Nowadays, climate change is a core focus of the global economy, and the GreenTech sector is expanding its borders at an incredible pace, imposing on businesses countless obligations to combat environmental issues.
As a part of the global trend, the financial world is absorbing sustainable concepts by leaps and bounds, which by 2030 can create economic opportunities worth around $10 trillion a year.
Fintechs, in turn, thanks to the ongoing development of next-gen technologies such as instant data analytics, blockchain, and machine learning, have taken the leading role not only in mitigating the negative impact on the environment but also in providing other sectors with the tools to measure and control their climate impact.
What are the fintech green initiatives?
It may seem strange, but the global pandemic has significantly helped sustainable finance grow. And fintechs that wisely focused on digitalization managed not only to accumulate enough resources for launching new green projects (such as carbon reduction, investments in renewable energy, etc.) but also found numerous sustainable ways for existing technologies — AI, machine learning, and blockchain.
AI and data analytics
At the crossroads of the financial sector, technologies, and sustainability, artificial intelligence has the power to make a surprising impulse towards a low-carbon economy.
As the productivity of sustainability at its initial phase largely depends on understanding what industries and sectors are more prone to make a detrimental effect on the climate, AI can assist in unveiling critical data for developing short-term and long-term strategies.
Additionally, thanks to the digital capabilities of AI and machine learning, it has already become possible for many companies to evaluate their environmental impact by tracing their supply chain and estimating their carbon emissions. These calculations, in turn, can be leveraged by the regulators to better control harmful emissions and license all businesses to guarantee their transition towards a more sustainable world.
Many believe that blockchain technology has nothing in common with sustainability, as the first that comes to our minds when we hear blockchain is cryptocurrency – one of the leading energy consumers and contributors to environmental pollution. However, if properly executed, the blockchain ecosystem can go far beyond its use as a tool for mining digital assets.
It’s no secret that those aspiring to pass to cleaner business concepts and build green infrastructure will need green financing, including green bonds, green loans, green investment funds, and climate risk insurance.
In this way, tokenization, for example, which means converting assets into digital units on the blockchain, can become groundbreakingly valuable. In fact, it has been calculated that the approximate issuing of a green bond under standard conditions costs around $6.5 million. Still, the cost could be reduced by almost 90% if the issuance moves fully to the blockchain. This, in turn, would make green bonds a far more attractive and affordable option, giving numerous organizations and individuals the possibility to opt for sustainable assets.
The second approach regarding blockchain contribution to preventing climate crisis lies in monitoring sustainable development goals and sharing information across all users. Currently, there is a gap in the uniformity of reports. But as more and more organizations disclose detailed data on their carbon footprint and overall environmental impact, blockchain could help build a holistic picture to understand which direction to move.
Finally, blockchain technology can become a bridge to incorporating renewable energy into energy grids, which will incite its partners, suppliers, and utilities to follow the same way, thus increasing the number of entities that diminish their carbon footprint and create more sustainable standards for a business.
Many people do not even know that the links between investments and the environmental crisis have a much more significant meaning. Apart from our personal acquisitions in harmful industries, the financial institutions we invest our savings in also have a direct impact on carbon emissions. Therefore, deciding what financial institution to trust can be surprisingly consequential.
Interestingly, 35 of the world’s largest banks have provided $2.7 trillion to fossil fuel companies since 2015, and what is more important, this fossil fuel financing has been growing year by year.
Conversely, fintechs lead the green finance revolution through investments. And what is more important, nowhere has the outbreak of social value projects been more tangible than in fintechs that allocate vast amounts to support reforestation, plastic cards recycling, small sustainable start-ups, and other programs.
At the same time, more and more fintechs’ green initiatives are being developed specifically for the customers who also aspire to protect the environment. Typically this results in low-interest loans for, for example, tree planting or building a fossil-fuel-free portfolio and numerous products and services, such as personal savings accounts, where the return on investment can be used to reduce the carbon footprint or support the transition to an eco-friendly future.
Finally, the leap towards overall digitalization has enabled fintechs to offer a series of eco-friendly subscription plans, thus significantly contributing to awareness and access to directly influence sustainable decision-making.
Another initiative that helped fintechs take a solid position at the forefront of sustainable innovation in the financial field is the shift from on-site infrastructure that requires large amounts of energy to run to cloud technologies. It is expected that partnership between sustainability-focused fintech service providers and other businesses from non-financial sectors will induce the latter to do the same, as moving away from on-site hardware to the cloud enables organizations not only to become more sustainable but also reduce operational costs.
2022: Sustainability is becoming mainstream
2022 is the year when economies are expected to fully reopen after the pandemic, making sustainable investment and carbon-conscious establishments grow even faster. And for companies that adopt this concept, 2022 can give an excellent chance to develop new products, attract new customers, and help build a better world.
At the same time, with climate change accelerating global concern, neglecting sustainability can turn out to be pretty reckless. Perhaps, everyone remembers the “remarkable” story taking place several years ago when Tesla stopped accepting payments in Bitcoin due to its poor record on sustainability. This year, the same scenario can repeat again and again, as the risk of being associated with non-sustainable entities can become a huge block to good market positioning and financial stability.
Environmental concerns are growing. Customers are no longer satisfied with the banking institutions that misuse their funds or make them save their money at the expense of the environment. As a result, more and more consumers are changing their habits towards sustainability, seeking support for their aspirations from various fintech companies.
Fintechs, in turn, due to a wide range of sustainable initiatives and the ability to react quickly to market changes, have taken the leading role in offering consumers options that combine financial gains with eco-friendly values.
However, fintechs will not and should not solve sustainability problems alone, even though they have the potential to fix some of the world’s most urgent issues. The development of sufficient regulatory conditions where obligations are clear and transparent and compliance can be easily monitored can only be reached in close partnership between individual consumers, financial institutions, and authorities. And hopefully, these parties will be able to find a consensus that, in the end, could mitigate the consequences of the carbon footprint and prevent a climate crisis.