Going green: achieving net-zero carbon emissions in fintech

Like any other sector, consumers expect fintech to do its part in achieving net-zero. How difficult is that, and what are the risks if we get it wrong?

When it comes to carbon emissions, we tend to think of fintechs as being a light touch. After all, they’re not burdened with the same physical infrastructure that traditional financial institutions have, they are more likely to be remote organisations with employees working from home, and much of their business is done either on the cloud or through APIs.

Yet fintech needs to demonstrate that it’s making a difference, just like other industries. There are still carbon footprints associated with the delivery of financial services, and fintechs need to show willing that they are playing their part. Consumers are paying more attention to climate issues than ever before, and consumer power is a huge incentive for businesses.

Where do fintechs' carbon emissions come from?

The main source of carbon emissions for fintechs is the energy required to operate data centres, servers and physical locations – either theirs, or those of their partners and suppliers – particularly when those facilities are powered by fossil fuels rather than renewable energy. Even renewable energy has a carbon footprint, particularly when building projects from new, although research in the journal Nature Energy has suggested that the carbon footprint of renewables is even more insignificant in the long term than we might think.

Simon Thompson is the author of Green and Sustainable Finance, a new edition of which, due out in January 2023, includes a chapter on sustainable fintech. “The increasing use of digital technology requires building the infrastructure – particularly the data centres required to support cloud computing – to support this, which in turn need electricity for power and air conditioning,” Thompson says. “According to Greenpeace, in 2020 Amazon’s data centres emitted more than 44 million tonnes CO2e. Microsoft emitted some 16 million tonnes CO2e. 

“Data centres can, of course, be powered from renewables. Greenpeace also gives the example of Google’s long-term objective of purchasing all electricity from renewable sources, with 2020 CO2e emissions of only 1.2 million tonnes.”

Bitcoin mining has a large carbon footprint

Thompson also cites bitcoin mining as an example of the carbon footprint associated with fintech. Although bitcoin is a digital asset, and we often like to think of cryptocurrencies as existing only in a digital sense, the carbon emissions associated with it are very real. Bitcoin mining is said to have the same electrical power generation as a medium-sized European country. The problem with bitcoin is that mining is concentrated in the hands of very few global players; research from the National Bureau of Economic Research (NBER) suggests that just 0.1% of miners are responsible for 50% of mining capacity. That makes it exceptionally difficult to make improvements to the way in which bitcoin is mined – for instance, by making a concerted effort to adopt renewables in place of fossil fuels.

And Simon Thompson believes we have to think more broadly about what we include within the scope of fintech’s carbon footprint. He says: “It’s not just the direct emissions created by fintechs themselves, and their suppliers (especially their energy providers) – the Scope 1 and Scope 2 emissions in the jargon.

“Rather it’s their Scope 3 emissions – the indirect, financed emissions – that we need to focus on. What are fintechs financing and encouraging their users to buy, consume, lend to or borrow? Are they supporting high carbon business models and consumption or encouraging low carbon, more sustainable models?”

The danger of greenwashing

Fintechs need to show that they are taking action to address climate change, but they cannot rely on token gestures or empty statements. Today’s consumer is well-educated and well-briefed about climate issues, particularly carbon emissions, and by failing to take their obligations seriously fintechs could put themselves at risk of so-called ‘greenwashing’.

“In a nutshell, greenwashing is the communication of unsubstantiated or exaggerated claims in relation to the sustainability of products and services,” explains Ella Moore, Senior Strategist at brand agency Superunion. “It’s driven by three major trends: an increased demand for, and growth of, sustainable products; a lack of regulation, standardised definitions, disclosures, and metrics for sustainability; and the poor availability and quality of data.

“Misleading greenwash has the potential to influence investment and purchasing decisions, ultimately diverting meaningful change that we need. The good thing is that regulators are increasingly sharpening their scrutiny, but with guidance on sustainability-related disclosures still in consultation across the UK and EU, brands are being left exposed.”

Moore says that there are various strategic, legal, regulatory and reputational ramifications if brands choose to try and greenwash their consumers.

10 ways fintechs can support sustainable finance

Source: ‘Green and Sustainable Finance’ by Simon Thompson

  1. Increasing efficiency – as well as providing cost efficiencies, the use of fintech tools, such as smart contracts, can automate services (for example, approving and paying out climate insurance claims) without the need for human intervention.
  2. Improving risk management – access to, and analysis of, data over a wide range of green and sustainable finance-related areas (for example climate data and emissions tracking) makes it easier for financial institutions and others to identify, assess, manage and disclose climate and other environmental risks.
  3. Enhancing transparency and market integrity – availability of monitoring and verification data from satellites, drones, smartphones and other sources makes the verification and publication of impact data (like factory emissions, de- or re-forestation) more robust, cheaper and accessible.
  4. Targeting investors – digital platforms and data analytics enable issuers, fund managers and others to target retail or institutional investors with an appetite for green and sustainable finance investment.
  5. Changing consumer behaviour – apps that can track customer spending behaviour and link this with emissions data can estimate carbon footprints and ‘nudge’ consumers towards more climate-positive or other socially desirable spending and behaviours.
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