Fintech & Climate Change: How are they related? (2024)

Fintech, or financial technology, encompasses any enterprise or business that leverages automation to provide financial services to its clientele. Although Fintech has recently gained significant traction, its roots can be traced back to the 1950s when credit cards emerged as the initial Fintech products available to the public. This innovation substantially diminished the necessity for consumers to carry physical currency. In 1998, a notable milestone occurred with the emergence of PayPal, one of the pioneering Fintech companies, which was succeeded by the introduction of online stock-trading services

But how can finance, a field generally known for numbers, and monetary flow have anything to do with sustainability, and climate change?

What does Fintech look like in the business world?

Common Fintech trends:

1. Environment-friendly cryptocurrencies: These include cryptocurrencies that require less energy, unlike Bitcoin which is estimated to consume electricity as a whole country like Thailand.

Fact Note: Tesla CEO Elon Musk suspended Bitcoin payments in his company in May 2021 because of its negative environmental impact.

2. Digital wallets & Contactless Payments: As per studies, cash and credit cards produce an average of 3.78g of CO2 per transaction. Digital wallets can be an eco-friendly alternative for companies to reduce paper and plastic consumption, endorse renewable energy sources, and even contribute a portion of their income towards environmental causes. Contactless payments too can be linked with consumers relying on e-tickets rather than cash or paper tickets, contributing to the reduction of paper usage and the associated environmental impacts.

Fact Note: About a third of the environmental impact of the debit card payment system is caused by greenhouse gas emissions from energy consumption and transport

Does Fintech ensure safety?
According to the data below by EY, 64% of people globally are willing to use Fintech tools. India is one of the emerging Fintech markets along with China.

Challenges encountered by Fintech industries:

1. “Green” standards are not uniform or lacking.
Numerous operational standards in the realm of green finance are either unresolved or underdeveloped. These include standards about environmental data, methodologies for calculating environmental benefits, specifications for green finance products, and guidelines on the identification of green projects.

2. Environment data quality needs improvement.
Environmental data serves as the cornerstone for conducting environmental risk analysis. The precision and reliability of environmental data play a pivotal role in determining the accuracy and efficacy of environmental risk assessments. To illustrate, inaccuracies in pollutant emissions data can lead to discrepancies between corporate public information disclosures and the actual environmental impact of a company’s pollution.

3. Low levels of professional capacity in the green finance and fintech space.
The successful integration of fintech into green finance necessitates proficient utilization of big data alongside well-established data governance mechanisms, coupled with expertise in both fintech and environmental science domains. For example, the task of evaluating green products and projects of financial institutions is a responsibility often outsourced to third-party environmental service providers. These providers, however, may lack familiarity with the intricacies of the finance sector and tend to operate with a less technologically advanced approach, resulting in increased costs and slower processes.