The financial industry has taken big strides towards closing the gap between tech and the environment. Each year, as society moves closer and closer to total digitization, technology sweeps across finance and reshapes the industry. This has given rise to a dominating force – FinTech. FinTech is the union of finance and technology to optimize and simplify the processes of digital financial services. Everything from digital transformation for banks to trend-predicting artificial intelligence is encompassed within the realm of FinTech. As it continues to take over the financial industry, so has the push towards green banking.
Green banking is an initiative created by financial professionals to help banks increase the use of clean energy and downsize the impact on climate change. This is often referred to as being “mission-driven” rather than profit-driven.
According to the Coalition for Green Capital:
“Being mission-driven means that Green Banks care about deploying clean energy rather than maximizing profit. They actively develop a pipeline of clean projects and seek out opportunities in the market. All Green Banks have the mission to address climate change, though many also have additional objectives such as improving resiliency or serving low-income communities.”
To understand the importance of green banking, it is crucial to examine the effects of technology on nature. The actual impacts of technology on the environment – not just the Hollywood portrayals – can be pretty double-sided. On one hand, technological advancements have made sustainability efforts more possible than ever before. On the other, using advanced technologies can result in high energy expenditures and electronic waste.
Arguing that technology is a negative stressor on the environment is certainly not unjustified. The recent boom of NFTs in the cryptocurrency space has sparked new debate over the environmental impacts of technological energy expenditures. Due to the relevance of cryptocurrency to finance, this has also lead to closer examinations of banking institutions and FinTech.
Put simply, to operate large servers and networks required for digital services, financial institutions must use a lot of energy. The problem from here becomes whether or not the energy being used is clean and renewable, and how many non-renewable resources are being consumed without replacement. There is also the problem of carbon emissions that can result from manufacturing tech and the use and disposal of materials.
However, many within the industry argue that FinTech is actually a leader in the carbon offset movement. New Energy Nexus, an international non-profit that works to support clean energy entrepreneurs, recently released their 2021 Climate FinTech Report. In this report, the concept of Climate FinTech – also called Green FinTech – and its potential benefits are deeply explored. According to New Energy Nexus, “Climate FinTech is about the application of FinTech with the primary goal of decarbonizing the planet.” This report argues that Climate FinTech has both downstream and upstream benefits – including empowering citizens and providing access to energy and banking that can potentially improve their quality of life.
Many in the FinTech space believe Green FinTech not only supports greater sustainability in the financial industry but that it is also a foundational element for financial inclusion – a business strategy that aims to make financial services and resources accessible to all people. Researchers even argue that FinTech is a “key driver for financial inclusion, which in turn underlies sustainable balanced development, as embodied in the UN Sustainable Development Goals (SDGs),” according to a 2020 European Business Organization Law Review article.
To achieve such success with FinTech, transparency and reliability of data will be major factors. This will require some degree of regulation to ensure that all FinTech companies are following the same standards for data reporting – and that includes companies on an international level. In December 2020, MDPI published an article entitled How Green FinTech Can Alleviate the Impact of Climate Change – The Case of Switzerland. This article examines the limited research surrounding Green FinTech and its potential global impacts. The article states:
“ – if standardization and transparency of sustainability data shall be achieved on a global level, institutions from various countries must be involved. This is especially true in the case of financial data where, in some cases, security and/or privacy concerns may outweigh the sustainability impact.”
When it comes down to the rudimentary question of whether or not Green FinTech will be effective in the fight for sustainability, it all depends on two crucial factors – the FinTech companies and consumers themselves. The FinTech industry has massive potential to make huge strides in the carbon offset movement. To do so, however, companies must set aside personnel, budget, and resources for such efforts. This requires FinTech companies to commit themselves to a green initiative to ensure their resources are not put to waste. It also requires consumers to prioritize companies with green business models and transparency in their carbon emission reporting.
With FinTech still being a relatively new sector, there is still much research to be done into the sustainability capabilities of the industry. As FinTech continues to grow, consumers and companies alike must be well-informed and up-to-speed on the state of our climate and environment. By supporting and pushing for green business models and initiatives, FinTech has the potential to become a true leader in the age of sustainability.
Written by Deborah Boyland, Head of Marketing at CPQi.