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    Home»Fintech»A Burgeoning Movement for the Sustainable-Finance Age
    Fintech

    A Burgeoning Movement for the Sustainable-Finance Age

    August 27, 20248 Mins Read


    3

    By Cary Springfield, International Banker

     

    It’s fair to say that the global financial landscape of today is starkly different from what it was, say, 20 years ago. There are several reasons for this, but few are starker in 2024 than the attention that the financial world now gives to issues beyond the profits earned from financial decisions such as investing and lending. And that ultimately means taking into consideration the impacts that the activities undertaken by banks, fintech (financial technology) firms, investors, customers and every other financial agent are having on the world. Fintech for Good (F4G), a burgeoning segment of the global fintech industry, focuses on integrating social and environmental factors into the fabric of fintech strategies to promote and accelerate sustainable financial-solution development.

    According to a definition from one relevant organisation, Fintech for Good “is a global movement for change in financial services, promoting accountability, responsibility and sustainability”, with networking events, “hack” days, workshops, company search and accelerator programmes for fledgling fintech ventures organised to support and advance this objective. “Our vision is one where finance is used for more than profit; a world where finance is deployed to also deliver environmental, social and governance benefits for a sustainable future.”

    This decade has seen existential planetary threats, including climate change and social issues such as rising poverty and inequality, financial exclusion and human-rights violations, come sharply into focus, with companies, financial institutions, governments and individuals doing much to prioritise these issues, often under environmental, social, and governance (ESG) frameworks. The link between fintech and ESG, meanwhile, is also garnering much interest from stakeholders, with companies increasingly opting for environmentally friendly, socially responsible choices; lenders preferring to support clean-energy projects and reduce their exposures to fossil fuels; and consumers becoming more inclined to make positively impactful and responsible purchasing decisions.

    For fintechs, this makes complete sense. After all, the development of the industry was significantly spurred on by the recklessness of the traditional-banking industry, deemed excessively obsessed with making profits—and invariably doing so at the expense of ordinary consumers, the welfare of wider society and the health of the planet. This eventually resulted in a mammoth financial crash that destroyed global economic prosperity, exacerbated poverty levels, dramatically widened existing inequality and firmly put the brakes on sustainable development across much of the world. In response, nimble financial startups emerged in the aftermath of the crisis, seeking to leverage technology to not only improve people’s lives but also tackle social and environmental issues by boosting financial inclusion for the vast pockets of unbanked populations across the world and improving accessibility to affordable clean-energy technologies.

    With the goal of supporting the world’s poor and marginalised communities at the forefront of global fintech’s most fundamental objectives, it seems only a logical step for this sector to more formally embrace the principles of ESG, sustainable finance, responsible investing and lending, and impact finance. And it would appear that investors in 2024 are increasingly willing to commit their capital to support the development of this fledgling movement.

    Solarise Africa provides just one example of a sustainability-focused fintech for good. With a pan-African “Energy-as-a-Service” (EaaS) model, the Kenya-based firm’s decentralised energy services provide not only various types of financing solutions for solar and other renewable-energy installations but also full-service solutions, including designing, building and maintaining solar installations, in close collaboration with key strategic partners across the continent.

    One such project involves installing a 1.3-megawatt-peak solar plant with an annual generation capacity of 2 gigawatt-hours (GWh) for a recycling facility in South Africa, aiming to reduce the facility’s carbon emissions by 1,800 tonnes per year—equivalent to the carbon sequestered by just under 31,000 tree seedlings grown for 10 years. Another scheme seeks to provide a university in Rwanda with clean electricity for its academic buildings, thus making “smart classrooms” a feasible outcome. The project also aims to power the adjacent sports facility, reaching up to 22,000 students every day.

    Another pension-focused fintech for good can be found in London-based Jarvis, which recently raised £1.8 million in a seed-funding round that was co-led by early-stage venture-capital (VC) firms Ascension VC and Cornerstone Venture Partners, with additional participation from Tokio Marine Future Fund. The company seeks to provide workers with clear roadmaps towards retirement. “At the heart of Jarvis is a movement aimed at revolutionising retirement planning for workers and providing innovative pension solutions for modern employers, contractors and individuals,” Jarvis explained. “Our essence is about providing clear, actionable insights into one’s retirement journey. Instead of navigating the maze of pension jargon and abstract numbers, we focus on the tangible, the personal: ‘When can you truly retire based on the life you aspire to live?’”

    Through Fintech for Good, the industry has the potential to transform the financial sector whilst offering opportunities to benefit society as a whole. The “Fintech for All, Fintech for Good” report from Deloitte, in collaboration with Tiresia-Politecnico di Milano, Fintech District and FTS Group, expects the movement to facilitate a “democratisation of finance” that boosts the access and engagement of a larger number and greater diversity of people who ultimately can inspire a more sustainable and inclusive definition of finance.

    “In addition, fintech could catalyse the emerging ‘green’ finance, addressing current and relevant concerns about social and environmental issues,” the report suggests. “The potential that fintech can bring to sustainability and the intersection of fintech and sustainability and related issues deserve attention and further exploration. As a result, there are many opportunities for financial services providers to be a force for change.”

    The study also provides a comprehensive look at how exactly Fintech for Good can be embedded into the financial sector to boost social value, laying out five key ways to innovate in this context:

      1. By developing a taxonomy for the Fintech for Good movement, fintech firms can leverage “the combination of the intrinsic value derived from the use of technology to address a social need and the additionality of targeting underserved people and markets” to create more social value. Fintech firms can also resolve the inefficiencies and failures of financial markets to create value and bring innovation to such areas as services, internal operations, access to new consumers and untapped markets.
      2. Fintechs can leverage technology to disrupt the trade-off between profitability and impact, largely by using tech to develop profitable business models while addressing critical societal issues. “It is recognized that technology is inherently diffusional and can facilitate reaching larger audiences more efficiently and, thus, more beneficiaries,” the study notes.
      3. Fintechs can also collaborate with traditional incumbents in the financial sector, making themselves more attractive as partners when the latter is looking to expand their impacts. This will require incumbents to start looking at fintechs through a new lens, engaging with suitable fintechs on various business functions, such as sustainability and innovation, to achieve partnerships.
      4. To generate social value for local beneficiaries, technology should be leveraged by fintechs seeking to do good through context-specific applications—this is especially important when accounting for key differences between advanced economies and emerging economies. While fintechs working for good in advanced economies largely focus on the unique needs of specific sub-populations or less-creditworthy individuals, they often enable “bottom-of-the-pyramid individuals” to access essential services and promote development opportunities in emerging economies, such as education or credit.
      5. By analysing Fintech for Good’s use of technology over several years, the study found rising usage of advanced technologies, such as artificial intelligence (AI), biometric recognition and blockchain, which means that such fintechs can increasingly manage these technologies to generate positive impacts. Their mastery of such technology makes these fintechs attractive to financial-market incumbents interested in collaboration, as well as impact investors and venture capitalists. “Indeed, they promise to combine the generation of positive impact with scalability and profitability over time, a combination that has yet to be achieved,” the study notes.

    The knock-on effects of a thriving Fintech for Good movement with viable business models could be substantial in terms of inspiring the banking industry to develop its Banking for Good model. “In the context of the last 50 or so years, tech for good, ethical banking, and ethical fintech are still in their infancy, but they do represent an opportunity to realise (at least some of) the huge upside potential of technology to dramatically improve the lives of everyone on the planet,” explained Brian Harkin, a Bayes Business School lecturer and founder of the Galapagos Framework (a digital-transformation framework) that helps leaders and organisations transform the way they direct digital change. “Ethical banks may not currently deliver the vast profits of their more traditional counterparts, but with the increasing number of banks and financial institutions identifying as ethical, sustainable, or socially responsible, combined with the significant growth in assets under management (AUM) for these businesses, it may not be long before they are seen as genuine competitors.”

    According to FintechCashier, meanwhile, Fintech for Good is very much the future of finance. “As the world becomes increasingly interconnected, the need for sustainable and inclusive financial services will only grow. Fintech has the potential to address these challenges, creating opportunities for social impact and sustainable development,” the UK-based payment-gateway firm wrote in a February 2023 LinkedIn post. “However, to realise this potential, we need to ensure that Fintech For Good is grounded in ethical principles, transparency, and accountability. We also need to develop regulatory frameworks that balance innovation and risk management, ensuring that Fintech For Good serves the best interests of society.”

     



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