Fintechs, already known for disrupting financial systems worldwide, is about to tackle their biggest challenge yet. Across the entire financial services sector, the commitment to help combat global warming is on. And the results look promising.
What is Climate Fintech?
At the intersection of finance, technology, and climate change, climate fintech covers everything from product innovation and applications to platforms. Existing to serve as mediums to help businesses, governments, and consumers achieve the goal of decarbonization, decreased emissions, and more sustainable practices.
Fintech’s Work to Empower the Climate Conscious
A well-documented and proven scalable disrupter within the financial sector, fintech is disrupting every industry from construction to banking, revolutionizing operations from the ground up.
The world has been catapulted into the digital transformation era with the likes of artificial intelligence (AI), automation, and the rise of “as-a-Service” computing businesses. With fintech at the core, helping to build better.
Improved transparency and big data analytics are delivering more financial inclusion, better financial support, and new ways of moving money around the world. For example, AI alone is projected to add anywhere from USD 15 -20 trillion to the global GDP. In other words, climate fintech is accelerating capital flows to become greener as customers become more climate-conscious.
Hence, every organization needs to get their house in order—from greener customers to tighter government rules (see below); the time for Climate Fintech to take center stage is now.
The 9 Financial Processes Targeted By Climate Fintech
1. ESG Reporting
The disclosure of Environmental, Social and Governance (ESG) data. For investors and customers to gain insight into a company’s ESG activities with the overall goal of improving transparency.
2. Climate Risk Management
Generally falls into four broad categories:
• Mitigation—For example, reducing greenhouse gas emissions
• Adaptation—Increasing society’s capacity to cope with changes
• Geoengineering or climate engineering—Counteracting at least some of the impacts of greenhouse gas emissions through manipulation of the earth
• Knowledge-base expansion—Learning more about the climate system can help support proactive risk management
3. Sustainable Banking
Sustainable banking is a strategy prioritizing long-term growth while considering social responsibility and environmental sustainability.
4. Supply Chain Analytics
Bringing ESG issues into Supply Chain. For example, shipping in a greener manner or sourcing more local inventory.
5. Impact Financing
Focusing on bringing in solid financial returns while simultaneously trying to have a positive environmental or social impact.
6. Carbon credits trading
A carbon credit is half of the “cap-and-trade” program. Companies that pollute are awarded credits that allow for a certain amount of pollution. The company can sell unused credits, encouraging a reduction in greenhouse emissions.
7. Carbon offsetting
Reduction or removal of greenhouse gasses will allow for emission compensation elsewhere. Measured in tonnes of carbon dioxide-equivalent (CO2e).
8. Carbon accounting
The process in which companies assess their greenhouse gas emissions to understand their impact on the climate and set goals to limit emissions.
9. Impact investing
Same as Impact Financing, but with an investment focus.
The Climate Landscape
The Climate Risk Management guidelines released by the Office of the Superintendent of Financial Institutions (OSFI) have propelled climate fintech front and center. These guidelines were introduced to enhance the scrutiny of climate-related risks in financial institutions. Broken down into two sections, the first dealing with governance and risk management and the second dealing with disclosure. You can learn all you need to know here.
The main areas of concern:
• Businesses’ reliance on fossil fuels
• The physical impact of climate change (fires, storms, droughts etc.) on organizations
The idea behind these guidelines is to proactively address these issues and deliver a path forward for a climate transition plan in the face of climate change and climate-related disasters. OSFI will issue the final version of the guideline by early 2023.
Additionally, the OSFI has introduced mandatory climate-related financial disclosures aligned with the international Task Force on Climate-related Financial Disclosures (TCFD) framework.
The Dollars and Cents of Climate Change
Climate change data is missing the metrics companies want. Businesses need to know how to financially prepare for what is coming down the pipeline. Organizations want the dollars and cents, a figure, up until now, was missing.
The math of cutting carbon pollution means it will pay for itself. It is simply a good investment.
As Sean Cleary, chair of the Institute for Sustainable Finance at Queen’s University, explained in his interview with BNN, what you pay out to cut carbon emissions will easily pay for itself.
The report Changing Gears: Sustainable Finance Progress In Canada acknowledges that Canada is warming and that spending to reduce carbon emissions is a cost-effective way of reducing damage caused by climate change weather events) and other climate risks. Cleary says the cost will be dramatic as we move from a two-degree warming scenario. In fact, Cleary indicates that if we warm by three, four or five degrees by 2100, we can expect an aggregate cost of $5.5 trillion for Canadians. However, if we stay under two degrees by 2100, the cost will be half that.
To put it another way, when looking at it from a Canadian perspective, the investment required to achieve the outlined 2030 climate target – the present value of making those investments is less than what it will cost if we make no investments to mitigate climate change. The graphic below illustrates the nine most frequently referenced sustainable issues derived from the reports interviewees.
Cleary says that looking at it from a Canadian perspective, the investment required to achieve the 2030 (climate target) – the present value of those investments is less than the damage of not investing to mitigate climate change. That doesn’t even include the financial benefits – which are substantial.
Around the world, we are seeing big-name organizations taking the lead. Doconomy, a leading player in climate technology helping banks, brands and consumers to measure, understand and reduce their environmental impact, already works with some big-name financial services firms, including BNP Paribas, Klarna, Nordea and Standard Charter. As well as Mastercard, one of its closest partners and customers.
Digital Payment Processing: Making Payments Greener
Now that businesses have the numbers, they need to consider the nine financial processes that Climate Fintech are focusing on and the new OSFI climate framework and decide where they can improve practices and move towards sustainability.
Shifting to a digital payment process becomes a sure-fire way to reduce a carbon footprint and remain eco-friendly. Digital payments are one of the easiest and fastest ways to go green.
The Costs of Paper Cheques
With Canadians still using nearly a billion cheques, it’s time to ditch the paper. Never mind the emissions used by mail carriers and airplanes shipping cheques across the country. The hidden costs of cheques is between $15 – $25 per cheque when considering: material, administration, distribution and payment initiation/ authorization. For example, if a business sends 5000 cheques annually, the organization is taking anywhere from $75,000 to $125,000 right off their bottom line.
Delivering more ways to pay pays off in more ways than one. Businesses that offer customers multiple ways to pay can increase their income by as much as 30%.
All this to say, getting rid of cheques and moving toward digital payments is an excellent opportunity to move towards green finance and increase revenue.
Driving Sustainability One Payment at a Time
Here at VoPay, sustainability matters. We believe in sustainable finance and are ahead of the curve with developments in digital payments.
We are committed to solving critical challenges with our solutions. Our technology layer helps democratize financial services for all by eliminating payment inefficiencies that slow down businesses and put barriers up for consumers. By delivering digitized bank account payments online, we are proud to play a part in helping the financial community push toward a digital, greener, more climate-conscious future.
Faster, safer and more sustainable digital payment methods are here to stay.
Make an impact with every transaction by switching to digital payment methods. Contact us today!