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Temperatures in the UK recently surpassed 40 Degrees Celsius for the first time in history, whilst a staggering 188 all-time heat records have been broken around the world since the start of the year. Scenes of droughts, wildfires and destroyed buildings have provided a sobering reality to climate warnings, heightening the impetus for finding more environmentally friendly ways of living and doing business.
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As an industry with a significant carbon footprint, the financial sector is under increasing pressure to move the needle on the green transition. According to EY, financial services companies send on average 5.2 billion paper documents to their customers every year – the equivalent to 2.4 million trees. The retail banking sector is by far the largest contributor, sending an estimated 4.2 billion documents.
“Digitisation of customer services is eliminating the need for paper entirely. Online banking usage in Britain has rocketed over the past decade, increasing from 52% in 2012 to 95% in 2022.”
The indirect impact that financial institutions have on the environment is also considerable. According to the 2019 Fossil Fuel Finance report, 33 global banks financed fossil fuels with $1.9 trillion in the three years following the 2015 Paris Climate Agreement, with $600 billion of this going to companies aggressively expanding fossil fuel usage. Against a backdrop of rapid climate change and the rising importance of ESG criteria, how is fintech enabling the industry to become greener?
- Digitisation and paper reduction – the digitisation of customer services is eliminating the need for paper entirely. Online banking usage in Britain has rocketed over the past decade, increasing from 52% in 2012 to 95% in 2022. Beyond the immediate environmental benefits that cutting paper production brings, digitisation also removes the need for couriers and document transportation, in turn reducing greenhouse gas emissions.
- Sustainability planning – technology is also helping organisations eliminate needless energy consumption that could otherwise be avoided. Take supply chains, for example, where a significant proportion of greenhouse gas emissions come from freight transportation. Artificial Intelligence and data analytics can help reduce these impacts by enabling companies to calibrate production according to fluctuations in variables such as the weather or unexpected rises and falls in demand. This enables logistics teams to optimise transportation more efficiently and avoid unnecessary fuel usage that would increase carbon emissions.
- Impact measurement – as well as planning ahead, fintech applications such as distributed ledger technology (DLT) enable companies to measure their environmental impact in real time. Initiatives such as G17Eco, for example, leverages blockchain to provide organisations and stakeholders with real time data around energy usage and carbon emissions. This helps companies map and manage their sustainability efforts more closely and accurately.
- Climate fintech – According to Deloitte, there has been a sharp rise in the number of people adopting a more sustainable lifestyle over the past twelve months, and a growing number of fintechs aimed at facilitating climate action are playing a role in this transition. LA-based green banking start-up Aspiration, for example, pledges to plant a tree every time a customer swipes their credit card. There are also a variety of mobile applications, such as the sustainable investing app Clim8, which enable users to invest into climate-related causes such as clean energy and sustainable food.
The transition to greater sustainability is undoubtedly a gradual process, but many parts of the financial sector are making this transition in the dark, using infrastructure that was not designed with the environment in mind.
Fintech is uniquely poised to accelerate the journey to a greener economy, providing financial institutions and consumers with the knowledge and tools they need to adopt more sustainable practices. Carbon emissions won’t be eradicated in one big bang moment. However, the adoption of new technology could go a long way in ensuring that the financial services industry is able to meet the demands of today – and tomorrow’s – environmental challenges.
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Credit: Chatsworth Communications
