Green finance is gaining traction with fintechs and financial institutions as they are looking to adopt sustainable practices and engage eco-conscious consumers and businesses seeking climate-related education and products. Regulations and legislation are fueling the trend in Europe, where green banking is becoming widely adopted. The United States is likely to soon follow suit with recent regulatory and legislative developments around disclosures and climate-focused incentives.
Climate disclosures & decarbonization commitments: Green banking is an opportunity
The crossroads between finance and climate change mitigation is increasing in importance as companies focus on the decarbonization of their operations in response to climate-related disclosures recently proposed by the SEC. This proposal was due in part to investor pressure to capture climate risks that traditional financial models do not capture. There was a push for standardized, reliable, consistent and transparent climate data around investment assets.
In Europe, similar regulations and legislative initiatives have been around for some time. The Sustainable Finance Disclosure Regulation (SFDR) and incoming Corporate Sustainability Reporting Directive (CSRD) require large and listed companies to report on their greenhouse gas emissions.
On a global scale, initiatives such as the United Nation’s Sustainable Development Goals, America’s All Inn and the Paris agreement are ultimately driving towards achieving net zero and carbon neutrality.
Sustainable supply chain is a focus and a challenge
Supply chain emissions can account for over 70% of a company’s greenhouse gas emissions. Purchased goods and services and other merchants’ transactions would in essence become part of what is referred to as a company’s Scope 3 emissions.
The interconnectivity of the challenge means that this is best addressed in partnership and through collaboration with suppliers to set emissions reductions targets, quantifying and reporting their data and adopting environmentally friendly practices in support of carbon reduction.
Businesses throughout the chain that choose to act now on climate change issues and shift to more sustainable operations can reduce their emission contribution and help cement key business and customer relationships. The leap to this becoming a differentiator within a company’s value proposition is not as far-fetched as some may think.
Incentivizing consumers to adopt a more sustainable lifestyle
Consumers are increasingly aware of how their everyday actions impact the environment and are keen to learn more about how to reduce their carbon footprint.
These motivations are not only based on environmentalism and a passion for solving climate change. The financial incentives for making sustainable choices have become material with several of the Biden administration’s climate priorities included in the recently passed Inflation Reduction Act.
Incentives included in the legislation offer consumers access rebates of up to $7,500 for electric vehicles, up to $4,000 for a used car and up to $8,000 to install an electric heat pump that can warm and cool buildings.
The path for green finance to benefit our environment and millions of American consumers and businesses is evolving, and technology platforms will be an accelerant.
Every purchase is a climate transaction
Transparency is key and quantification of emissions is difficult, but fintechs are positioned to play a crucial role in supporting banks, companies and consumers in their transition to more sustainable operations and lifestyles, respectively. Or, as also commonly said, their transition towards “net zero.”
71% of CFOs feel pressure to act on climate change issues. Leading with open APIs and modern cloud-based technology, fintechs such as Connect Earth, this year’s FIS Fintech Accelerator participant, democratize emission data and specialize in building proprietary data models that meet greenhouse gas (GHG) protocols.
In partnership with Connect Earth, banks can unlock carbon footprint information for account holders by enriching financial transactions, providing carbon quantities estimates, CO2 analytics, education and insights into the climate impact of daily spending and the financial health benefits of making sustainable choices.
For small and medium enterprise customers, green financial services, Carbon Accounting as a Service and carbon footprint benchmarking are enabled to support commercial customers, helping them understand their carbon footprint and voluntarily disclose the sustainability of their operations. As more businesses commit to net zero pledges the greater the demand for efficient carbon credit markets that enable real-time carbon credit pricing and verifiable carbon credit trading.
“Consumer preferences are increasingly shifting towards more sustainable brands,” says Alex Lempka, CEO and Co-Founder of Connect Earth. "Data-driven solutions like Connect Earth can give customers in-depth and reliable insights into how they can adjust their behavior to reflect more sustainable purchasing habits. Financial institutions play a pivotal role in exposing this data to their customers, driving collective climate action."
Green finance has arrived and, for good reason, is here to stay.
As a trusted partner for their customers, banks and businesses can bridge the gap between intent, knowledge and action to drive sustainable finance and better outcomes for their customers. With fintech partners, they will get there sooner.