With ESG now high on the agenda for most companies, the last few years have seen huge growth in the climate tech space, with $60bn invested in the industry in 2021 and a 210% increase on the US$28.4bn invested in the twelve months prior.
Some companies in this sector, such as Ecosia, use a model in which a tree is planted for each online search. Others, like Klima, make use of blockchain technology, decentralized finance (DeFi) and reimagined finance (ReFi). Founded in Berlin by three sustainability industry veterans, Klima has so far raised €15.8m ($15.7m) from investors. It claims to help users offset emissions, reduce their carbon footprint, and multiply climate impact.
While blockchain, and more specifically Bitcoin, has been scrutinized by those who say it is at odds with environmentalist goals, an ever-increasing number of blockchain companies are emerging in the climate tech space, with the aim of giving consumers the power and incentives to take action. According to Klima, 72% of CO2 emissions are addressable by consumer behaviour.
Thallo is a Paris-based company that identifies and aims to tackle some of the issues that plague consumers, namely opaque pricing, insufficient liquidity, clunky and Over-the-Counter (OTC) transactions, and a lack of trust and transparency. Sellers, on the other hand face value-destroying intermediaries, restricted direct market access, and limited access to project financing. OTC markets are generally less transparent than on-exchange.
“Blockchain is most useful in helping guarantee transparency and traceability. In the case of the voluntary carbon market, which is extremely opaque and hard to navigate for both buyers and sellers, recording transactions on a public blockchain makes it easy to verify, confirm and later audit where a carbon credit originated and who has traded it,” says Hayley Moller, Thallo’s Head of Marketing.
“It’s worth noting the criticism around the carbon footprint of blockchains like Bitcoin, which use the incredibly intensive proof-of-work consensus mechanism. There are other blockchains that use proof of stake, which only uses something like <0.5% the amount of energy used by proof of work. Most climate-related projects are building on these very energy efficient blockchains.”
Businesses play a key role in climate change
The focus from many has been on governments to do most of the heavy lifting by enacting policies that tackle climate change, but businesses will play a key role. The speedy growth of the climate tech sector is evidence that they can make a significant impact, and the total market value is expected to reach at least $50bn by 2030.
Silicon Valley is leading the way, but Berlin, London, and Paris are emerging as hubs in Europe for startups. Classified as B Corps, businesses that balance purpose with profit currently number 5400 companies globally. Verified by an organization called B Lab, they meet high standards of social and environmental performance, transparency, and accountability.
But are carbon offsetting apps and strategies just a way of shifting the burden of carbon production, rather than reducing it? It remains to be seen whether the industry can truly deliver on its promises.
“Carbon offsetting should never be a company’s whole sustainability strategy. There’s this concept of the mitigation hierarchy, which is that companies should approach environmental harm in the following order: avoid, minimize, restore”, says Moller.
“Only if none of these is possible should they offset their impact. This is necessary because companies cannot always decarbonize: things like steel and cement production require fossil fuels, or they need a stopgap measure while they are working on decarbonization efforts that take years to implement.”
