The fintech industry has grown tremendously since it first emerged in the late 20th century, however, the last year has seen more innovation in this sector than ever before
While the many innovations that have resulted in this booming sector and the pandemic have accelerated businesses within the digital space, an increasingly critical matter of contention is the escalated importance of Environmental, Social and Governance (ESG) criteria in the corporate world. In fintech, it is even more important. But why?
What exactly is ESG?
ESG criteria are a set of standards that apply to a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria relate to the conservation of the natural world, including factors such as climate change, carbon emission reduction, air pollution and deforestation. Social criteria relate to the consideration and well-being of people including customer access, data hygiene, gender and diversity inclusion as well as community relations. And finally, governance relates to the standards for running a company including everything from embracing diversity on boards, corporate transparency and hiring best practices. With the growing concern on ethical statuses of companies, these standards measure the ethical impact and sustainability of investment in a company. And in today’s rapidly changing business climate, attention to ESG issues is becoming critical to long-term competitive success.
The push behind ESG
Sustainability has been a hot topic for a very long time, however, ESG goes beyond green finance and the battle against climate change. It dives into the core of how businesses operate. The pressure is greater now than ever for companies across the board to be ESG compliant because consumers want a clear change in the way businesses act and how they are investing their money. This demand is even more prominent among the younger generations that hold the most buying power, and who place greater importance on issues of sustainability.
As a result of this, consumers are opting to purchase products and services from companies who have good governance and care for the environment and society and neglecting the ones who don’t share these values. “It’s a harsh reality, but if businesses wish to stay competitive and sustainable, they need to pivot their operations to align to customer demands. By truly diving into the essence of ESG and not only supporting but implementing the key drivers behind each criterion places businesses in a better position,” explains Matthew Barnard, BBD group executive; “Making them accountable for their impact on the world and in short, our future which aligns to the demands of consumers.”
While ESG ratings matter across sectors, investors in particular are using ESG scores in their investment strategies – to identify, understand and assess the risks associated with each aspect for their business. Having a bad ESG score will prevent investors from including your business in their investment portfolio which is accompanied by negative consequences that may significantly impact your business’ operations.
These increasing demands and emphasis on ESG matters from not only consumers but regulators, investors and government bring about the real question of whether there is potential for ESG in fintech and if so, what opportunities there are for fintech in helping achieve ESG values.
Can fintech be a contributor to a green economy?
We all know that the pandemic had a positive impact on many digitally orientated companies as many companies moved their day-to-day operations online. But the pandemic also intensified the discussions around the interconnectedness of the financial system and sustainability. Is there a way in which the financial system could actually be a key driver in building a sustainable future?
Many companies have already begun implementing sustainable business models but ensuring that the core goals of these companies match and are aligned with ESG criteria requires evaluation. “This evaluation in itself is highly complex. However, having a robust technological infrastructure along with standardised measurement tools and indicators make it not only easier to do but result in more accurate and effective evaluation results, which is where fintech comes into play.”
The latest and greatest technologies namely artificial intelligence, advanced data analytics and cloud are promising fintech solutions which aid in serving a green economy and a sustainable financial sector. With the use of these technologies, fintechs are not only able to support and assist companies in getting them a better rating on the ESG scorecard, but they can also leverage on their agile tech orientation to accelerate ESG integration for both other companies and themselves. We have been implementing fintech solutions for investment management and financial services groups for over 37 years to ensure they stay ahead of the curve. “Our work in financial markets on compliance and regulation means that we have a rich experience that can be called upon for these projects” explains Barnard. We are not only growing our knowledge on ESG by working with our clients and partners but are committed to meeting our own ESG goals. Through our experience and extensive knowledge working with big data and analytics, artificial intelligence capabilities, and cloud, we work with fintechs who have ideas to bring their products to life ensuring long-term success for clients”.
Fintechs can support companies in the following ways:
- Develop platforms that monitor compliance with ESG criteria
- Assess and measure the environmental impact of a company’s assets
- Channel investor funds towards sustainable investments
- Provide feedback in manufacturing environments through the use of IoT
In essence, these technologies have enabled fintechs to become a channel of green money and a chance to differentiate themselves with smarter, more informed decisions through the advice they give to customers as well as monitoring and measuring client’s portfolio ESG performance.
It is important to take customer and investor considerations and preferences into account – after all, without customers there would be no business. Barnard goes on to explain that it is evident that customer-focused fintechs are already going green and these demands are exponentially rising and as a result, corporates have introduced a large variety of sustainable banking and investment products. It is just a matter of time until customers expect their financial services provider, as well as solution providers, to be fully sustainable and with that comes changes that need to be made. If you’re looking for a software solutions partner with rich experience in modern technologies and financial services platforms, reach out to us.