Climate change has a tangible impact on global socio-economic conditions. Factors such as rising temperatures and natural calamities can disrupt international trade and the global supply chain, adversely affecting economies. Over 52% of banks in 2020 identified climate change and environmental factors as “emerging risks” for the next five years. Given the scale of climate change’s impact on the world economy, it has become imperative for financial ecosystem stakeholders to address environmental issues and work towards a sustainable future. Green Fintech is a finance model that serves this purpose.
Green Finance and Green Fintech
Green Finance – also known as environmental finance or sustainable finance – refers to financial activities that work towards achieving positive environmental outcomes. It covers services ranging from promoting projects with a low carbon footprint to considering environmental factors during loan decisions.
The fintech industry has played a significant role in furthering the Green Finance cause. This is because the fintech industry is where finance, technology, and sustainability overlap. This point of convergence is known as Green Fintech, and it offers a range of services that aligns with the objectives of Green Finance.
Need for Green Fintech
Green Fintech is the need of the hour because climate change, if not mitigated, can cost the world economy a loss of 10% of total economic value by 2050. Further, climate change can also lead to an 18% reduction in the global GDP by 2050, as per a report by the Swiss Re Institute.
How Green Fintech benefits Environment
Green Fintech covers a range of services such as issuing green boards, promoting green investments, and extending insurance for risks posed by climate change.
Here are some ways in which fintech helps fight climate change:
Environment-friendly: When compared to traditional financial services, fintech is more sustainable. With rising digital penetration, more customers are switching to paperless transactions. Along with benefits such as ease of access and better convenience, fintech services help reduce carbon footprint.
Promotes sustainability awareness: Fintech companies worldwide are raising awareness about the importance of sustainable living through various campaigns. For instance, Paytm has established the Air Quality Action Forum with the United Nations Environment Programme. The forum aligns with Paytm’s commitment to tackling air pollution and climate change by extension. Paytm CEO Vijay Shekhar Sharma was also recognised as UN Environment’s Patron for Clean Air in 2017.
Improves efficiency: Fintech leverages technology such as Artificial Intelligence and Machine Learning to monitor various aspects of businesses. Technology-backed data plays a crucial role in areas such as loans and insurance when extended to include environmental impacts.
Broadens scope of Green Finance: Most Green Finance activities were initially considered the responsibility of the government and large-scale enterprises. However, fintech services have allowed Green Finance to expand and include more stakeholders. Green Fintech empowers users to not only switch to more environment-friendly services but also invest in causes that promote clean energy and sustainable lifestyles.
Use sustainable technology: Fintech companies leverage sustainable energy sources better than their traditional counterparts. Increased digitisation and technologies such as blockchain and cloud storage have helped significantly decrease the carbon footprint of companies by reducing power usage, facility-related energy requirements, and IT emissions.
Sustainability is a fundamental socio-economic goal for countries across the world. Fintech companies play an important role in achieving sustainability objectives through Green Fintech products and services. With continued innovation in the sector, Green Fintech collaborates with the public, governments, and businesses to accelerate work done to tackle climate change.