The environmental, social and governance (ESG) space attracted a number of very sizeable deals over the course of 2023, according to the KPMG Pulse of Fintech H2’23 report.
The US attracted the vast majority of ESG-focused fintech investment, likely driven by investment trends across the broader fintech sector, rather than by any substantial decline in investor interest in the European or Asia Pacific (APAC) regions.
Investment in the APAC region lagged somewhat last year, with Japan-based Gojo & Company’s US$110.6 million among the region’s largest deals.
KPMG said ESG and global, regional, and national climate change commitments will likely continue to support both the emergence of new fintechs focused on a broad range of ESG-related opportunities, such as lending for alternative energy and climate change projects, carbon tracking and accounting, supply chain tracking, and property and energy management.
Given climate change commitments, investment in green fintech will likely be an area of investment for the long-term the KPMG report stresses.
Globally, interest in carbon services grew significantly over the past year, particularly in the US and Canada. Increased interest from corporates helped drive this interest, with a growing number of large financial institutions beginning to contribute equity into the space.
ESG-focused compliance and risk management offerings have been evolving for some time, but new regulations in the space kept the vertical on the radar of investors throughout 2023 as companies looked to prepare for new requirements.
In 2024, for example, a number of regulations are expected to come into effect, such as the ISSB’s sustainability climate change disclosure standards, the SEC’s climate-related disclosure rule and the EU’s corporate sustainability reporting standard.
Regtech investment in the space primarily revolved around ESG data and disclosures. AI- driven automation of tracking and reporting has been a key area of interest.