Climate fintech is changing the way banks operate
When we think of climate change technology, the first thing that can come to mind is solar panels or electric cars. But, technology in the financial sector could play an important role in mitigating the worst of climate change. Enter financial technology, or fintech, a growing section of financial services that, using algorithms, data gateways, and artificial intelligence, help customers and business partners navigate different business transitions.
A more recent subsection of fintech is ‘climate fintech’, where technological innovation is used to meet both sustainability and financial needs. A host of new startups, like sustainable investment startup Norsia, are fueling fast-growing markets. But traditional financial payment platforms are also joining the race to create solutions for customers who increasingly demand climate action from the financial services industry.
The financial sector is powerful – the big banks alone are worth hundreds of billions of dollars – serving ordinary people who need bank accounts and large corporations too. But the financial sector was built to generate profits, even if it means getting involved in risky investments like fossil fuel projects. But to mitigate climate change in time, it is probably necessary to withdraw money from high-emission projects.
Well-known companies are working alongside fintech companies to create sustainability tools for their clients. In April, credit card and financial services firm Mastercard partnered with Swedish environmental fintech firm Doconomy to develop the Mastercard carbon calculator. The calculator shows customers the carbon footprint of their purchases across different expense categories in an app or online portal.
[Related: How to tell if your sustainable investments really are good for the planet.]
The various banks can then personalize their use of the carbon calculator by offering customers offset projects and environmental donation options to lighten part of the environmental burden of their purchases.
“Climate Technology, Climate FinTechs are really starting to emerge and have a lot of strength in this industry… I just see it picking up steam,” says Sue Kelsey, executive vice president of global consumer products at Mastercard.
To support this acceleration, Mastercard launched a sustainable development innovation lab last September to support the development of more sustainable investment options.
But fintech isn’t just about existing banks – often technology helps create new banks entirely. Neobanks or “challenger banks” are new banks that do not have a physical location and all transactions are processed online through an app or website.
“So imagine no papers, no need to get in a car, you don’t need to park, less fuel consumption and more efficiency. [a customer’s] time, ”says Anabel Perez, CEO of NovoPayment, a platform that has used its technology to help businesses build digital banking and card solutions.
Andrei Cherney, CEO and co-founder of Aspiration, a digital bank that uses consumer products to help alleviate the climate crisis, says it makes perfect sense for financial services to create products and change businesses to respond environmental issues.
“Climate FinTech is important… money has enormous power to move the lever and the daily actions that people can take,” he explains. “The right kinds of products and services make climate action easy and automated, while still being very powerful. ”
As an online bank, Aspiration offers fossil fuel-free deposits, which means the money customers use in their Aspiration bank account won’t be invented in things like pipelines. And every time a customer swipes their bank card, Aspiration funds tree planting through a non-profit environmental association called Eden Reforestation Projects. So far, the bank has helped plant more than 49,000,000 trees to help offset emissions.
Cherney points out that while there are more sustainability solutions and conversations across financial services, there is still a lot of greenwashing in the industry. Some companies may launch sustainable projects for consumers and corporate clients or announce sustainability goals, but many global banks have still not divested from fossil fuel projects. Big banks like Wells Fargo have announced efforts to go net zero, but how their investments will change remains a mystery.
“There has certainly been more and more interest in the climate community,” he says. “[Many sectors and consumers] are starting to realize that you have to follow the money as the saying goes, and of course people have rightly focused on the big oil companies and the big polluters, but who is funding that? ”