Fintechs: aligning our carbon footprint with our consumption?

Fintechs: aligning our carbon footprint with our consumption?

Maud Swanborough
by Maud Swanborough

Can fintechs become the new champions of sustainability?

Sustainability is no longer just a ‘buzzword’ for the millennials – it has ignited ESG conversations across multiple industries, most recently as financial service products diversify. Accessible through Open Banking, providers can obtain a customer’s transaction data and, using new product features typically known as carbon or ‘green’ insights, can enrich this data and expose customers to their personal climate impact. On top of that, Open Banking insights enable fintechs to pose offsetting projects and individualised green solutions to their customers. With the goal of reducing their carbon footprint, sustainability can be strategically embedded into an individual’s daily life, all through climate-conscious spending.

Snapshot summary

Connecting carbon data to drive sustainable finance: what are green insights and how can they contribute to encouraging sustainable, climate-conscious consumer habits?

With the UK’s Social Responsible Investment market expected to reach £48 billion by 2027, this rapidly maturing industry have propelled fintechs to offer green insights and solutions as part of their service. This can range from carbon tracking to encouraging ESG-related investments. Rising interests in ethical portfolios, coupled by a surge in Open Banking, have led to fintechs harnessing new specialised features called ‘green insights’.  

Tracking, reducing, and off-setting to advance carbon neutrality

Using transaction data, fintechs can educate their customers on their environmental impact and steer their daily spending towards lower-carbon products. Take Cogo, for example, which analyses a customer’s banking data and links it to their daily carbon footprint, measured and displayed in kgs of carbon dioxide equivalent (CO2e). After categorising and matching transactions to specific industries, each purchase is multiplied by an ‘emissions factor’ – an industry’s standard benchmark– to then calculate the transaction’s carbon footprint. Factors are reduced for certain companies, for instance, if one’s dietary intake is meat-free. Then, the customer’s monthly carbon footprint is calculated once all transactions are tallied up.

Here, customers can begin to compare their purchases to greener alternatives and educate themselves on the fact that a simple transaction, like regularly buying a beef burger over a plant-based meal for an office lunch, impacts your pocket as much as it does on the planet. By revealing greener alternatives, this increases the consumer’s carbon literacy, and can prompt specific and direct consumer action in the form of triggering environmentally conscious spending.

Seems pretty good, right? But, drawing on Adrian Whelan, global head of regulatory intelligence at Brown Brothers Harriman, the biggest problem in addressing ESG within financial services /is its complexity. Indeed, insights can only translate into effective change if features are user-friendly and customers can discern the true scale of these emission levels. However, fintechs like Sugi is getting closer to achieving this. Offering green data on people’s personal investments, Sugi codes their customer’s transactions in green or red, as well as in relation to the number of trees lost or gained, so individuals can visually how their purchases impact the climate in comparison to the market average.

Sure, the range of models used to measure ESG today are spilling out in their thousands, making it difficult to understand how to measure one’s personal footprint. As one’s carbon impact is largely determined by the micro nature of their spending, this triggers worrying assumptions which may not feel accurate to customers. Yet, fintechs like Connect Earth have acted on this. Aiming to reduce bias and facilitate greater accuracy across such estimates, their carbon calculator API has adopted thousands of government level emission factors and merchant data from corporate sustainability reports. With multiple measurements, this holistic view could enact a greater behavioural change.

Meanwhile, as the first provider allowing you to offset your carbon footprint based on day-to-day habits, Tred offers immediate in-app solutions to green investing. As the customer’s monthly transactions are rolled up, users can support verified projects that remove or prevent carbon emissions. As projects are selected by the individual, this personalisation may push them even further towards climate positivity, as customers can contribute to projects which are tailored to their budget and interests and can track these updates regularly. Similarly, Lune enables customers to roundup their purchases within the app (requiring little added thought), ensuring solutions are easily navigable to customers wanting to neutralise their emissions. This may incentivise customers to contribute to environmental issues on a routinely basis, rather than waiting for regulatory nudges.

The task ahead

While sustainability opens possibilities for fintechs to develop new innovative features, on a cautionary note, it is important to investigate whether this sustainability is genuine. What companies are backing the fintechs offering green insights? What are their own ESG policies? As transparency becomes an imperative across all businesses, it is crucial that ESG policy information is accessible to customers. Unfortunately, for many businesses, customers end up having to ‘delve deeper’ into business frameworks to access information. A further challenge lies in covering all ESG issues on equal terms. However, fintech Rely in Singapore is starting to address just this. Factoring in social sustainability, Rely specifically provides credit access for undocumented individuals living on irregular incomes – a mounting issue for the rising gig work population that has witnessed a 30% growth rate since 2010 across Southeast Asia. Meanwhile, recognising the equal importance of ecosystem services, Swedish climate impact startup Doconomy measures H20 impact for businesses to give a more comprehensive overview of climatic impacts.

Concluding thoughts: a tougher, decentralised stance to addressing individual carbon footprints?

As features mature, it is possible that fintechs offer a new battleground for tackling sustainability issues; it could define how we approach sustainability on a highly personalised, daily level which can trigger positive action unique to an individual’s daily spending. These nascent features should not be a differentiated offering or USP for fintechs, nor should they be viewed as premium functions. Some are considering whether people’s carbon footprint could contribute to a credit score to drive sustainable behaiours  whether people will marry sustainability more if their carbon footprint will affect people’s credit scores. This is starting to emerge, as seen China’s Ant Financial who reward users with green energy credits if they use public transport instead of private cars.

The degree to which green features are effective in actioning impactful, long-term (and ironically, ‘sustainable’) change is up for question. Yet, research affirms that tackling sustainability can and must be addressed beyond ‘typical’ sectors, such as energy, that are being pressured to offer sustainable solutions. Offering potential tools to educate individuals on their footprint, actioning sustainability is equally applicable in the financial sphere. Though initial uptake has been relatively slow, decentering sustainability away from ‘typical’ sectors could be a promising way forward to ensuring our social and environmental consciousness is part of everyday life – starting with actionable insights.

‘The only companies that will survive are the ones that take action and systematically work to achieve net zero in their own business’

Monika Liikamaa, Co-CEO and Co-founder at Enfuce

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