The emergence of green fintech companies offering innovative solutions is gaining traction. This is due to investor interest and regulatory bodies’ push to hold corporations accountable for the environmental impact of their business operations. Sustainable development is not a trend – it’s becoming a priority across all continents. Green fintech faces many challenges but adapts quickly. What trends do we predict for the upcoming year? What actions could companies take and how will it all impact the industry and beyond?

According to the Climate Fintech report by New Energy Nexus, there were 250 climate fintech companies in the world in 2020 alone. The green finance revolution is here. According to PwC, 8% of all European and UK fintechs using open banking APIs already offer a sustainable product. Asia is also waking up, as seen in this PwC report on fintech in Singapore.

In recent years, especially since 2020 and the COVID-19 storm, many companies have used their employees’ “free time” in quarantine to develop products. We can break them into three categories:

  • data-related
  • policy monitoring or enforcing
  • technology-focused

Companies like Doconomy, Greenly, Sinai, or Kettle pave the way for the next generation of highly advanced products. Not all of them are fintech-related. Kettle, for example, is a risk-management platform that can be included in the green fintech product and impact chain, leading to an ecosystem of mutually beneficial platforms for environmental impact.

What is green fintech?

Just a quick reminder. Although green fintech is a very broad term, it can be described by this definition:

It’s general technology, actions, business operations, internal procedures, and cooperation with third-party actors that provide, implement, and enhance sustainable solutions to the financial services sector, for businesses and consumers alike.

There are a few key areas for green fintech. According to the Green Digital Finance Alliance, there are a total of 8 product categories within green fintech:

  • Green digital payment and account solutions
  • Green digital investment solutions
  • Digital ESG-data and -analytics solutions
  • Green digital crowdfunding and syndication platforms
  • Green digital risk analysis and insure-tech
  • Green digital deposit and lending solutions
  • Green digital asset solutions

In the UK alone, the percentage of green fintech companies is staggering. According to Platformable, 90% of European and UK green fintech solutions are focused on limiting climate change. This, however, is not easy, since calculating carbon footprint is mostly based on the so-called Merchant Category Code (MCC), a four-digit number for each transaction processed by Visa or Mastercard that classifies businesses based on the type of goods or services they sell. The problem is that MCC codes don’t help with categorization. Ergo, the carbon footprint calculations seem to be arbitrary and… well, serve the “decarbonization idea”.

  • Impact investing. It’s an investment strategy that aims to achieve social or environmental goals, alongside profit generation.
  • Natural capital accounting. It measures the amount and condition of natural resources such as forests; this information is then used by governments and businesses under the globally standardized framework SEEA (System of Environmental-Economic Accounting).
  • Climate risk assessment. It uses data and climate models to help organizations prepare for climate change impacts. It also helps with the reduction of emissions, planning, and regulatory reporting.
  • Carbon offsetting. Carbon tracking and offsetting companies help organizations measure, reduce, and compensate for their carbon emissions. They help with carbon footprint analysis and reduction plans.
  • ESG data intelligence & reporting. ESG reporting highlights information about operations and risks within environmental stewardship, social responsibility, and corporate governance.
  • Sustainable banking. Here banks attempt to reduce their environmental impact by considering the environmental and social impacts of their decisions.
  • Climate crypto. Companies leverage cryptocurrency and blockchain to solve climate challenges. This includes carbon offsetting and tokenization, green energy for crypto mining, and climate investments.
  • Increased demand for sustainable solutions. Consumers and businesses alike create demand and push for more sustainable financial products and services. Sustainability-conscious consumers want to measure and lower their carbon footprint through responsible shopping, banking, and investment.

What currently drives and will drive the green fintech market?

Eurobarometer Climate Change survey in 2021 showed that 93% of Europeans consider climate change to be a serious problem and a full 96% have taken action to combat it. A UK study by Deloitte in 2021 found that 8% of respondents had already shifted some of their personal investments towards ethical and sustainable options, and a full 34% had specifically chosen brands because of their sustainable practices and values.

  • Regulatory drivers. New regulations (especially in the European Union) are pushing financial companies to report climate-related risks, creating a need for tools to meet these requirements. Policies like the European Green Deal and SFDR (Sustainable Finance Disclosures Regulation), force companies to disclose their environmental impacts.
  • Technological advancements.  New technologies offer new possibilities. Blockchain, for example, helps offset trading and verification. APIs and embedded finance enable climate-focused financial products.
  • Investment trends. According to a report by CommerzVentures, Europe is leading in climate fintech funding, with European startups raising $1.4 billion compared to $881 million in the US. Climate-focused fintech startups raise more funding than other fintech startups. We expect this trend to grow and even mature in 2025.

Let’s take a look at the leading practices, innovations, and product offerings that drive sustainability forward. 

Open banking. The leading fintech development today fostering a more sustainable future is open banking. When the EU passed PSD2 in 2018, this legislated the need for banks to share data with third parties.

This has paved the way for innovative services and personalized experiences to be delivered to consumers via their bank, with newly created digital ecosystems promoting competition, transparency, and customer control of finances.

It also makes certain banking data points public, fostering a more connected and efficient financial ecosystem where sustainability can be placed front of mind, both for financial institutions and the consumers that use banking services. 

Environmentally-friendly cryptocurrencies. Many cryptocurrencies today are shifting their focus away from traditional proof-of-work mining practices to proof-of-stake models. Indeed, the energy-intensive nature of crypto mining has continued to be a thorn in the side of the crypto sector.

Now leading crypto platforms like Ethereum have switched from a ‘proof-of-work’ protocol to a ‘proof-of-stake’ protocol, cutting out a staggering 99.9% of the energy consumption used in the origination of its cryptocurrency.

Proof-of-stake algorithms are combined with consensus mechanisms to offer more sustainable investment options to those looking to trade in crypto markets.

Reducing emissions digital wallets. Much like contactless payments, digital wallets on smartphones facilitate the completion of payments via a mobile device. Not only does this reduce the need for paper, but also reduces plastic waste from wear and tear to credit and debit cards.

Today, users are increasingly adopting mobile wallets as a more convenient means of payment, and as a means to adopt an environmentally-conscious lifestyle, supporting renewable energy sources and sustainable infrastructure. 

Contactless payments for sustainable transport. One of the most ubiquitous fintech trends today driving sustainability is contactless payments. The innovation has eliminated the need for cash or paper tickets on public transportation services, reducing paper usage and eliminating the need for cash by making card payments simpler to complete.

Today, contactless payments have facilitated access to both bike and scooter-sharing services, such as Lime, promoting alternative transportation methods in major cities and reducing the impact of vehicle emissions.

Carbon-neutral payment processing methods. Much like mobile payment solutions for carbon offsetting, carbon-neutral payment processing methods offset carbon emissions through renewable energy projects.

These projects are tailored to payment processors, helping achieve a net-zero carbon footprint by promoting the adoption of energy-efficient technologies and the selection of renewable energy sources to mitigate the environmental impacts of payment processors.

Companies like Switch2Zero offer Pay-as-you-Go solutions to businesses, that can offset their impact on a range of environmentally friendly initiatives. 

Carbon tracking. Carbon tracking technology has been introduced to meet the needs of consumers to know the carbon impact of their purchases. Fintechs like Ecolytiq have seen both their popularity and business scale as financial institutions see the value of delivering carbon tracking technology to help monitor emissions.

The startup hopes that one day, there will be as much emphasis on the environmental cost of a product as there is on its monetary value. Other digital solutions, like blockchain, enable real-time tracking of CO2 emissions, allowing businesses to better manage their carbon footprints and implement subsequent measures to reduce their environmental impact.

If you want to learn more about current green fintech trends, take a look at the Sustainability & ESG Strategies Panel at Net Zero LIVE London 2024:

You can also dive into this International Development Finance Club (IDFC) Green Finance Mapping 2023 report. In this highly detailed file, you can clearly see that, for example, Western Europe is leading the charge in terms of green fintech commitment, with a 55% global share of sustainable fintech projects.

ING: an interesting case of green fintech that is not so brick-and-mortar anymore

ING, a huge and well-known banking entity, is leading the charge. With it’s the world’s first sustainability improvement derivative and the world’s first sustainability improvement capital call facility, the banking star shines bright on the green fintech horizon.

And that’s not all. ING designed a Green Bond Framework in line with the ICMA Green Bond Principles. That makes the company one of the pioneers of the modern approach to green fintech self-regulation. The company launched these initiatives in 2019, so before the COVID-19 turmoil.

We thought it would be interesting to highlight this case since many reports focus on fintech companies alone, singling out traditional banking entities that merge brick-and-mortar and fintech approach to banking.

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