- March 05, 2021
FinTech innovations poised to boost accessibility to sustainable options and minimize the intention-action gap
There is an intention-action gap in tackling climate changes: the rising awareness of sustainability versus the limited options and premium prices of eco-friendly products. According to McKinsey’s survey in 2020, 88% of respondents valued sustainable consumption, but only 57% of consumers said they have made certain changes to their lifestyles to reduce environmental impact.
Increasing FinTech innovations aim to enable more individuals and corporates to participate in dealing with climate changes. Some sustainable FinTech companies help individuals and companies calculate daily carbon footprint and provide advice or options on reducing or offsetting carbon emissions; some work as a financing bridge, help green companies obtain funding and offer investors access to climate-related investment products.
FinTechs help achieve net zero emissions targets
A large proportion of sustainable FinTech companies work on promoting carbon neutrality:
- Carbon footprint tracker: Help individuals and enterprises analyze the carbon consumption attached to their daily spending and workloads, such as Microsoft Sustainability Calculator, Sequoia-backed Joro, etc.
- Carbon emissions reduction: Give advice or tools on going net zero, or offer rewards on environment-friendly activities – For example, UbiCar, Huddle, Real Insurance and other insurers introduced pay-as-you-drive car insurance that encourages people to drive less to reduce carbon emissions.
- Carbon footprint offsetting: Open access to sustainable projects ranging from direct purchases of offsets, such as Y Combinator-backed Wren and Pachama, to reforestation, such as Ant Group’s Ant Forest and EQT Ventures-backed TreeCard. According to McKinsey, global demand for voluntary carbon offsetting may expand 10x in the next decade, from 100 million tons in 2019 to over 1 billion tons of CO2 equivalent in 2030.
Net zero-focused FinTechs usually either adopt a subscription model (e.g., Wren, NetZero) or charge a transaction fee for supporting every sustainable project (e.g., Joro, Pachama).
Reforestation projects, started by Ant Group, have successfully boosted awareness and improved consumption participation which swept the world. Ant Forest, first launched in 2016, has gained over 550 million users and planted over 200 million trees. TreeCard, Treeapp, EcoMatcher and other followers also enable users to plant trees for free, but usually partner with companies and foundations to sponsor the tree planting.
Major countries and businesses have made their net zero promises. Over 100 countries have pledged to achieve carbon neutrally in mid-century. The new US president Joe Biden has announced to step back to combat climate changes, including recommitting US to the Paris climate accord and investing US$400bn in clean energy and innovation over the next decade. Carbon neutrality-themed shares in the Chinese stock markets posted a strong momentum at the beginning of March.
FinTech technologies including blockchain could fractionalize investments and increase efficiency, driving new demands
Application of blockchain technologies to improve efficiency and transparency, will boost the small sustainable investment market – Take the sustainable debt market as an example, green and sustainable related bonds and loans only accounted for around 2% of total debt issuance in 2020.
- Extend small businesses’ reach to sufficient funding: Through process automation and APIs, new products such as Bond-as-a-Service will provide more smaller issuers opportunities to launch sustainable financial tools. Some sustainable FinTechs provide a marketplace for green startups to collect funds, such as Koalect, Abundance, ECrowd!, etc.
- Increase retail investors participance: Blockchain enables asset tokenization and allows the sale of a minor bond fraction, which may drive an increasing demand among retail investors. For example, Swedish FinTech Trine helps retail investors to invest in solar energy in emerging markets.
- Diversify investment portfolios: Investors could also invest in an aggregation of investable sustainable assets with limited money. For example, Danish startup DoLand allows users to invest in sustainable themes for up to DKK500, and users pay DoLand for advice, order dissemination and investment monitoring.
- Track investments in real time: For example, Finnish FinTech Cooler Future, which is said to be the Europe’s first climate impact investing app, allow users to track the carbon impact of each euro invested alongside the financial returns.
According to Bloomberg, the total green and sustainability related bonds market size has expanded by 63% in the first 6 weeks of 2021, compared to 1Q20, mainly driven by social bonds issued to mitigate the pandemic’s economic damage, which recorded a YoY increase of 810%.
Y Combinator topped the investor list in terms of deal number
Most of sustainable FinTech companies are at an early stage with a relatively small funding amount, but top VCs and accelerators start to pick their horses. Y Combinator issued a request for carbon removal startups in 2018, and since then has invested in 9 FinTech companies focused on net zero emissions, becoming the most active sustainable FinTech investor worldwide. Top VCs including Sequoia and a16z are also joining the race to invest in promising sustainable startups, including carbon emissions tracking and offsetting app Joro, enterprise carbon management software Watershed, and carbon offset API developer Patch.
