Why it’s important to green the world with climate fintech

Your house is on fire! What would you do?

It’s no longer a hypothetical situation as our home, Planet Earth, is being ravaged by forest fires, CO2 emissions, temperature rise, droughts, glacier melts, and floods. These natural calamities are causing an existential crisis to the human race as we know it.

Prioritising climate consciousness

Today, there is immense climate consciousness among consumers, corporates, investors, and policymakers. They prefer greener financial services that allow them to spend, save, and invest in eco-friendly ways.

Environmental activists across social strata like Greta Thunberg, Leonardo DiCaprio, Al Gore, or Robert Downey Jr are voicing awareness, forming partnerships, and making investments to save the world from climatic catastrophes.

Fintech companies, too, are prioritising climate consciousness by embracing climate fintech. With a proven track record as disruptors and innovators, fintech firms understand shifting consumer preferences. Hence, they are well positioned to put a sustainability cap on the existential climate crisis.

As new-age consumers keenly scrutinise sustainability claims of businesses, integrating eco-friendly programmes into finance and technology is imperative for banks and financial institutions.

In fact, we see even traditional banks floating sustainable financial products like green cards, green loans, and green deposits that promise carbon footprint and emission reduction. These green financial products immensely contribute to creating net-zero pathways and clean energy, in addition to increasing customer trust and lifetime value.

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Collective responsibility

As a technocrat and founding partner from the fintech industry, I reckon we all hold a collective responsibility towards combating global warming. Fintech startups, behemoths, regulators, and governments worldwide must collaborate to direct significant capital flow towards decarbonisation.

A couple of recent examples of such collaboration are financial services company Nasdaq, which joined hands with Finnish firm Fortum to create an exclusive trading platform for carbon removal credits, and the American Bankers Association, which partnered with 10 other financial trade companies to release standards and recommendations for financing their transition to a low-carbon economy.

Not just this, several startups aim to compensate for CO2 emissions by planting trees, creating plant-based cards, and contributing to carbon sequestration projects. Such alliances prompt policy changes that enable the deployment of climate fintech initiatives to foster climate-conscious decisions and practices.

Cashless investments

Investment firms, challenger banks, neo banks, and new-age lending institutions worldwide are investing heavily in building carbon-offset portfolios and eco-friendly innovations.

Their APIs and tech stacks are backed by cutting-edge technologies such as Artificial Intelligence (AI), Big Data, and blockchain to enable ecommerce, banking, and payments tools that support and track fossil fuel divestment, deforestation, and greenhouse gas emissions.

Aligning with the Paris Agreement

Rethinking strategies to embrace a cashless economy and paperless transactions will be a crucial step towards climate fintech. Aligning corporate goals with the Paris Climate Accords, banks, financial institutions, and fintechs focus on reducing financed emissions, i.e., emission levels of client businesses.

They enable the transformation and transition of clients (especially in the manufacturing, energy, and power sector) to a low-carbon economy by devising programmes that track and measure greenhouse gas discharge.

Significant financing is directed towards sustainability agenda that facilitates hassle-free transition towards renewables, energy efficiency, and green transport.

Data, policy, technology

Leveraging big data, policy change, and technology innovation can lead to exciting value propositions in climate fintech.

Over the past decade, open finance has provided open-door access to incredible data on investments, liabilities, lending, and payroll that offer valuable insights into a company’s transparency, connectivity, infrastructure, and sustainability agenda.

By identifying clear, granular data sources and using tools to interpret and portray metrics effectively, fintech firms can push efficient data-driven decisions and innovations.

The Task Force on Climate-related Financial Disclosures (TCFD) comprises 31 nations that collaborate with governments, regulators, and industry leaders to formulate standards and policies for climate fintech. Countries like Canada, India, New Zealand, China, and European Union (EU) are even developing taxonomies to define green initiatives and Environmental, Social, and Governance (ESG) disclosure standards.

Nothing can open bigger doors to green finance than technology, and this is exactly where fintech companies stand to score better over other industry players.

AI, Internet of Things (IoT), and blockchain are great enablers of climate fintech, as they allow physical objects to capture, validate, and report real-time data on emission impact.

Convergence of data, regulatory policy, and technology can enable efficient visualisation and reporting of ESG impact. This will enable effective analysis against defined metrics, regulatory frameworks, and sustainability goals.

Accelerating climate fintech

Budding fintech firms need to understand their responsibility in accelerating decarbonisation.

Efforts need to be channelled towards building business ecosystems and value propositions to promote incubation and scaling of fintechs that decarbonise the global economy. One such promising climate fintech application could be APIs that help neo banks estimate carbon footprints and recommend offset strategies to systematically remove excess emission.

Fusing climate into fin and tech has become a necessity today. Fintech accelerators and incubators will play a significant role in integrating climate fintech and sustainability into every budding startup ecosystem.

Cheers to a green, clean, and resilient world for our children!