Sustainability — a phenomenon that aligns perfectly with the business objectives of every organization today. Green fintech or sustainable fintech comes into life by converging three sectors — Climate, Finance, and Technology. The solutions that these companies provide are not only innovative but also planet friendly.
Green finance strategy allows businesses to serve people with quality products that are eco-friendly. Green fintech through its disruptive technologies can enable businesses and investors to evaluate their impacts on the planet. And it also allow them to bring drastic changes to their operations that foster sustainability.
Green Fintech – Creating a Sustainable World
The devastating climate changes triggered by various human activities, predominately industrial, are showing their adverse effects on the environment. Swedish mountains are shrinking every year. Wildfires are ravaging Australia’s forests and also burning acres of land, compelling thousands to evacuate California. All these are nature’s ways to get back at us and ask us to stop to save the planet.
FinTech in particular has great potential to be a force for good. We can bring together the power of finance and technology, to help create a more inclusive society and a more sustainable planet – Ravi Menon, Managing Director, Monetary Authority of Singapore
For a long time, financial sectors did not prioritize sustainability. However, the adverse impacts of human activities on the environment have urged fintech to create a sustainable future for coming generations. Green fintech has the potential to change the lives of people as it is all about sustainability and balanced growth.
The world is embracing more sustainable economic models. These sustainable models can create economic opportunities worth $ 12 trillion a year by 2030. Through its disruptive technologies, fintech can help companies to assess their impact on the environment. This will allow them to reduce their negative impacts and foster sustainability.
The infographic gives reasons why financial institutions need to go green. Besides, it demonstrates the business model of a green fintech startup Arabesque to learn more about sustainability.
Why Do Financial Institutions Need to Go Green?
Like any business, financial institutions both directly and indirectly emit carbon.
Carbon emissions affect the planet significantly, as they are the greenhouse gas with the highest levels of emissions in the atmosphere. This, of course, causes global warming and ultimately, climate change – Green Matters
Financial institutions directly emit carbon in the atmosphere from their buildings and operations. It is worth noting that the indirect carbon emissions associated with financial institutions are 700 times larger than direct emissions. The indirect emissions can be from investing, lending, or underwriting activities.
By going green, fintech responded to the UN’s call for action to save the planet. In 2015, United Nations created 17 Sustainable Developments Goals (SDG) and undertook to achieve them by 2030.
Around 193 nations signed these 17 goals intending to achieve a more sustainable future for every soul on earth. These goals included global challenges like poverty, inequality, climate change, environmental degradation, and more. The UN plans to incorporate SDG into financial systems in every country by working with the financial sector and regulators.
Many fintech companies undertook to create a sustainable future by bringing major green transformations in their businesses. Going green now is a significant part of many business strategies.
ESG Criteria & Its Impact on Businesses
For any company including fintech, it is imperative to meet ESG criteria (environmental, social, and governance). According to a research by Refinitiv, millennial investors show more interest in sustainable assets and products. Similarly, consumers today also consider the ESG criteria before buying anything from any company.
According to a study by New York University, there is a positive relationship between ESG and financial performance. Moreover, the current trends indicate that the financial services industry can benefit immensely from green-oriented initiatives.
In other words, financial institutions can make a positive impact on the environment through their sustainability efforts. Additionally, their profitability will also increase if they incorporate sustainability into their strategic decision-making.
The Pioneering Green Fintech Startup – Arabesque
Arabesque integrates technology, finance, and data to deliver sustainable financial solutions. The mission of this global asset management firm founded in 2013 has always been to incorporate sustainability across capital markets. This company is one of the pioneering green fintech startups. It has launched the world’s first artificial intelligence (AI) powered ESG portfolio manager.
Through its group of companies — asset management services, and ESG data platform S-Ray — the group combines ESG data and AI to deliver sustainable and transparent financial solutions. Arabesque believes that sustainability factors form the foundation for success in the market. The group also holds the opinion that finance can trigger change.
How Does It Achieve Green?
Arabesque integrates AI and ESG metrics to evaluate the sustainability and performances of companies worldwide. Developing the following data-driven solutions, the company aims to empower investors, corporate, and other stakeholders to take more sustainable investments decisions.
Arabesque S-Ray
This company serves as the foundation of all the group’s investment products. S-Ray is an AI-based tool. Its self-learning quantitative models can assess the sustainability performance of the world’s biggest listed companies. It enables investors, corporate, regulators, and consumers to evaluate the sustainability of over 7000 public listed companies.
Headquartered in Frankfurt and offices in Boston, London, Singapore, Tokyo and New Delhi, Arabesque S-Ray aims to empower each company and investor to make sustainable decisions.
The self-learning technology of the company combines more than 200 ESG metrics with news signals from over 30,000 sources across 170 countries. This one-of-its-kind tool uses the following sustainability measurements or lenses to assess the sustainability performance of companies:
- GC Score – an evaluation of each company based on principles of United Nations Global Compact: Human Rights, Labour Rights, the Environment, and Anti-Corruption.
- ESG Score – a financially material sustainability criterion that offers an industry-specific analysis of the performance of company.
- Temperature Score – an assessment of how much the company contributed towards the rise in the world’s temperature through carbon emission.
- Preferences Filter – a filter to screen or flag companies on their business involvement and revenues on the defined 13 activities. Thus it allows them to make more informed investment decisions based on their business values.
Auto CIO
This new platform developed by Arabesque AI allows assets managers to build alpha-generating investment strategies through customized investment options to meet perfectly with the client’s investment and sustainability goals.
The AutoCIO platform using AI can analyze stock performance across 25,000 equities daily. This platform (web application) can generate and operate a number of business and ESG investment strategies. Furthermore, the platform allows for the creation of strategies based on ESG, Risk, and Values.
AutoCIO allows clients to define their sustainability and investment objectives on basis of their ESG criteria, climate targets, and risk/return. Besides, the platform offers 4 million strategies that a client can avail to furnish their investment and sustainability objectives.
AutoCIO is a game-changing solution that can enable asset managers to deliver an enormous range of highly customised ESG investment strategies in a cost-efficient and scalable way. Sustainability issues are fast becoming a global priority, and new technologies like this will empower many more investors to participate. Georg Kell, chairman of the Arabesque Group
So, in the light of above information, we can safely say that Arabesque has emerged successful in its efforts to achieve sustainability. In fact, this startup company has now expanded to major financial hubs in the world. The company has also successfully announced a partnership with other prestigious corporations including Allianz, Accenture, GoldenSource, DWS, Glass Lewis, and Women Who Code.
Encouraging Eco-friendly Businesses Is the Only Solution
Undoubtedly, there has been a rise in support for green finance due to an increase in demand for sustainable investments. The financial services particularly green fintech can provide various incentives programs to boost green financing. These initiatives include green bonds, large-scale industrial investments that target climate change, and small personal loans to encourage customers to buy eco-friendly products.
As the world is still recovering from the impacts of coronavirus, there is a more dire need to transition to cleaner energy now. Environment and sustainability advocates constantly push financial institutions to incorporate carbon emission reductions goals in their investments strategies.
Therefore, financial institutions are likely to turn greener and greener, integrating existing capabilities with emerging green technologies. The rise of green fintech will accelerate sustainable financing for a better future. The sector will progressively engage in projects and companies that are sustainability-conscious, low-carbon, energy-saving and hence climate-resilient.
