financing: Generate Capital invests in sustainable infrastructure projects.
• Regenerative finance (ReFi): Beneficial State Bank offers loans and financial products that promote social justice and environmental sustainability.
• Carbon credit off taking: Pachama uses AI and satellite data to monitor and finance forest conservation, enabling carbon credit trading.

4.Risk Management & Insurance

• Climate risk modelling: The Climate Service (acquired by S&P Global) provides climate risk analytics to help businesses and governments make informed decisions.
• Climate risk underwriting: Jupiter Intelligence offers climate risk underwriting services to help insurers navigate the evolving risk landscape.
• Macro insurance (government level): Global Parametrics designs innovative insurance solutions to protect governments from natural disasters.
• Micro insurance (e.g., small farmers): Pula provides affordable insurance products for smallholder farmers, mitigating the impacts of climate change on their livelihoods.

The net-zero economy and sustainable finance sectors are ripe for entrepreneurial innovation, fuelled by ambitious targets, regulatory commitments, and the urgent need for sustainable solutions. By embracing these trends and launching ventures that address these challenges, you can not only contribute to a greener future but also create immense value for your stakeholders and society at large.

If you want to read more on the research behind these thoughts, then download the full report here - Sustainability Done Right.

Many thanks to Tobias Klug and Zak Nantais for their contributions in the research and preparation of the report.