Fintech’s Role In Greening Financial Investments
BP, one of the world’s largest carbon emitters and linked to a whole host of environmental damage, has a beautifully crafted website which depicts them ‘reimagining energy ‘ on their journey to net-zero carbon emissions. This recent documented journey allows them to continue extracting oil and dabbling in fracking, while also being included in ‘green funds’ as they are considered as working towards ESG (Environment, Social Responsibility & Governance) goals.
I hate to break it to them, but many individuals don’t want to invest their money with polluters, despite their new found journey towards eco-enlightenment. To be seen as a little greener, perhaps they should take a page out of Google’s playbook — the search engine was the first major company to become carbon neutral (back in 2007), and from 2017 have run on 100% renewable energy. They are now planning to eliminate their entire carbon legacy as a company within the next 10 years.
It took BP many decades to reimagine how they would source their energy, partly because of the system we had in place. Traditional financial institutions included them in retirement and investment funds because their profits and dividends were so high. Visibility over what funds were being invested in was opaque for individual investors and general knowledge about environmental damage was equally cloudy. Fast forward to today, and every company has added a splash of green to their websites and committed to sustainability in an attempt to keep their share of global investment — especially the ones that have traditionally contributed the most damage to climate change. It’s definitely a step in the right direction and having large fossil fuel companies considering carbon sequestering and reforestation is a good thing when tackling climate change.
But the tides have changed, and technology has offered us more visibility into investments and supply chains, a greater understanding of climate change, and new inventions that can help reverse environmental destruction and aid regeneration. For example, Dandelion Energy takes heat from the ground or nearby air to warm houses, instead of using something extracted thousands of miles away and shipped to your door via a pipe. Enel X is creating 2-way electric car charging ports, allowing parked cars to double as batteries when not in use. And Tesla, well Tesla and its innovations have become the darling of every investment portfolio at the moment. Developing new technology, becoming carbon neutral and selling genuinely green products are profitable opportunities. With a historical climate-damaging past, claiming to go net zero in 30 years (from now) might not be enough to keep BP looking like a good investment in the future. The truly innovative climate-changing companies of today will reap the biggest benefits in the future.
So what’s fintech’s role in greening financial investments?
As technology continues to evolve, fintech is such a big part of greening the world, because it helps change how money flows and offers individuals easier access to genuinely better alternative products and services, as well as a much wider choice in where to invest.
Just as Netflix has shown the movie industry that another way is possible, traditional finance is waking up to discover that their offerings are outdated and are now racing to change their product offerings. In January, BlackRock, the world’s largest asset manager, suggested that companies not achieving net zero emissions by 2050 will be dropped from their portfolios. Leading ethical bank Triodos offers renewable bonds that are funded fast and often oversubscribed, showing how much interest there is in investing in renewable projects. And Spain’s Caixa Bank is adding a refer a friend = plant a tree style initiatives into their banking app.
Other banks and financial institutions are setting their own sustainable goals, but many are still a long way off from even achieving sustainability. While removing fossil fuels, weapons and tobacco producers from portfolios are quick wins, there is still an element of greenwashing, and many ESG funds still include BP and other repeat environmental offenders (such as ExxonMobil, Chevron, and even Nestle, whose presence in these funds shows how far we still have to go).
Nimbler fintech’s have the possibility to move faster, and can specialise and cater better for individuals than larger financial institutions can. Pensionbee recently announced they will offer a fossil fuel free pension fund, Wealthify already offers ethical investment funds managed by robo-advisors, and Clim8 Invest is a new app allowing direct investment into companies tackling climate change. Search engine Ecosia’s TreeCard debit card will use 80% of its profits to plant trees across reforestation projects, while Alipay’s Ant Forest, which rewards users for low-carbon lifestyles by planting real trees in their name. To date, over 120 million trees have been planted in China’s Ant forest. I’m sure I’ve missed many more green fintech’s here, please comment on any others you know of in the comments!
These are just the tip of the iceberg in terms of the ‘green fintech’ that we will see in the next 5–10 years. As the ease of access to white label app solutions and banking infrastructure (like Railsbank) continues to grow, it opens up new possibilities, visibility and access for eco-entrepreneurs to reimagine what’s possible and raise money for climate regenerative initiatives. Switzerland’s finance department has already launched a Green Fintech Network in the hope of cultivating more homegrown innovation (and hopefully the FCA will repeat their Green FinTech Challenge again soon). Add to this blockchain technology which can track and offer full, immutable visibility to supply chains, while offering a legitimate way to issue carbon credits, and it’s no wonder that traditional financial institutions are suddenly pushing to become as sustainable and carbon neutral as possible — they can see the potential of their businesses melting away with the rising temperatures of the near future.
Fintech will inevitably help bridge the gap between environmentalists and finance — two groups with historically very little collaboration — which will bring innovation, environmental regeneration and finally start to make money, and investing, a real force for good.
Originally published at https://www.linkedin.com.
