How banks are using technology to fight climate change
'Climate fintech,' explained.
When we think of climate change fighting tech, the first thing that might come to mind is solar panels or electric cars. But, technology in the financial sector could play a serious role in mitigating the worst of climate change. Enter financial technology, or fintech,— a growing section of financial services that utilizing algorithms, data gateways, and artificial intelligence helps customers and business partners handle different business transitions.
A newer subsection of fintech is “climate fintech”—where the tech innovation is used to address both sustainability and financial needs. A slew of new startups, like sustainable investment startup Norsia, are powering the quick growing markets. But traditional financial payments platforms are also joining the race to create solutions for customers who are increasingly demanding climate action from the financial services sector.
The financial sector is powerful—top banks are worth hundreds of billions of dollars alone— servicing everyday people in need of bank accounts and large companies as well. But the financial sector was built to build profits even if that means getting involved in risky investments like fossil fuel projects. But to mitigate climate change in time, taking money out of high-emitting projects is likely necessary.
Well-known firms are working alongside fintech companies to create sustainability tools for their customers. This April, financial services and credit card company Mastercard partnered with Swedish environmental fintech company Doconomy to develop the Mastercard Carbon Calculator. The calculator shows customers the carbon footprint of their purchases across different categories of spending in an apps or online portal.
The different banks can then personalize their use of the carbon calculator by offering offsetting projects and options for environmental donations to customers to lift some of the environmental weight of their purchases.
“Climate tech, climate FinTech are really starting to emerge and have a lot of strength in this sector… I only see it accelerating,” Sue Kelsey, the executive vice president of Global Consumer Products at Mastercard says.
To support that acceleration Mastercard launched a Sustainability Innovation Lab this past September to support the development of more sustainable investment options.
But fintech doesn’t just latch on to existing banks—often the tech helps create new banks entirely. Neobanks or “challenger banks” are new banks that don’t have any physical locations and all transactions are handled online via an app or a website.
“So imagine no papers, no need to get into a car, you don’t need to park, less fuel consumption and more efficiency of [a customer’s] time,” says Anabel Perez, the CEO of NovoPayment, a platform that used its tech to help companies create digital banks and card solutions.
Andrei Cherney, the CEO and co-founder of Aspiration, a digital bank that uses consumer-facing products to help mitigate the climate crisis, says that it makes perfect sense that financial services are creating products and changing business to address environmental issues.
“Climate Fintech is important … money has an enormous power to move the lever and daily actions that people can take,” he explains. “The right kinds of products and services make climate change fighting action easy and automated, and yet still really powerful.”
As an online bank, Aspiration offers fossil fuel free deposits—meaning the money customers use in their Aspiration bank account will not be invented into things like pipelines. And everytime a customer swipes their bank card, Aspiration funds tree planting through an environmental nonprofit called Eden Reforestation Projects. So far, the bank has helped plant more than 49,000,000 trees to help offset emissions.
Cherney points out that though there are more solutions and conversations about sustainability in financial services as a whole, there’s still a lot of greenwashing in the industry. Some companies may be rolling out sustainable projects for consumer and business clients or announce sustainability targets but many global banks still haven’t divested from fossil fuel projects. Major banks like Wells Fargo have announced efforts to go net zero, but how their investments will change is still a mystery.
“There has definitely been more and more interest in the climate community,” he says. “[Many sectors and consumers] are coming to realize that you have to follow the money as the saying goes, and, of course people have been rightly focused on big oil companies and large polluters, but who’s funding that?”