Green Fintech is not relatively new, but its significance is realized with the dawning of the urgency to cut down greenhouse gas emissions worldwide.
Evaluating the Importance of Green Fintech
Planet Earth has been literally on fire for the last couple of years, ravaged by forest fires, CO2 emissions, temperature rise, droughts, glacier melts, pandemics and epidemics, and floods. All these natural disasters are causing an existential crisis for humans. Most of these are directly connected to the increasing use of fossil fuels that are warming the Earth’s surface by 1-degree every year. As per reports, the global temperature will reach the critical 1.5-degree Celsius benchmark in the next five years.
Yet, many large banks and financial institutions are still heavily investing in fossil fuels, which directly violates the Paris Agreement Terms. Courtesy of environmental activists like Greta Thunberg and Al Gore, the spotlight has been brought down on those banks which are major climate offenders.
Even though traditional banks are rolling out sustainable financial products like green cards, green loans, and green deposits that promise carbon footprint and emission reduction, a complete transition to clean energy will take many years to implement.
These traditional banks mainly maintain a balance between unclean and clean energy investments, but investments in fossil fuels are not over yet. For example, 60 largest banks like Citi Bank and JP Morgan have made over $3.8 trillion into fossil fuels in the five years after the Paris Climate Deal. And recent offenders include HSBC, Barclays, and Deutsche, putting $8.7bn, $4.5bn, and $5.7bn in oil and gas in 2021. The recipients of such funding include Exxon Mobil, Shell, BP, and Saudi Aramco.
Usually, banks invest clients’ money in debt, savings, or mutual funds. Little did the latter know that their money was being used to fund coal power, armaments, and other businesses, directly harming the environment and humanity.
Courtesy of rising technology and growth in FintechsFinTech, the customers have more control over their investment portfolio. Their interest has already shifted to sustainable assets by 34% since 2020. The more clients/customers control how banks use their money; the better chance humanity has to shift towards clean energy. This is where green Fintech companies can contribute significantly.
What is Green Fintech?
The term Green Fintech covers the numerous activities banks, financial institutions, and Fintech companies are undertaking to promote green bonds or green investment funds. It also covers efforts put in by big traditional banks to cut down climate risk insurance for combatting climate change.
Simply put, Green Fintech is an enterprise that has a minimal negative impact on the local and global environment, community, society, or economy.
A few significant measures have already been undertaken toward this transition: Tesla stopped accepting Bitcoin payments in May 2021. Bitcoin mining is by itself is not environmentally friendly. On the other hand, many Fintech companies are initiating sustainable efforts like planting trees to offering fossil-fuel-free investment.
Interest in Green Fintech is gradually increasing, but a tech-driven innovative solution can only foresee its full impact on the global economy. Nevertheless, other Fintech companies are already doing their bit, as mentioned earlier; let’s understand those measures greening the world economy.
Measures Implemented Towards Green Fintech
Everybody needs to play their bit to offset individual carbon footprint. Nevertheless, the Green Fintech companies are already bringing out new measures to green the economy as much as possible; a few such measures are elucidated below –
1. Production of Clean Energy
Technology is the missing piece of the clean energy puzzle, holding the potential to bring more financial services under the green economy umbrella. Green crowdfunding platforms, energy tokens on DLT platforms, and peer-to-peer exchange networks are finding ways to incentivize clean energy production. One example is SolarCoin, which has created rewards to acknowledge the efforts of solar energy producers and financers and fund those considering installing solar panels.
2. Carbon Offsets
Following the Paris Agreement, many banks, financial institutions, and the world’s largest ventures announced a net-zero emissions target. On the other hand, Fintech companies like CoGo and Almond have automated the procurement of carbon offsets to reach net-zero emissions. These Green Fintech companies track corporate activities through bank account data and provide recommendations to reduce carbon emissions.
3. Adapting Sustainability
Green Fintech companies are adopting sustainability as one of their core values. For example, a few Fintech start-ups use sustainability to connect with environmentally-conscious new millennials. They come up with unique ideas, such as promising to plant a tree for every €100 spent using their clean card. Other examples include EcoTree, a Danish company, inviting people to become tree owners by investing in trees using their digital wallets and receiving returns once the tree matures and the forest is renewed.
4. ESG Ratings
ESG metrics, or Environmental, Social, and Governance metrics, is another initiative undertaken to keep the world’s top investment vehicles are under check. Green fintech companies use artificial intelligence and distributed ledger technology to help investors check company records of the latter’s social and environmental impacts. This metrics system compares the company disclosures with almost real-time data and publicly available environmental data to improve a companies’ environmental, social, and governance standards.
Fintech is by itself an innovative environment-friendly alternative to traditional banking. The merger of digitalization and banking services has significantly reduced customers’ and investors’ carbon footprint by shifting banks to the cloud.
Besides offsetting the carbon footprint of banking customers, this technology has proved a more convenient method than traditional banking and has given more power in the hands of investors. Apps such as Clim8, a sustainable investing app, are vying for the attention of environmentally conscious customers and redirecting them to put their savings into various sustainable causes such as access to clean energy, water, sustainable food, and more.
6. Blockchain Technology
Even though blockchain technology came to the forefront following the sudden rise in popularity of cryptocurrencies like Bitcoins, it is still considered one of the most disruptive technologies of the 21st century. To date, its applications are centered around cryptocurrency only. However, its benefits are gradually unfolding, especially in the financial domain.
This robust technology offers a more secure and decentralized record of transactions, something financial services expect. Now, it is applied to foster full traceability and transparency of the products’ supply chain, from source to store. Further, this technology is used to help investors understand and track where their green investments are being spent and how they’re being used.
Benefits of Green Fintech
As stated earlier, Fintech itself is green and ensures green and sustainable finance and reduces cost, promotes efficiency, and values nature’s assets, among other benefits. Following is a list of benefits Fintech companies are offering when going green –
- Promoting and implementing sustainable business models, investments, trade, economic, social, governmental, and environmental projects and policies.
- Making product supply chain easily traceable and transparent, from source to store.
- Propelling inclusive and sustainable development of the global economy.
- Giving more control to investors when making green investment choices.
- Helping environmentally-conscious investors understand how and where their savings have been distributed for investments.
- Helping customers and businesses offset their overall carbon footprints.
- Preserving nature and the natural ecosystems.
- The Future Ahead with Green Fintech
Despite efforts to raise the consciousness of companies, banks, and investors, non-green investment is continuing, and big companies are still violating the Paris Agreement terms in their supply chain. Behind the loud ”green” campaigns hide the real action, commonly called ”greenwashing” by environmentalists.
But, with the help of technologies such as Blockchain, there’s still a sliver of hope. The Green Fintech companies are well-positioned to make significant efforts to reduce the human impact on the environment by giving more control to customers and investors. And, Blockchain can be the medium to end the threat of environmental ambiguity.
The journey is long and tedious, not devoid of challenges and hurdles. Still, with young millennials growing more conscious about how their money is spent and from where their wearables are coming, things can go down in favor of the Fintech industry fighting to protect the green of Planet Earth.