Inclusive Climate Fintech: Harnessing financial innovation to build resilience
Image courtesy of Mercy Corps
The Challenge
Climate shocks are becoming more frequent and severe, putting nearly 4 billion people at increasing risk. Among them, the 1.4 billion unbanked adults — 55% of whom are women — bear a disproportionate share of the risk because financial services are crucial for building resilience to climate impacts. Tools such as insurance, credit, savings, and payment systems provide critical support for managing risks and adapting to changing environments. These tools form the backbone of several risk mitigation strategies, including:
Risk Transfer Through Insurance: Innovative solutions like index-based insurance are transforming how people manage climate risks. Products like flood, crop, wildfire, and climate insurance provide essential safety nets, especially for those living in agriculture or high-risk areas. These solutions are benefiting from the wave of advancements in data analytics and AI and are pioneering real-world use cases of these technologies in climate adaptation.
Affordability of Physical Risk Reduction Tools via Credit: Access to credit products makes it more affordable for communities to invest in tools and equipment that enable adaptation and risk reduction, like irrigation systems, protective infrastructure, off-grid energy systems, or weather-resistant storage facilities for harvested crops.
Reliable Money Storage and Access: Savings and digital payment systems ensure financial security and continuity during significant stresses or shocks, such as post-disaster loss of income or disruption to physical transportation and access to traditional banking.
Inclusive fintech solutions offer transformative potential for disrupting financial exclusion and climate risk, enabling climate-positive solutions, improving livelihoods, and fostering resilience through solutions such as:
Distributed Energy Access: Fintech can support embedded credit and project financing for distributed energy solutions, such as solar panels and microgrids. These systems enhance resilience to climate shocks while creating income-generating opportunities in sectors like mobility, agriculture, and manufacturing.
Carbon Financing: Carbon markets can provide communities with new revenue streams, particularly for those managing natural resources. Initiatives like regenerative agriculture, reforestation, and environmental services incentivize and reward conservation and sustainable practices for land stewards.
Supply Chain Innovations: Supply chain financing can promote resilience and sustainability. Programs like carbon insetting (e.g., Epoch) and anti-deforestation efforts (e.g., Meridia) reward producers for sustainable practices while strengthening global value chains.
The challenges of financial exclusion and climate risk are deeply intertwined and rooted in structural barriers, such as remote physical locations of communities, limited digital connectivity, informal economies, and systemic biases. Fintech holds immense potential to not only mitigate risks but also unlock opportunities for communities to thrive in the face of climate challenges.
The Opportunity
The global fintech revolution has transformed financial inclusion over the past decade, with the percentage of adults with access to bank accounts skyrocketing from 51% in 2011 to 76% in 2021. Much of this progress is thanks to fintech innovators who’ve developed modular and specialized financial products that cater to diverse communities across the globe.
This modularization has unlocked immense potential for innovation. By disaggregating the fintech ecosystem into specialized tools, innovators now have access to “plug-and-play” solutions such as embedded credit and digital payment systems. For example, companies serving smallholder farmers can integrate embedded credit services into their platforms seamlessly, enabling farmers to access essential financing for seeds, equipment, or irrigation systems.
At the same time, a growing focus on climate resilience has sparked a wave of innovation in climate adaptation solutions. By leveraging modular fintech platforms, these climate innovators are creating a new paradigm, Inclusive Climate Fintech, which uses embedded or modular fintech tools to empower underserved communities to adapt and thrive in the face of climate challenges.
The Impact
Inclusive Climate Fintech spans a wide range of solutions, from tools that support smallholder farmers to climate-smart technologies and sustainable supply chain financing. By integrating financial services like digital savings, embedded credit, insurance, and anticipatory payments, these solutions offer a transformative, wide pathway to impact on climate-vulnerable and financially-excluded, communities, including:
Making Climate Solutions Affordable and Accessible: Fintech rails embedded in climate solutions reduce costs and barriers, ensuring underserved communities can afford and access critical technologies. Digital financial services also provide resilience during crises, enabling people to safeguard assets and continue transacting.
Reducing Exposure to Climate Risks: Insurance tied to early warning systems or climate modeling tools helps communities manage and transfer climate risks. Such systems provide safety nets that reduce the financial and emotional toll of disasters.
Enabling Anticipatory Payments: Digital anticipatory payments — issued before climate shocks — have proven to be a highly effective tool in helping communities withstand shocks and make quicker recoveries. This approach is also more cost-efficient than traditional post-disaster aid.
Direct Reach into Communities: Fintech ensures direct access to data and payments for underserved populations, such as rural and remote communities. These communities are stewards of critical natural resources, playing a vital role in conservation and sustainability efforts.
Supporting Resilient Institutions and Supply Chains: Fintech solutions enhance the resilience of financial institutions and supply chain players, ensuring they can continue serving communities before, during, and after climate events.
We believe Inclusive Climate Fintech solutions will have a disproportionate impact on women and rural and smallholder communities, given their unique barriers to accessing traditional financial services and their high exposure to climate risk.
Our Investment Thesis
We’re optimistic to be seeing a wave of innovation emerging at the intersection of climate resilience and fintech, and we are actively exploring for investment opportunities in six categories within our Inclusive Climate Fintech thesis:
Climate Insurtech and Risk Transfer
Digital microinsurance — including parametric and indexed products — spanning areas like crop protection and business interruption to emerging categories like drought, flood, and wildfire coverage. Designed with affordability, precision, and instant payouts, these solutions empower climate-vulnerable policyholders to better withstand shocks.
Embedded Credit for Climate Applications
Agile digital credit is addressing a critical financing gap for communities, enabling the affordability of renewable energy, e-mobility, cold chain infrastructure, agricultural mechanization, and other climate-resilient productive assets.
Examples: Kofa, Stable Foods, Fibrazo, Popular Power, Agromatch, Siembro
Climate Resilient Financial Services
The next evolution of the fintech stack will be designed to be inclusive, robust, and resilient. This architecture will enable users facing or fleeing climate catastrophes to stay connected, access their accounts, and continue transacting seamlessly during shocks and disruptions — including those typically excluded from traditional financial systems.
Climate Fintech Analytics
Emerging AI-powered climate data analytics are enabling financial institutions and their customers to incorporate complex, real-time climate variables into decision-making. These tools help price and credit score climate risks, develop climate-responsive products, and safeguard assets against climate shocks.
Examples: Floodbase, Satellites on Fire, Ignitia
Fintech Rails for Nature Based Solutions and Insetting
Digital payments and carbon finance rails for emerging MRV (monitoring, reporting, and verification) platforms and standards that are connecting first-mile land stewards and farmers to positive ecological outcomes. These systems democratize access to markets for carbon credits, water credits, insetting, and other payments for ecosystem services.
Examples: Epoch, Open Forest Protocol, Tolbi
Financing for Sustainability
These solutions support productive uses such as sustainable supply chain and trade financing, working capital, point of sale (POS), Buy Now, Pay Later (BNPL), and cash flow management. Together and individually, they enhance resilience when climate stresses affect cash flows.
As this space evolves rapidly, we are committed to adapting alongside changing markets and emerging evidence of what works to build climate resilience through fintech. Developing our thesis and Climate Adaptation and Resilience Impact framework has underscored the complexity of defining what qualifies as Inclusive Climate Fintech. Most of the solutions we invest in incorporate some form of fintech, and nearly all fintech solutions deployed in climate-vulnerable communities contribute to resilience in one way or another. With nearly 4 billion people worldwide vulnerable to climate change, it’s clear that the line between climate fintech and broader fintech may be more of a spectrum — ranging from direct climate solutions to those with more indirect impacts.
With this understanding, we have drawn a thoughtful line around what we invest in, while remaining open to feedback and new perspectives. We are excited to continue learning and evolving as this dynamic space grows, inspired by the innovators and builders who will challenge assumptions and drive the next wave of impactful solutions.
