Creating a Standard for Climate Risk | Our Investment in First Street

By Varun Jain , Brad Jones , Maya Lusk , & Stephan Prueger

SE Ventures is pleased to announce our investment in First Street, a leading provider of physical climate risk data. We invested in First Street’s $46M Series A round, alongside our friends at Innovation Endeavors , Galvanize Climate Solutions , General Catalyst , Congruent Ventures and Nuveen, a TIAA company .

The Frequency of Climate Disasters is Accelerating 

Extreme climate events and their financial impacts are rapidly accelerating. Between 1980 and 2022 in the US, there was an annual average of 8 climate-related events that resulted in over $1B in damages. In the past five years, the US saw an average of 18 events causing $1B+ in damages. 2023 was a record-setting year, with 28 climate disasters, and we’re on track to surpass this figure in 2024. The impacts of such climate risks are realized by businesses and consumers alike, with a particularly large impact on physical assets, critical infrastructure, and real estate. Major home insurers, including State Farm and several other carriers, have announced that they will no longer provide coverage in high-risk states. As a result, financial institutions are increasingly taking climate risk into account when evaluating asset portfolios and developing long-term strategic goals.

Regulatory agencies globally are taking notice of the increase in climate-related disasters and enacting policies to protect investors and consumers. Starting in 2024, the EU will mandate climate-related financial and social risk disclosure for any entities with more than 250 employees. In the US, the SEC has mandated material financial risk disclosure, beginning in 2025, for any registered companies. Additional US regulatory agencies, including the OCC, Federal Reserve Board, FDIC, and others have also set standards on climate-related financial risk for national banks, holding companies, and state banks. Many entities that are now subject to climate-related risk disclosure have limited, if any, access to climate risk data or quantification of climate-related financial risk to their assets. As a result, companies are increasingly turning to software solutions and advisory groups to support mandatory reporting taking effect in the coming years.

Investors, insurers, and corporate operators now demand accurate and granular climate risk data to support risk evaluation, strategic planning, and regulatory reporting. While incumbent solutions exist, most do not account for the ever-changing variables that drive increased severity and frequency of disasters. For example, compounding factors like rising sea-surface temperatures result in more volatile weather conditions, but these aspects are difficult to model and are frequently excluded from well-known tools such as FEMA’s flood maps. This leads to inaccurate predictions – in fact, 40% of insurance claims relating to flood risk occur outside of flood zones classified by FEMA, demonstrating the need for better predictive technologies. Furthermore, incumbent solutions depict risk on a large geographic scale (e.g., county-level assessments that represent risk for 1K square miles). This coverage is too broad to accommodate asset-specific insights that financial institutions require for statistically significant risk assessment.

A Standard for Climate Risk 

SE Ventures has been active in the climate risk space since inception. After speaking with numerous startups and researchers, we’ve concluded that companies enabling asset-level visibility for investors, operators, and insurers are set to drive upsize value in climate risk. Enter First Street – a startup offering physics-based, deterministic risk models that calculate property-level financial risk assessments.

Let’s break this down. First Street’s models are physics-based, meaning that physical elements of the environment are considered, including topography, fluid dynamics, and the ground absorption characteristics of any geography. Deterministic refers to model explainability – users can audit the outputs, offering transparency into how conclusions were derived. This is an essential attribute for financial institutions – if regulators ask a major bank to provide context into how climate risk is predicted, there must be a definitive answer. Finally, property-level risk assessment is enabled via First Street’s unparalleled resolution (up to 3 meters for flood predictions), allowing customers to understand risk associated with any individual property, and how the risk of that property is correlated to a broader portfolio.

This differs drastically from competing players we’ve assessed in climate risk. Many leverage machine learning to determine exposure to climate events. While this is a cost-effective and scalable way to approach the problem, there are key limitations. Most notably, similar to most applications of AI, it’s difficult to tell how the algorithms determine an outcome. This “black box” methodology simply does not fly for customers that are subject to regulatory scrutiny. The other issue is related to resolution – without accounting for attributes specific to a particular geography (topography, flood adaptation features, wildfire fuel exposure, etc.) it’s difficult, if not impossible, to predict climate risk at a property level resolution. First Street addresses these challenges head-on, which has spurred broad adoption from leading financial institutions, governing entities, and asset managers.

First Street’s risk models have been developed by leading industry veterans, including Dr. Edward Kearns, who comes to First Street after 13 years in top government positions such as Chief Data Officer at NOAA and the Department of Commerce. At the helm, there is CEO and Founder Matthew Eby, a leader with decades of experience driving GTM initiatives at prominent institutions such as The Weather Company.

First Street + Schneider Electric  

For these reasons, and many others, SE Ventures is proud to back First Street. Schneider Electric’s Sustainability Business division is a global leader in climate advisory and software made up of 3,300 professionals supporting ~4,000 clients across more than 190 countries to decarbonize. To support these commitments and activities, SE Ventures seeks to invest in and partner with innovative startups accelerating climate action. 

Our investment in First Street builds on previous partnerships, as well as Schneider’s 2023 acquisition of EcoAct. It reinforces the company’s deep subject-matter expertise in climate advisory with granular data translating climate risk into financial risk, and enriches a robust decarbonization solution set for clients, further cementing Schneider’s leadership position as the World’s Most Sustainable Company, as named by TIME and Statista last month.