What will fintech do during the climate wars?

Political strife and economic uncertainty stall the green agenda, but Europe’s vicious heat waves show us the climate crisis waits for no one. Fintech has the opportunity to take the lead.

Europe had a glimpse into a bleak future last week with blistering temperatures and ferocious wildfires sweeping through the continent.

The UK’s Met Office issued its first ever ‘red’ warning for heat, as sizzling temperatures shattered records across the country. In Portugal and Spain hundreds – possibly thousands – have already died. Meanwhile, in the southwest of France, residents had to be evacuated as wildfires swept through.

Europe isn’t alone in dealing with searing temperatures this summer, with parts of the US also suffering from extreme weather. Texas’ power grids have already strained due to heat waves, while wildfires have swept through Alaska.

Apocalyptic images of flames racing toward beaches and smoke hovering over cities have unsurprisingly driven home the concerning reality that faces us. In an unapologetic assessment of the situation Víctor Resco de Dios, a professor of forestry at the University of Lleida in Spain lamented, “what we are witnessing now is a preview of the world we are leaving to our kids.”

All the while, energy insecurity and resource competition globally is moving climate concerns the wrong direction on the list of priorities.

Fintech’s greatest opportunity

For the fintech industry, the juxtaposition is startling. Fintech is in the midst of its own existential crisis as it reels from a perfect storm of economic, political, and supply chain challenges.

Imminent environmental catastrophe is quite the tonic to put things into perspective. But more importantly, the climate imperative is a significant opportunity for the fintech industry to lead in delivering genuine and substantive transformations needed to mitigate against climate change.

We already know the critical role financial services play in fighting climate change and transitioning toward a lower carbon global economy. Yet, progress has been much too slow. Yes, ESG is front-and-center of the industry, with virtually every financial institution, large or small, making some pledge around aligning their output with net-zero emissions by 2050.

Three-decades to net-zero appears to be banking on time we don’t have. And even if we did have that time, we’re placing our bets of survival on an industry that’s dominated famously by incumbent players that are slow – and perhaps, even unwilling – to innovate and change.

“Fintechs, assemble!”

Climate fintech

Climate fintech isn’t just the latest addition to the ever-growing dictionary of fintech buzzwords. It’s also a rapidly swelling segment of the fintech universe and one that could be center stage in the fight against climate change.

Broadly, climate fintech refers to a growing sector at the intersection of climate, financial services, and technology. By leveraging technologies such as big data and blockchain startups in the space:

• Reallocate capital from fossil fuels toward renewable energy sources
• Gather and track data for better emissions visibility and drive behavior change
• Manage and mitigate acute climate risks, e.g. smart sensors for better tracking of deforestation or draughts.

And startups in the space are increasingly getting noticed: In a breakout year, climate fintech startups raised $1.2 billion in 2021, marking a three-fold increase in the total raised across all previous years combined.

Among those well-funded startups is Cogo, which raised $20 million for its carbon tracking technology. The startup leverages open banking to analyze consumers’ financial transactions to give them a picture of the impact of their spending on the environment. Cogo’s tool, which can be integrated directly into a bank’s app, is already live with UK-based NatWest.

In the latest episode of The MoneyPot podcast, we spoke to Cogo’s CEO Emma Kisby to learn more about the proposition, including on why banks are keen to integrate the product into their apps and how Cogo is leveraging behavioral psychology to drive sustainable behavior.

Make ESG great (again?)!

Although ESG is front and center of the financial services industry, it continues to be hampered. Concerns around greenwashing have long persisted. More fundamentally, though, because the term has become a catch all phrase applied to anything remotely sustainable or socially conscious, it’s lost meaning.

Against this backdrop of ESG’s vacuous banality, climate fintech offers the fintech industry, and more importantly humanity, an opportunity to do something meaningful.