Europe's summer of 2023 has shattered temperature records, highlighting the rapid pace of climate change. The Earth continues to warm due to human activities and the release of greenhouse gases. Without serious efforts, experts predict a dangerous 2.1°C temperature increase by 2100. This poses significant risks to humanity, with environmental concerns dominating the top five threats in the next decade. Unfortunately, preparedness for climate risks lags behind other risk categories.

Climate change is poised to have an exceptionally disruptive effect on humanity. According to the World Economic Forum’s annual Global Risks Report, four of the top five most severe risks the population will face in the next decade will be attributed to environmental risks. This becomes even more alarming considering experts highlight the relative lack of preparedness for climate risks compared to other risk categories.

Despite increased public awareness and international agreements, experts warn that current state efforts fall short. This contributes to the picture of why the long-term macroeconomic perspective is especially grave for the environmental risk category. Other crises that the world was plunged into drive the public narrative, thus diverging resources from climate goals. Less or no climate effort today means more disruptive effects of climate change on climate-vulnerable economies, ecosystems, and the world in general in the future.

While the world seems to believe that it’s the national governments and international organizations that are best positioned to manage the environmental risk, we believe in the power of innovation that could aid in moving the needle on a global scale.

Accelerating mitigation: The role of climate change startups

The European Environment Agency differentiates between risk mitigation and adaptation in relation to climate change. Mitigation involves a set of measures aimed at alleviating the effects of climate change, specifically reducing CO2 emissions into the atmosphere. On the other hand, adaptation involves adjusting to the ongoing and upcoming climate risk effects.

The Paris Agreement outlines the key strategies for mitigating climate change and building more resilient economies. Achieving net zero requires a holistic approach to promoting clean energy, such as renewable energy sources and EVs, along with the advancement of new technologies.

The International Energy Agency (IEA) emphasizes the crucial role of electric vehicles in transitioning to net zero due to the transportation sector’s high contribution to global emissions. As the proportion of EVs in transportation will grow, innovative solutions will be needed around that space. For example, Tangara Energy develops its advanced data analytics platform to optimize charging infrastructure for the electric truck industry.

Speaking of new technologies, the IEA identifies that carbon capture and storage technologies could contribute up to 20% to the required reduction through mechanisms like direct air capture, biomass CDR, and enhanced weathering. The scalability of such hardware and research-heavy technologies as CDR depends heavily on financing opportunities. Corporations increasingly engage with carbon credits to stick to their net-zero pledges, promoting the deployment of carbon removal projects. Oftentimes, the implementation phase for these credits spans several years, and corporations opt for pre-purchasing the credits, creating two key risks for the buyers: delivery risk and permanency.

Noteworthy climate change startups to keep an eye on in 2024

Kita Earth, one of the first movers in Europe, offers insurance against the delivery risk of carbon credits. Essentially, Kita provides a safer environment for businesses to participate in and boosts the market for CDR by offering a vital layer of protection to the buyers. Within a carbon sequestration journey of up to 10 years, businesses can be assured that their losses, in monetary or carbon credit terms, will be covered in the event of a failed delivery.

Until recently, these newly emerged risks were overlooked by insurance providers. However, we believe that with start-ups like Kita, Oka, and CarbonPool entering the scene, there is room for innovation in the industry. For example, the first two act as managing general agents (MGAs), providing an opportunity for insurance providers to partner with these climate change startups to onboard new insurance products, specifically the ones in the carbon insurance space, which is certain to keep rapidly expanding.

Another startup that is facilitating access to the carbon removal market and indirectly mitigating climate change is CarbonX. In their pursuit of net-zero strategies, companies actively engage with carbon credits but often lack streamlined procurement processes and internal capacity for quality assessment. CarbonX sources permanent carbon credits and verifies their quality, opening high-scale access to the carbon removal market to corporations.

Building resilient economies necessitates a key focus on agriculture, perhaps the sector most susceptible to climate change and vital for humanity at the same time. Climate change modifies the conditions under which agricultural activities are conducted, affecting crop yields and livestock production, which has adverse consequences on global food systems.

Finres is one of the solutions taking on the mission to help farmers adapt their crops to climate change by facilitating access to credit via an in-house SaaS platform. The idea is to evaluate farmers’ credit risk, recommend investment options, and come up with an optimal crop adaptation strategy. The result would be beneficial for both farmers and banks, as farmers gain resilience and higher crop yields while banks reduce the number of non-performing loans.

Innovations in climate risk management: Climate change startups leading the way

Rising average temperatures of the air and the ocean intensify the frequency and severity of extreme weather events like flooding and droughts, causing irreversible long-term effects such as rising sea levels and desertification. Even if the targeted 1.5°C is achieved, the Intergovernmental Panel on Climate Change (IPPC) warns that the negative effects of climate change will persist. An estimated 3.6 billion people worldwide live in most climate-vulnerable areas, bound to be affected by various climate risks along the spectrum.

While the occurrence of slow-onset events might not be immediately apparent, natural disasters and extreme weather events have been sending shock waves of increasing magnitude throughout the world. In the last 30 years, the annual count of natural catastrophe events nearly doubled, resulting in losses of $110 billion in just the first half of 2023.

These losses represent households losing their roofs, critical infrastructure being destroyed and livelihoods endangered. Last year’s earthquakes in Turkey and Syria cost $40 billion and were named the most devastating since 2010 in terms of lives lost to natural disasters (58,000 people). The USA was particularly affected by a series of thunderstorms and tornadoes, resulting in $35 billion in losses. Severe rainfalls and floods in the northwestern region of Italy in June 2023 caused $10 billion in losses, and the list continues.

The reported losses only account for the direct immediate effects of natural catastrophes. The real number, including indirect effects such as impeded social and economic development, is much larger.

While economies with well-functioning insurance systems are known to recover faster from the effects of natural disasters, there is still an alarmingly low degree of loss coverage on climate disasters worldwide. In developed countries, roughly 50% of the losses are covered by insurance, whereas this ratio remains under 10% in developing and emerging economies. In the first half of 2023, insured losses made up roughly 33% of the total amount of losses, amounting to $43 billion.

The insurance protection gap and the lack of climate risk assessment capabilities, including tools, data, and technology, as well as underwriting capabilities, have prevented insurers from offering wider coverage for natural disasters and extreme weather events. A proliferation of climate change startups has emerged to bridge this gap in the insurance space, offering innovative technological solutions to assess and model individual types of risks.

For example, the flood risk analytics software provider Reor20 offers a range of flood risk mitigation solutions, along with risk modeling, an underwriting engine, and other risk analytics solutions — all tailored to the flood insurance industry. Reor20 combines Computational Fluid Dynamics and neural networks (AI technology) to address major problems within flood modeling methods.

Other solutions, such as Mitigrate, provide preventive climate risk measures for individual assets and large real estate portfolios. Running on satellite imagery, AI models, and optimization algorithms, Mitigrate aims to reduce damages associated with climate risk, particularly in flood prevention.

To wrap it up

Contrary to the belief that it’s solely the responsibility of the national governments to fight climate change and local governments to adjust the economy to individual climate risks, we believe in the power of climate change startups in mitigating climate change and building a more resilient economy. In this article, we’ve highlighted just a few inspirational examples of how this can be achieved, with many more possibilities on the horizon.

Want to be part of the change? AtPlug and Play, we believe in the power of collaboration. Whether you're a corporation looking for innovation, a startup looking for a boost, or a VC looking to meet great startups to achieve asustainable future, we're the right place for you.