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How is Green Finance Reshaping the Fintech Industry?

December 2, 2021 | Blogs

Sustainability and green initiatives are drawing customers like never before. More and more industries are responding to this growth in consumer interest as an opportunity – not just to grow their businesses, but to make a lasting, positive impact on the planet.

So far, green initiatives have been most noticeable in consumer goods and manufacturing. Brands that have opted for green initiatives are getting a major boost in sales and brand reputation. Technology companies are recycling products and offering trade-in rebates. Clothing, beauty products, food and housewares brands are seeing growth by switching to green materials and reducing packaging. Harvard Business Review reported that 50% of growth in consumer packaged goods between 2013 and 2018 came from sustainable products.

Now, similar trends are taking hold in the finance sector. According to research by Deloitte, seven out of ten (71%) banking customers in the UK are more likely to choose a bank that’s making a positive social and environmental impact. Three out of five (61%) wished their banking provider showed more corporate social responsibility (CSR) toward the environment. With so much interest, so much urgency, and so much at stake, sustainable finance promises to be the next growth frontier for investment banks and fintech.

So just how are banks and fintech organizations meeting the customer demand for green finance?

One of the principal ways is through sustainable investment decisions. Customers want their money to go towards green and ethical economic activities and projects. As a screening method, they’re looking to see how investments they and their banks are making stand up to sustainability criteria in three key areas: Environmental, Social and Governance (ESG).

Environmental criteria measures a company’s relationship with ecosystems, climate and the natural world. Social criteria examine organizations relationships with people – employees, customers and the communities in which it operates. Governance criteria focus on a company’s leadership, with attention to executive pay, audits, internal controls, and shareholder rights.

Customers are making banking and investing choices that meet rigorous standards and expect positive, ethical indicators across the ESG categories. Debt financing, through green, social and sustainability bonds, has emerged as one of the most popular means of investment funding. Green fintech start-ups and peer-to-peer business platforms are getting in on the trend. Many make it easy for socially-conscious investors to direct scheduled micro-loans to support wind farms, solar energy and reforestation.

There’s policy support for sustainable finance, too. Banking organizations are increasingly required to implement ESG strategies that align with international agreements on carbon neutrality. Companies are investing in projects that further the UN-sanctioned mandate on Sustainable Development Goals (SDGs), launched in 2015. The initiative supports economic growth in areas that help people and the planet, such as reducing inequality, creating sustainable cities and communities, enabling responsible production and consumption and developing clean energy.

As environmental and social responsibility become core considerations for more and more consumers, the post-pandemic economy recovery will be oriented around green finance and social impact investing. Ethical banking means embracing a new economic model, too. The traditional linear model moves from resource extraction to waste disposal, putting extreme pressure on natural systems and public health. Businesses and banks that support the new, circular economy think about waste as a resource, not a cost, and recover value from resources through reuse, repair, repurposing and recycling.

In response, new fintechs are emerging that put sustainability at the center of their business models. Some make investing easier by calculating the carbon footprint of different portfolios. Some round up transactions to the nearest dollar figure and redirect the extra towards green initiatives. Many are launching cards made from recycled materials, with small transactional fees that support climate protection. TreeCard has even launched a wooden card, and directs a majority of its profits to reforestation and sustainable projects. Other fintech apps focus on helping people live sustainable lives by tracking their daily carbon dioxide emissions. Eco-conscious customers are turning to fintech platforms for sustainable shopping that help users find eco-friendly products and suggest greener alternatives.

In addition to divesting from fossil fuels, incumbent banks are launching new products to meet consumer demand for sustainable finance. Many offer impact accounts that estimate customers’ carbon footprints based on spending data and update clients on community-building initiatives. Next generation credit cards are rewarding customers when they make sustainable purchases. BBVA and HSBC offer payment cards made from recycled materials.

Customers and companies increasingly see themselves in relation to the planetary picture. They want to be stewards of nature and have a positive impact on communities near and far. When banks and fintech organizations side with their clients on environmental and social issues by focusing on ESG, demonstrating CSR and building and supporting green initiatives, they gain new customers, and give back to the planet. Sustainable finance and ethical banking isn’t a trend – it’s the key to a habitable planet and an equitable future.