Finance x SDGs: What is sustainable finance or "green finance" and what are some of the green FinTech companies to look out for in 2022?
In order to achieve the UN's Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change, it is estimated that approximately US$5-7 trillion (¥565-790 trillion) in Environmental, Social and Corporate Governance (ESG) investments will be required annually. The FinTech industry, with its emphasis on agility and innovation in technology, is increasingly supporting the scaling up of 'green finance' to help achieve these goals, suggesting the potential to raise public and private funds to do so.
This article provides an overview of the current state of green finance and some examples of leading green FinTech companies as well as the services being used in this area.
What is green finance?
Green finance is a broad concept that refers to the financing of investments that have a positive impact on the environment, such as investments in air, water and soil decontamination, greenhouse gas emissions reduction, energy efficiency and renewable energy projects. The mainstay of this market is the bond "green bond", and the annual amount of green bonds issued have grown rapidly at 15.3 times in the last five years worldwide, and 7.17 times in the last two years in Japan.
Current state of green finance
To date, green finance has largely taken a top-down approach, with supranational organisations, governments and government agencies making large-scale issuances in international capital markets. While these deals are encouraging, the level of investment required to achieve the UN SDGs requires a far more multi-pronged approach and solution. This has led to an increasing number of investors who are looking for opportunities to invest in sustainable financial products and services, integrating ESG criteria into their decision-making and actively funding sustainable projects such as renewable energy plants and green infrastructure.
At the national level, following the establishment of the SDGs Headquarters in the Cabinet in May 2016 headed by the Prime Minister, research and studies on ESG investment have been ongoing. Many companies and local governments are also raising funds for green projects in Japan and overseas, such as measures to combat global warming and the introduction of renewable energy.
Major Japanese financial institutions are also stepping up their commitment to green finance. As an example, the SMBC Group has set a target of ¥10 trillion in green finance commitments for FY2020-2029 and has increased its project finance commitments for renewable energy from approximately ¥300 billion in FY2017 to approximately ¥640 billion in FY2019. They are also actively underwriting SDGs bonds, including green bonds.
What is Green FinTech?
Green FinTech is a combination of finance and technology, with the added benefit of contributing to the protection of tourism and is emerging in the UK and other countries. It is also being used as a platform for realizing the idea of green finance.
One example is the creation of a mobile bank account, which is a paperless system that eliminates plastic cards and paper statements and allows users to complete all their transactions on their smartphones. Beyond that, there are also services available that allow you to convert your consumption into a carbon footprint, helping you to see what part of your lifestyle, including your shopping and consumption, is impacting climate change.
Five green FinTech companies to watch in 2022
The following five green FinTech companies offer innovative concepts to reduce environmental costs and achieve sustainability by using the money for a variety of purposes in society.
- First of five green FinTech companies to watch: Aspiration
Every time you use your debit card, a tree is planted somewhere in the world – this unique and innovative service is provided by Aspiration, a Challenger bank that aims to help its customers make a lasting impact on the environment. It offers services such as the ability for users to use their transactions to support tree planting (called 'Plant Your Change'), and earn up to 5% cash back for using the card at SDG-activist merchants. Backed by celebrities such as actor Robert Downey Jr., it's one of Challenger Bank's freshest green FinTech companies.
- Second of five green FinTech companies to watch: Trine
Companies need capital to grow and succeed, and green start-ups are no exception. Swedish FinTech company Trine has made its solar energy business available to investors for financing. Investors can use a P2P business loan platform to find and invest in solar energy businesses for as little as £2.850 (around ￥426,160).
With more than 11,000 investors already using the platform and a very low default rate of 1.7% on loans issued, it is hoped that many more solar energy businesses will be able to get the funding they need with the help of Trine.
- Third of five green FinTech companies to watch: Joro
Joro uses spend analytics to tell you how much your purchases are impacting your carbon footprint. It can be difficult to understand how consumer behavior is impacting the planet, but Joro's intuitive app and Plaid-powered banking integration help eco-conscious individuals make more informed choices when shopping with their cards. It is a highly convenient green FinTech service that can be easily accessed by simply downloading the app.
- Fourth of five green FinTech companies to watch: TreeCard
Like Aspiration, TreeCard is a green FinTech that helps people plant trees. The concept is simple: after downloading an app, users order a card that looks like a tree and links it to their existing account. When a user uses the card, TreeCard donates 80% of the profits from interchange fees to reforestation projects.
With over 300,000 cards produced from a single tree, it's certainly more sustainable than plastic cards. It is also highly likely to be one of the green FinTechs that will spread quickly by word of mouth.
- Fifth of five green FinTech companies to watch: Raise Green
Raise Green allows you to discover, invest in and take micro-ownership of eco-projects in your area. Founded in the United States, this start-up has successfully partnered with IBM to create a platform marketplace for both investors and local clean energy start-ups to trade.
This green FinTech has some really cool features that allow investors to see the tangible impact of their investments. For example, you can see how much your money is contributing to the production of clean energy.
Other notable green FinTech services and companies
Monzo – an online bank that raised £1 million in just 96 seconds via crowdfunding in 2016. It's a classic case of embracing the digital natives and is popular for the ease of opening an account without proof of address and its app-based system.
Starling Bank – the bank that introduced a paperless mobile current account in 2017 and began distributing debit cards made from 75% recycled plastic in 2021.
Tred – an app-based debit card service that was fully launched in April 2021.
SUGI – the UK's first green investment app that allows individuals to compare the environmental gas emissions of companies and make more environmentally friendly investments.
Interested in working for a sustainable finance or green FinTech company?
Computer Futures is committed to ESG across the board and in supporting the growth of companies across the FinTech sector. The pandemic has led to a significant shift towards a cashless society in Japan, and FinTech is expected to develop further as a key part of society's infrastructure. This will also result in a demand for talent within the FinTech industry.
If you are interested in a career in FinTech but are unsure if your background is up to the challenge or if it's right for you, Computer Futures can help. With experience in the financial services industry and specializing in the FinTech sector, our team will help you to identify your career goals and make the most appropriate recommendations. Please feel free to contact us for a free consultation below.
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