Regulatory compliance is a must for every fintech out there. Business conditions vary depending on the market, industry sector, etc. The common denominator is that companies need to take into account strict ESG laws. How to navigate these waters, what are the current trends, and how to build the resilient ESG fintech sector?

What is ESG and why are fintechs going with it?

The ESG stands for environmental, social, and governance. These are building blocks for modern company management; they describe all actions organizations take to fulfill sustainable development goals. Aside from the legitimacy of these goals, created by regulatory committees.

Fintech is well positioned to take advantage of ESG in their business models. By utilizing digital technologies in the financial sector, companies generate, process, and leverage tons of information that can be coined for commercial purposes or used to fulfill ESG guidelines.

Fintechs are now under constant pressure to integrate ESG issues in their financial reporting and operations. At the same time, they are forced to come up with new performance assessment criteria, that take into account the environmental and social impact of their businesses.

The current fintech ESG landscape is shaped by these major factors:

  • policy and regulatory bodies
  • capital providers
  • business partners, vendors, and customers
  • employees
  • social pressure groups
  • low or no correlation at all between ESG data providers due to different methodologies and data sources
  • inconsistent data and models across the industry
  • low frequency of data updates
  • significant difficulty in linking ESG-related matters with financial performance and overall business operations
  • expectations from VCs, investors, and other parties.

Each of them has different forms of making an impact, and yet they can all work towards the same goals. Like implementing policies by a fintech company or making them use cloud resources more responsibly to contain the mythical “carbon footprint”.

In a nutshell, ESG is used to “promote economic growth while reducing pressures on the environment and taking into account social and governance aspects”, as stated by the European Union.

Why is ESG important to the fintech industry?

ESG has become an integral part of doing business. Its role increased over the next few years and even now there are many companies that are looking for partners that meet ESG criteria.

These are major factors for the implementation of ESG into a fintech company:

  • increased pressure from the legislature to report mandatory metrics
  • availability of financial resources for ESG transparency
  • ESG compliant businesses help organizations (especially startups) conceptualize business development and offer in a more holistic way
  • employees and founders and more environmentally conscious and impact-driven; they push for real actions, not only mere reporting
  • many companies won’t do business with market actors that don’t have at least an ESG-compliant to-do list and a real action plan
  • limited clarity in the overall business environment and stability issues

We believe that the first few are pretty much self-explanatory. Let’s focus for a second on the last one. The recent KPMG report pointed out a few major concerns. The report revealed fears about the geopolitical situation. That took first place among outside factors that shape business decisions today. ESG also had to give place to new frontiers around AI risks and controls. Executives wonder about its impact on hiring policies, not to mention the regulatory environment around using AI in day-to-day operations.

Investors heavily push for companies to create inter-industry guidance on what constitutes meaningful ESG efforts for significant environmental and social benefits. Paper cups in the kitchen won’t cut it anymore. Especially in the light of the recent EU crackdown on greenwashing. The legislature takes aim at “generic environmental claims”. Meaning that “we are green” is not a basis for approving the “green” status of any given company.

Corporate sustainability reporting rules “ensure that investors and other stakeholders have access to the information they need to assess the impact of companies on people and the environment and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues”. Long story short? A greenwashing ban.

The scope of the Corporate Sustainability Reporting Directive (CSRD) is truly massive. It covers matters referring to:

  • environment
  • social relations
  • employee treatment
  • human rights
  • anti-corruption and bribery
  • company-board diversity (encompassing age, gender, educational and professional background)

Regulations and ESG measurement fog

Or mess, come to think about it. Again, taking out of the equation vague statements about the importance of being green, formed by legislature here and there, based on shaky foundations, there is an industry-wide need for straightforward instructions to ensure compliance. 

The industry’s maturation will demand a higher level of compliance and risk management, even for newly founded fintech companies which will be required to have a deeper understanding of regulated business practices than in the past. Especially in regtech and insurtech, where companies will want to verify everything before actually authorizing claims and payments that go with them.

Here we have regulations like the Digital Operational Resilience Act (DORA) that govern the market. At the same time, we don’t have tools to accurately measure ESG compliance. At the same time, we have ESG agencies, often under the umbrella of risk assessment companies like Fitch, Standard & Poor’s, and Moody’s. 

Companies that are not famous for easily giving up information about their rating methodology (and evidence to back it up). Having a dedicated ESG rating would require engaging with their separate ESG service, essentially investing in a comprehensive assessment. Agencies like that have different funding and business models, which can affect a company’s visibility in ESG rankings.

Generally, focus on ESG has become integrated into financial regulations such as the Sustainable Finance Disclosure Regulation (SFDR), corporate regulations such as the Corporate Sustainability Reporting Directive (CSRD), and procurement regulations such as the EU Green Public Procurement for data centers, server rooms and cloud services (EU-GPP). ESG is also relevant to data regulations like the General Data Protection Regulation (GDPR).

Also generally, there are legal instruments relevant to the US, EU, and other major fintech contexts. These instruments (stated in the paragraph above) can be looked at through the following dimensions for cross-comparison and further investigation by fintech companies for implementation purposes:

  • scope
  • legal status
  • regulatory focus
  • reporting format
  • parameter
  • reporting requirements
  • possible (if any) non-disclosure exceptions

To complicate matters even more, all of that falls into the category of the European Green Deal, a framework of rules and guidelines that aim to “transform the EU into a modern, resource-efficient and competitive economy”. 

The deal is done in a way that ensures:

  • net emissions of greenhouse gases are eliminated by 2050. In light of the recent developments in the automotive industry, we can see, that it’s not realistic at all
  • economic growth is ‘decoupled’ from the use of resources
  • there is a “no man left behind” policy in terms of the upcoming energy transition

To advance these plans, regulatory bodies (and investors that follow their guidelines) are focused on three major objectives:

  • reorientation of capital towards a sustainable economy
  • establishing a link between the term “sustainability” with risk management
  • encouragement of transparency and support for sustainable and inclusive growth

Buzzwords. Slick words that translate into operational labyrinths for many fintech companies, their business partners, employees, vendors, and even customers. They all need to dive deep into the rabbit hole and investigate if a company is “green enough” to meet standards that are not even that clearly outlined. 

But… Taking the capital landscape into consideration, there already are ESG reporting tools deployed to make decisions on injecting capital into startups or bigger companies. Let’s look at them. 

Market-existent ESG processes and endeavors

Because the industry is lacking a standardized ESG reporting method, companies, especially startups that compete using every tool possible, turn to storytelling as a means to engage with the subject. 

There are five tools that investors and companies alike can use to asses a given startup or report to the market about taken activities:

  • ESG company screening
  • executive-level interview on ESG subjects
  • ESG training
  • ESG company-wide checklist process
  • storytelling

Again, a few first bullet points tell all. Let’s focus on the last one. Since many ESG reporting metrics don’t fit into startups’ business models (or company size for that matter, not to mention real or imaginary environmental impact), they use storytelling. For them, it’s a tool for expressing commitment and showing the company’s ESG performance. Not to mistake it for greenwashing. It’s simply hard to talk about your environmental impact and what you do to minimize it if the company itself is “minimized enough” to hardly have anything to say on the subject. 

What can companies do on the ESG front?

There are a few recommendations we can put up to highlight efforts done by the companies and appreciated by investors. 

First of all, you can think of priorities that are not connected to ESG and are crucial to business sustainability and generating growth. Explain that these should be areas of focus, especially in the startup phase. Smaller companies simply don’t have enough resources and focus to drag along long lists of compliance-based issues that can unnecessarily burden the staff.

Next, go through investors’ incentives and find those who can or even should be priorities for the months and quarters to come. Paper cups may not be the most significant issue but making sure the company does business with socially responsible vendors (child labor, etc.) does carry weight.

Research the benefits of ESG reporting among similar companies in your sector. Maybe they went with it already and similar products, services, or even physical proximity can benefit you both? Exchanging experiences is usually a good idea.

Search for an industry-specific ESG reporting framework and apply it to your business. Please keep in mind that it should be customized to reflect your company, not to please parties that look for similarities, not business justification.

Look at asset-level data for inspiration. Research the Oxford Sustainable Finance Programme. On the other hand, the work done by Oliver Marchand from Green Fintech Network (previously as a CEO of climate fintech Carbon Delta). The college develops new asset-level datasets through data science and combines these with new approaches to spatial analysis, scenarios, and stress tests. Carbon Delta used one of the best available climate data sets incorporating satellite imagery. They have created a database of company locations for 25,000 enterprises, providing coordinates for millions of production installations. 

When processing satellite imagery, Carbon Delta was working to develop a three-dimensional understanding of the technological activity happening at facilities. This data formed the basis of their Climate Value-at-Risk (CVaR) model. It provided financial institutions with tools to protect assets from the worst effects of climate change. Also, to help spot investment opportunities in the low carbon sector.

Take a look at and get inspired by the fintech called World Wide Generation. This London-based company is the technology partner for the UK government and the City of London that supports the Sustainable Development Capital Initiative (SDCI). The company has created a platform called G17Eco. This is a product for monitoring and marketplace that aims at solving transparency and trusted data challenges with blockchain technology. 

According to the founders, G17Eco is for corporations, governments, financial institutions, and non-profit organizations. It allows the collecting and processing of data before digitally mapping sustainability standards, frameworks, policies, and the SDGs. This can support decision-making processes for investing, divesting, risk management, and the development of sustainability products and solutions.

Principal analyst for Verdantix company, Jessica Pransky once said:

As the ESG reporting and data management software market is projected to soar to $4.3bn by 2027, it is imperative for vendors to proactively stay ahead and remain competitive. With a widening scope of business functions engaged in ESG implementation and a continuously evolving regulatory landscape, agility and adaptability are paramount. To meet escalating demand, vendors must deliver fast-to-deploy, scalable solutions that address market trends and cater to the evolving needs of businesses.

Jessica Pransky

You can use their Green Quadrant Report, as showcased here by the Sustainability Magazine. This tool identifies leading advisors and platforms, as the article states. You can search for companies that fit into the green mindset.

If you need additional, detailed insights about the fintech industry, read this report by KPMG. It provides information on continent-specific market conditions and fintech sectors, such as insurtech, regtech, payments, lending, infrastructure, and more. 


The need for ESG reporting in the fintech space is real. It goes hand in hand with many social themes, like sharing economy, for example. It requires data analysis; just like the Global Trade Alert platform, which gathers serves information to be dissected by specialists.

It needs solid software foundations. That’s why Code & Pepper is dedicated to hiring only the elite 1.6% of engineering talents on the market. They understand modern challenges and use AI to boost digital product development. 

Business is too important to leave it in random hands. Trust people who use their hands to create multiple, globally-trusted brands.