London-based startup Climate X, which helps businesses analyse their exposure to climate change, has raised $18m in Series A funding led by Google Ventures, confirming Sifted’s scoop from February. The round comes as investors’ appetite for software tools related to climate risk has increased.
Other investors in Climate X’s round include proptech VC fund PT1, impact tech investor Unconventional Ventures and Western Technology Investment, a US-based investor that typically offers venture debt but occasionally does equity investments. Climate X cofounder Lukky Ahmed said the company signed term sheets for the majority of the round “within five weeks” earlier this year.
The fresh funding will boost Climate X’s US expansion, says Ahmed — who plans to move across the Atlantic shortly. He says Climate X has been signing contracts with US-based customers since last year, and will open a physical office next week.
The four-year-old company previously raised a $4.1m seed round in 2021, from investors including fintech-focused VC CommerzVentures, built environment investor A/O Proptech, accounting firm Deloitte, and angel investors David Rowan and Renaud Visage. Swedish climate fund Pale Blue Dot, and angel investor Charlie Delingpole, were also early backers.
How Climate X makes money
Climate X provides customers — like banks, mortgage lenders and real estate firms — with a climate financial risk platform to assess the impact of climate change events on their assets or real estate.
Despite the ‘climate tech’ label, its focus is not on helping companies ensure they’ve ticked ESG boxes; instead, it’s about making money, says Ahmed.
“In the end, we’re an enterprise SaaS business,” he tells Sifted. “The data points we happen to be distributing and shipping are climate-related data points, but it’s pricing data. That’s how people use our data — for pricing, originations, business strategy.”
Ahmed says companies aren’t using Climate X’s product as a means of compliance (the European Commission brought in regulation in 2021 requiring insurers to assess whether they have material exposures to climate change risks). He estimates up to 94% of its annual recurring revenue (ARR) is on the transaction layer — meaning “where people are using our data on the frontline of the business; nothing to do with regulatory.”
“We’re not the cheap solution for customers,” he says. “A huge part of what we did was to take the conversation away from being regulatory box checking, ‘climate is great for the world,’ to, ‘how do we make sure that you can make money or save money as a customer, and become a market leader?’”
One of the company’s recent offerings, a platform called Adapt, helps asset managers make informed decisions about things like buying buildings that may be at risk of a climate event, like a flooding or extreme weather events. Ahmed says the product can help customers like real estate firm JLL weigh up a property investment by taking into account a potential climate event and how much capital it would need to spend to protect it.
“That cost might be $20k, it might be a million,” he notes, but it might help protect the building’s value and its ability to operate or reduce insurance claims, which could reduce the long-term risk of the investment. “When you put that back into your calculator, your return profile is still really good.” Banks can also use that data to finance some of that investment, he points out.
The company also enables customers to translate physical climate risk assessments into financial loss metrics — for example, helping a bank with a regulatory stress test.
Adaptation tech
Climate tech is split in half. On one side, there’s ‘mitigation tech’ which aims to remove or prevent emissions from getting into the atmosphere. On the other side, there’s ‘adaptation tech,’ which helps societies adapt to a changing climate.
VCs are yet to dip into their pockets for the majority of adaptation tech solutions; except for those working on software tools — the category Climate X falls into.
Other companies working on adaptation software include Paris-based Descartes Underwriting, which offers insurance products tied to climate risk. The company raised a $141m Series B in 2022. There’s also Spanish climate risk platform Mitiga, which has raised $18.3m from investors including the Microsoft Climate Innovation Fund, and Jua, a Swiss startup which supplies weather risk data and has raised $18.5m.
The part of adaptation that receives less funding are hardware solutions: things like flood defences, water purification technologies for areas with drought and next-generation crops that can grow in harsh environments.
Ahmed says software tools can help funnel money into physical adaptation. “The money’s not yet there to deploy,” he says. “If I go and give a heat map that says the whole of Nigeria is going to be under water in the next whatever period of time, they can’t do anything with it.”
Quantifying the financial gain from protecting assets will help channel money into real-world solutions, he argues. “What we’re enabling, for the first time, is for banks to see that as an opportunity.”
Read the orginal article: https://sifted.eu/articles/climate-x-series-a-news/
