This is a critical year for the environment. Among other initiatives, the United Nations is bringing key stakeholders together at its 26th climate change conference (COP26) to drive global change. Greater societal focus on climate change and environmental impacts has created a focus on green finance, bringing sustainability to the forefront of the financial services agenda. Green finance products and services are a way for consumers and businesses to make purchasing, saving and investment decisions more “carbon-conscious”.
With this increased focus on green finance, fintech start-ups and scale-ups may view 2021 as a year of opportunity. While support from large institutions will accelerate the transition to a low or zero-carbon economy, what role do much smaller fintechs have to play, and what opportunities are there for greening finance? At Rise, created by Barclays, we see small and nimble fintechs in action every day, and we are confident that their agile and innovative thinking could be transformative for this rapidly emerging and critical area.
Fintechs are well placed to meet the changing demands of customers. In the consumer space, the rapid development of innovative ideas that meet consumer needs is in their DNA, as is the design of new core banking infrastructure and operational software that is transforming financial services. Indeed, a host of new, green fintech solutions are already available.
For example, carbon budgeting tools and incentive schemes can nudge consumers into better purchasing behaviours and let them make more environmentally positive decisions, and blockchain and other core technologies are creating new carbon instruments and markets, allowing institutional and individual investors to simplify access to carbon markets and prices. Looking ahead, green finance opportunities the fintech sector can pursue include impact investing, green pensions, new types of current accounts, and climate risk modelling for insurance companies.
There are three key enablers that will affect the role of fintechs in green finance. As so often in the tech world, data is a key enabler – but there are still areas of uncertainty. What exactly does it mean to be sustainable, and which metrics should the industry use? Who sets the data standards? What technology should be involved? While national governments, and leading industry and academic groups, are collaborating on common approaches to standards, fintechs will be eager to get clarity on these questions so they can focus on developing new solutions.
The second enabler is government support and policy. The UK government’s first Green Finance Strategy in 2019 describes the accelerated growth of green finance as vital to the country’s economy. Greening the global financial system and catalysing investment is today driving innovation in financial products and building skills across the financial services sector. Furthermore, with the Kalifa Review of UK fintech published recently, the government has renewed its emphasis on how the UK can maintain its position as a global leader in financial services. Leveraging this sector to develop green finance solutions will be critical to this ambition.
Finally, the third enabler of green finance will be the guidelines, rules and regulations from regulators. These will help guide the innovation of large and small tech companies alike, and will shape how the green finance sector will evolve over the coming years. Green finance may be a quickly growing space, but with the appropriate enablers in place, fintech can play a key role in building, or at least financing, a better planet.
This article originally appeared in the Spotlight supplement on fintech. You can download the full edition here.