With sudden climate changes, preserving our ecosystem and biodiversity has become fundamental. Not all Governments have the capital conserved to spend during such a crisis. As a result, the best alternative, in current circumstances is to ‘Go Green’. Sustainable or Green FinTech companies are not just buzzwords anymore but have become a revolution in the finance industry. They focus on creating and marketing products keeping the value of the ecosystem in mind. These companies have successfully earned profit while being operational and practical.
“FinTechs are playing a crucial role in diversifying the range of financial services, from providing services to the large number of people who remain unbanked, through connecting sophisticated financial markets and developing platforms for green bonds.”- Maria Ramos, Co-Chairman of the UN Secretary General’s Taskforce on Digital Financing of Sustainable Development Goals (SDGs).
In this article, we will take a look at Green Finances, Green FinTech, its importance and impact, some of the challenges it is facing, and its future.
Green Finance refers to the investments that are made in order to have a beneficial influence on the environment. It includes investments in air and water purification, a rebate of greenhouse gas emissions, and an increase in renewal energy proposals.
In the last five years, the annual extent of green bonds issued has grown exponentially by about 15 times, globally!.
Currently, Green Finance has mainly employed a top-down proposition. There has been a substantial number of corporations and Government bodies that are making copious disseminations in international markets. Although these investments have been promising and reassuring, the UN SDGs stand in need of a much higher degree of investment and a far more multi-faceted solution and long-term approach. This has brought about an increase in investors who want an opportunity to invest in Green Finance and sustainability.
This has been possible with the help of Green FinTech.
This amalgamation of Finance and Technology has become a platform to promote Green Finance and sustainability.
Green FinTech merges Digital Technology such as AI, blockchain technology, data research and analysis, and Internet of Things (IoT) which aims at decreasing abrogating environmental impacts.
Global Warming has become a catastrophe for the ecosystem. Harmful environmental degradation and concerns such as pollution, greenhouse gas emission, and contamination are at an all-time high. The COVID-19 pandemic has brought such complications under the spotlight. As a result, Green FinTech organizations have had an abundantly productive impact on shedding a light on decreasing carbon footprints and conserving the ecosystem.
In October 2018, the Financial Conduct Authority (FCA) of UK introduced the initial ‘Green FinTech Challenge’ to encourage modernization, innovation and advancement in the Green Finance sector of Britain.
The objective was to launch start-ups that: –
Out of 22 applicants, 9 firms were accepted to be a part of the Green FinTech Challenge to proceed in innovation and producing products and services that assist in transitioning the UK to a more sustainable economy.
Now that we know what Green FinTech is, let us understand its importance and how it is beneficial given the current circumstances.
Many Green FinTech operations such as green bonds, green investments, digital currencies, online banking, etc., have taken a step toward reducing carbon footprints alleviating sudden climate change liabilities. It has become a remarkable alternative to traditional finance, especially when it comes to transparency with data and capital.
It has had numerous benefits such as:
As Green Fintech organizations elucidate consumers on sustainability, many have now become aware of the threat to the ecosystem and how they can take a step ahead and consume only those goods and services that do not have a negative impact on the environment. This has further encouraged people to opt for organically made, bio-degradable products which has become an advocate for businesses to produce environmentally friendly products.
In 2018, IBM and Maersk revealed a joint project to ‘provide more efficient and secure approaches and schemes for administering global trade using blockchain technology’. This resulted in more companies using such an approach to reduce cost reduction and discard any inefficiencies. Therefore, Green FinTechs have understood the value of data and have played a major role in augmenting data analysis and insights and made manufacturing and logistics more straightforward, leading to more transparency in the supply chain.
Green FinTech companies are now focusing on finding solutions to aid in reducing carbon emissions. They are also encouraging other organizations to use methodological and structured strategies that use resources to its optimal stages which results in a reduction in the waste generated and promoted carbon neutralization.
Most Fintech organizations are now measuring their annual carbon footprints ensuring that their GHG (Greenhouse Gas) emission levels do not increase over a certain level and have set a great example for other companies to follow.
Taking steps towards the current transition has not always been smooth sailing. There are still some challenges that Green Fintech companies face. Listed below are some of the challenges that these organizations face and the possible solutions to eliminate the challenges.
Most corporations focus only on generating profits. As a result, they end up using cheap raw materials to manufacture their products. Most of the raw materials used are not bio-degradable and are a major threat to our planet. With no clear waste disposal structures, a lot of waste is generated, causing pollution.
One of the possible solutions to this problem is to win over consumers. As millennials are realizing the impact and advancement of sustainability, a lot of organic products are being advocated. This is a great opportunity for Green FinTech organizations to understand their target audience and promote sustainable products. This not only helps them gain profit, but also creates awareness and a sense of responsibility among consumers and other organizations.
There is still a lot of questioning when it comes to putting money in green investments. Many still prefer investing in traditional assets instead of green assets. This has stirred a lot of controversies and confusion in the FinTech industry. Reports suggest that several investors still prefer to invest in coal instead of fossil fuels. Such risks have to be mitigated.
A great approach to solve this issue is to find alternate data sources. With the revolution of Artificial Intelligence (AI) and Machine Learning (ML), analytical tools now have the potential to provide trustworthy and valuable data which help in understanding the reality of the risks.
Nowadays, given the fad of organic products, many businesses claim that they sell organic and environment-friendly products even though that is not the case. Here, funds or products are made to appear beneficial to the environment. This has led to a lot of apprehension towards Green FinTech where many investors hesitate in investing capital and making monetary decisions regarding Green Finance.
There has already been a lot of deliberation as to what products or funds qualify as a ‘Green investment’. As a result, several attempts are being made to standardize such products. Having and setting the right market standards to what qualifies as a green product or investment is an excellent approach to possibly eliminating this issue.
Since the Paris Agreement in 2016, several corporations have invested billions of dollars in fossil fuels.
Though the road to complete sustainability seems to be a long journey, Green FinTech is playing a colossal role in overcoming these challenges. With this incorporation of finance and technology, we are entering a new era of a ‘Green Future’. As the market keeps advancing and evolving, we can expect to see many more initiatives and attempts being made towards a more inclusive and sustainable future.