The fusion of finance and sustainability has given rise to a novel idea in a time when environmental consciousness is emphasized in global discussions and firms are being more and more impacted by Environmental, Social, and Corporate (ESG) governance: green FinTech.
Offerings from FinTech companies that emphasize the value of environmental sustainability are becoming common. These include green bonds, loans, and investment platforms focused on environmentally sustainable projects.
Global Market Estimates recently released a market research report that projects the green FinTech market’s growth at a compound annual growth rate (CAGR) of 22.4% from 2024 to 2029.
The Confluence of Sustainability and Finance
Conventional finance has long been criticized for its negative environmental effects, which range from deforestation to inadequate waste management techniques. This is on top of the prioritization of immediate profit above long-term sustainability.
Growing interest has been observed in promoting responsible investment in response to these environmental concerns. This trend calls on companies to carefully consider how their financial choices and investments may affect the environment.
Through green FinTech, sometimes called sustainable FinTech or eco-FinTech, this idea of sustainable finance has opened the door for a more responsible approach to procedures. Green finance technology encourages a responsible and ecologically conscious approach to financial operations by applying financial technology to sustainability and environmental challenges.
Why Sustainable Finance Become a Necessity?
Given the pressing environmental issues facing the world today, sustainability and green financing have become essential objectives. Our understanding of and approach to finance has fundamentally changed due to resource depletion, climate change, and environmental degradation. The traditional emphasis on economic growth is being replaced by a more holistic perspective that considers the well-being of future generations as well as the long-term sustainability of our planet.
1. Financial Robustness
Sustainable finance seeks to improve economic resilience by acknowledging the interconnectedness of the environment and the economy. It aims to build a more resilient and flexible environmentally sustainable economy that can endure the difficulties brought on by resource shortages and climate change by investing in clean technologies, renewable energy, and sustainable infrastructure.
2. Social Responsibility
Alongside environmental concerns, sustainable finance also recognizes the social dimension of economic development. It emphasizes the promotion of social equity, inclusivity, and human well-being.
By incorporating social considerations into financial decision-making, green finance seeks to address social inequalities, support sustainable livelihoods, and foster community resilience.
3. Environmental Consequences
There has never been more urgency to combat climate change and reduce environmental hazards. Extreme weather, rising global temperatures, and ecological impacts emphasize the urgency of taking quick action.
By offering a framework for coordinating financial decisions with environmental goals, sustainable finance ensures that economic activity is carried out in a way that respects the planet’s natural systems. That said, in light of the move towards financial sustainability comes the need for money managers adept at sustainable finance, something similar to how accounting has evolved into industry-specific fields to help businesses comply with vertical regulations.
Some Green FinTech Trends in 2024
Digital wallets, contactless payments, and green FinTech technologies are some FinTech trends transforming the landscape, searching for environmentally friendly solutions and a license to operate in the contemporary financial sector. These major FinTech sustainability issues a bright future for green FinTech as we move through 2024.
1. Digital Wallets
The typical checkout process using plastic credit cards and cash emits 3.78g of CO2 every time a purchase is completed. Transportation and energy usage account for about one-third of the debit card payment system’s environmental impact.
Transportation and energy usage account for about one-third of the debit card payment system’s environmental impact. With their numerous useful features and ability to reduce waste from paper and plastic, digital wallets can be an environmentally responsible payment option.
Customers are adopting eco-friendly payment methods and downloading mobile wallets in greater numbers. A vital component of contemporary FinTech software development services is these wallets.
2. Carbon Neutral Payment Processing
The idea of carbon-neutral payment processing is to offset carbon emissions through renewable energy projects or carbon offset programs to have a net-zero carbon impact.
Payment processors can take many steps to become carbon neutral, including running their businesses on renewable energy, implementing energy-efficient technology to reduce energy use, and supporting carbon offset programs to fight greenhouse gas emissions.
3. Contactless Payments
Since contactless payments allow users to pay for public transit without cash or paper tickets, they have been associated with sustainable transportation. This can reduce the amount of paper used and the environmental effects that come with it.
Passengers can easily utilize contactless payments by only tapping their card or smartphone on the payment terminal to gain access to bike and scooter-sharing services. This may promote the usage of alternate modes of transportation more often.
The Role of FinTech in Green and Sustainable Finance
Green FinTech businesses have used technology to address environmental issues and encourage ethical financial practices, and they have significantly advanced sustainable finance. Key ways that FinTech is promoting sustainability are as follows:
1. Simplifying Procedures for Sustainable Investments
Financial technology has been instrumental in simplifying sustainable investment procedures by introducing a range of digital platforms and technologies.
The introduction of robo-advisors for sustainable investment is one notable development. These robo-advisors help investors match their financial objectives with environmental concerns by utilizing sustainability standards and computational intelligence.
Robo-advisors make individualized recommendations based on variables such as sustainability preferences and risk tolerance, opening up sustainable investing to a larger pool of investors. To ensure the effective administration of sustainable investment portfolios, they also automate the process of building, rebalancing, and monitoring portfolios.
2. Green Financial Products Are Available
Digital platforms that support sustainable investing and green lending have completely changed the financial environment. Specifically, these platforms facilitate communication between lenders and borrowers on environmentally conscious projects.
The green lending platforms facilitate the loan application process, assess the viability of green projects, and pair investors with environmentally friendly businesses including energy-efficient structures, renewable energy installations, and sustainable agriculture. FinTech expands the availability of cash for environmental activities by creating a green finance market.
3. Effective Handling of Environmental Hazards
FinTech, which combines blockchain technology with big data analytics, makes effective control of environmental risks possible.
Using big data analytics to evaluate risks is one important contribution. Financial technology uses vast amounts of data from various sources, such as satellite imagery, weather patterns, and climate models, to analyze and manage environmental threats in financial decision-making.
These platforms help financial organizations include environmental risk variables in their risk models by offering insights into climate-related concerns and their possible impact on investments. As a result, this enables the creation of stronger portfolios that are more adept at managing and lowering environmental risks.
Top FinTech Companies Adapting Green and Sustainable Financial Solutions
The following is a list of all the green finance startups that have used transparent, eco-friendly business methods.
1. TreeCard
TreeCard is a finance business aimed at European customers. The company’s name speaks for itself: it works to decrease plastic and reforest the Earth. They create cards out of recycled plastic bottles and responsibly produced cherry wood. Furthermore, 80% of company income is allocated to reforestation projects. TreeCard emphasizes the importance of each customer’s tiny effort.
2. Triodos Bank
Fortunately, Starling is not the country’s only bank supporting sustainability. Triodos is one of the UK’s green FinTech firms working to make the banking industry more environmentally friendly and resource-efficient. The truth is that people are more concerned than ever with the environmental impact of their actions.
Furthermore, Triodos’ research reveals that ethical options are among the top priorities for its investors. That is why the bank exclusively lends to green economy companies and shares information about all firms it works with, demonstrating one of its basic values: transparency.
3. Aspiration
Aspiration is an excellent example of how smart environmental companies can do a lot to improve the planet. Its two fundamental values are to invest money in green projects that benefit the environment and to avoid oil firms that harm the climate.
Furthermore, they think that tiny activities lead to huge changes. Every time a consumer swipes a card to make a transaction, Aspiration automatically rounds up the amount and plants a tree with the leftover change.
Conclusion
As you can see, FinTech’s meaning is inextricably linked to sustainability today. Everyone, including the FinTech industry, has recognized the need to be green. It battles climate emergencies with all its might and has accomplished so much!
Nonetheless, there is still a lot to be done. More support and responsibilities are necessary than ever before. More top financial companies should be involved in addressing the issue of the impending environmental catastrophe.
Blockchain, cloud computing, big data, and other related discoveries have huge potential to cause a radical transition in the financial industry toward more equitable and environmentally responsible development.
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