Is fintech so hot that it can cool the world?

David Roos
Working Your Core
Published in
6 min readJun 8, 2021

Despite widespread belief that global warming is a massive threat to society, we have failed to act. The world has emitted more carbon dioxide in the past three decades than in the last 500 years combined. 95% of millennials say they want to invest in ESG, but only 17% of millennials have done so. The voluntary carbon offset market has been slow to take off, measuring ~$300m globally, a fraction of the billions needed to combat climate change. Taken together, there is desire to change, but not enough actual change.

While 12% of Americans have purchased a carbon offset, 51% of Americans say they would be interested in purchasing one in the future. With the value of carbon at $21/ton and the average American emitting 20 tons a year, this back of the envelope math leaves over $34 billion of market value not being captured in the carbon offset market alone.

As a hegemon, America should be leading the way. But what will it take to get Americans to act? Fundamentally, we need to modernize climate technology, design a new regulatory incentives system, and develop private side solutions that turn awareness into action.

Fortunately, these solutions are well underway.

Modernizing Climate Technology

There are two main levers to combat the increasing level of CO₂ in the atmosphere: reducing emissions and removing carbon dioxide. If we want to avoid a climate disaster and move from the “high” line to the “negative” line (see Chart 1), we need to both reduce and remove.

Chart 1: Three Lines You Should Know

Source: How to Avoid a Climate Disaster by Bill Gates

Reducing emissions will come largely from electrifying uses of energy and moving away from fossil fuels towards clean sources of energy (e.g.,wind and solar). While there is still much more work to be done and incredibly challenging technological tasks ahead, I am optimistic about the path forward. Renewable energy prices have hit record lows, electric vehicles will likely be the majority by 2040, and companies such as MightyBuildings (a Core portfolio company) are paving the way in building sustainably — with zero waste and eco-friendly materials.

Removing emissions is also necessary to achieve carbon neutrality. Direct air capture and afforestation provide initial opportunities to remove emissions. Newer CO₂ removal technologies (known as CDR) are still in nascent stages, but have shown promising growth. Institutions from Stripe to Microsoft even to Chevron have committed to investing in removal technologies that could bring their carbon footprints not just to zero, but negative.

Modernizing marketplace infrastructure is the last piece necessary to create trust in the market. While skepticism over ESG and greenwashing is well-founded, companies including Sylvera, Pachama and SilviaTerra are taking a data-led approach to creating clarity in the carbon offset market with heightened diligence, monitoring, and recording. Marketplaces such as Patch, Raise Green, and Nori funnel investments into pre-vetted regulated projects to increase trust and transparency in the offset market. Over time, these companies will help weed out harmful practices.

A Regulatory Incentive System

On the regulatory side, the SEC established the Climate and ESG task force to create confidence in ESG metrics. Its goal is to penalize greenwashing, while simultaneously supporting truly impactful projects. On May 20th, President Biden also issued an executive order calling for disclosure of financial risks related to climate change and ensuring that financial regulators start to assess climate-related financial risks.

Furthermore, the U.S. is designing financial incentives, including investment tax credits for solar energy systems, to aid market growth. The most recent version of the American Jobs Plan includes $174 billion for the electric vehicle market to make electric vehicles and charging stations ubiquitous across the country. The bill also includes money to modernize infrastructure towards clean buildings and sustainable housing. The Biden Administration has even discussed creating a “carbon” bank that could set a $20/tonne floor on carbon credits and offer other credits for sustainable management practices.

More efforts are needed, but the tides are shifting, and climate conscious companies (and consumers) will be rewarded.

So, why am I talking about this as a fintech investor at Core Innovation Capital? Because fintech is at the heart of turning awareness into action.

Fintech: Turning Awareness into Action

An increased supply of technologies and new regulation is necessary, but more must be done. This is where fintech can, and is starting to, play a role — capturing the demand for change.

Capturing Demand

Across the fintech ecosystem, companies are capturing demand from consumers and businesses who are socially conscious and want to change their spending, investing, or banking habits. Joro and Wren help consumers monitor their carbon footprint. Joro, for instance, tracks spending habits to determine a consumer’s carbon footprint and then tries to adjust consumer habits by providing feasible ways to reduce one’s carbon footprint. On the business side, Watershed helps companies build a carbon reduction plan to match their ambitious promises.

Banking products including Aspiration or Ando attract consumers who want to make sure they bank in a climate-friendly way. These companies lend consumer deposits to carbon offset projects, ensuring that bank loans aren’t spent on projects harmful to the environment.

Payments companies such as Treecard and Carbon Zero attract socially minded users who want to make sure their spending goes towards planting trees rather than typical payment rewards, most of which go to waste. Investing infrastructure such as Ethic and OpenInvest make it easier for clients to invest in ESG-friendly public companies. Lending companies, such as Mosaic (a Core portfolio company), capture demand for energy-efficient home improvements and solar by making the projects affordable. Beyond solar, lending companies such as FarmRaise and Ambrook fund sustainable farming projects.

As you can see, across the fintech ecosystem startups are capturing demand for climate friendly actions.

The Opportunity in Fintech: Stimulating Demand

But how can fintech further stimulate demand and increase the pace of carbon offsetting? The most effective way is by incentivizing consumers with financial and social rewards. Ant Financial, a Chinese enterprise, used extrinsic incentives, such as point rewards and a social competition, to create the largest tree planting initiative on record. In the U.S. several of the companies mentioned above are playing a role in stimulating demand. Aspiration offers a “round up” feature for consumers to donate to tree planting initiatives with every purchase. They also offer cash back on socially-minded spending and 1% APY on deposits, thereby encouraging users to move cash over to be fiscally responsible as well as socially responsible. Mosaic saves users over $30k on energy bills throughout the life of their solar system, making a shift to solar fiscally responsible.

Furthermore, a new opportunity to stimulate demand comes from embedding climate into applications we use on a daily basis. Ecocart and Cloverly are immersing climate initiatives directly into the spending flow for consumers. At checkout, they offer users a chance to offset their carbon footprint by directly calculating the carbon impact of any purchase. Moreover, Stripe takes 1% of revenue from businesses who want to offset their carbon as they grow and uses it to directly fund carbon removal technologies. By embedding climate into the products themselves, these companies are decreasing friction leading to increased climate engagement.

Onward and upward

The U.S. emits over 5 billion tons of carbon dioxide each year. At $21/ton, that means to get to zero emissions over the next three decades, and avoid a climate disaster, the value of carbon offsets will grow to over $100bn in the U.S. alone, and over 10 times that number globally.

As such, the market is ripe for a climate focused company that creates extrinsic financial incentives for carbon offsetting through innovative models, combined with unique distribution for low customer acquisition costs and high engagement. With both supply of technologies and demand for change growing, we are at a pivotal point for climate change investing and its relation to fintech. Enhanced technology, positive regulatory trends, and harnessed demand will create a multi-billion dollar market that decreases America’s carbon footprint. Fintech companies have the opportunity to not only make an impact, but also capture valuable economics. The stars are aligned.

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David Roos
Working Your Core

Partner at Core Innovation Capital. Interests include FinTech, blockchain, politics, and venture capital. Still recovering from the 49ers 2020 Super Bowl loss.