Why We Invested in StepChange: Announcing Our First Climate Finance Investment
We are very excited to introduce you to StepChange, an India-based provider of cutting-edge climate data science solutions for risk management. StepChange is focused on helping banks and other financial service providers as well as large enterprises measure the climate-related risks embedded in their businesses and make critical capital allocation decisions to minimize those risks. We believe that StepChange has the potential to help drive the climate finance initiatives needed to meet the current goal of halving the planet’s carbon emissions by 2030 or becoming net zero by 2050.
In the ongoing global push for climate transition, financial services play a pivotal role. Stakeholders are increasingly advocating for the integration of climate-informed decision-making into the operations of financial organizations. In the current transition, financial institutions are required to act on two fronts - direct capital towards financing a green agenda (climate mitigation) and protect their balance sheets from the uncertainty of climate change (climate adaptation). However, these institutions face challenges in estimating climate risk in their portfolios, identifying emissions of their borrowers, and more importantly obtaining granular data on carbon emissions. They lack not only capability but also the technical expertise to incorporate comprehensive climate data into their risk management frameworks.
Enter StepChange. Founded by Ankit Jain and Dr. Sidhant Pai, along with a dedicated 50-member team, StepChange provides an integrated solution to banks and non-financial institutions for tracking ESG metrics, measuring emissions across financial portfolios, and quantifying climate risks. The company's science-based decision-making tools assist financial institutions in their journey towards achieving net-zero emissions.
We are impressed by the traction the company has demonstrated during their first 18 months of operation. They have partnered with more than 25 large enterprises, including six of the 15 largest banks in India. What’s more, given its advanced estimation capabilities, the StepChange tool suite has accounted for over 450 million tons of Scope 3 CO2e emissions – approximately 15% of India’s total emissions.
StepChange's vision aligns well with recent guidelines in India. In 2022, the Reserve Bank of India (RBI) introduced comprehensive guidelines for financial institutions to incorporate climate risk into their decision-making processes, recognizing the impact of climate-related risks on the financial system and society. The RBI has also advocated for estimating financed emissions in banks’ lending portfolios and the introduction of interest-bearing green deposits. This forward looking initiative by RBI, ahead of its counterparts in emerging markets, will not only set an example but also underscore the pivotal role that regulatory bodies can play in advancing the climate agenda.
We are confident in StepChange's potential for significant scale, given its accomplished founding team, cutting-edge technology, and robust business model. The team's unique combination of business acumen and scientific expertise, coupled with advisors like Jason Jay and Erez Yoeli from MIT, positions StepChange as a leader in the climate data science space.
Flourish’s take on climate finance
At Flourish, we have been tracking the climate finance space, looking for opportunities that are aligned with our fintech-centric investment strategy and our Fair Finance Principles. Through our sector investments, we aim to advance climate-friendly livelihoods that reduce carbon emissions while shielding society against climate-induced disasters.
IPCC report on Poverty, Livelihoods and Sustainable Development estimates that the poorest 40% of the population endure 70% higher losses from climate change impacts despite having minimal contributions to their causes. This vulnerable segment lacks the means and agency to safeguard themselves from these disasters. However, Financial Institutions can play a crucial role in channeling capital towards climate-positive endeavors, encouraging other stakeholders to take climate-friendly actions and minimizing risks for vulnerable groups.
The climate sector more broadly, and its interplay with fintech in particular, is still in the early stages of development across the emerging markets. We are certainly interested in countries like India that are experiencing favorable tailwinds from a policy and regulatory perspective. We look forward to expanding our knowledge in climate finance and supporting StepChange as it helps India’s financial system combat climate change.