The Ethical Investor: green finance is booming and fintechs are offering ESG alternatives to banks

  • Ethical investors seek sustainable investments in the financial sector
  • Although progress has been made by the Big Four, many say they fall well short of ESG commitments
  • Climate fintech is a rapidly growing segment in the ESG space

ESG has experienced rapid momentum within the banking and financial sector. Increasingly, consumers are beginning to pay more attention to the connection between their financial providers and global climate challenges.

A recent survey conducted in Europe by Kearney showed that one in four customers are likely to switch banks if they perceive that their bank is not committed to ESG issues.

The survey also found that 41% of respondents wanted assurances that their deposits are not being used to invest in companies producing weapons or polluting the environment.

In Australia, the big banks recognize this change and have undergone a massive transformation in recent years.

ANZ, CBA, NAB and Macquarie recently joined the Glasgow Financial Alliance for Net Zero, a group that brings together initiatives from across the financial system to accelerate the transition to net zero emissions by 2050.

Of all the major banks, Macquarie is the first to embrace the green economy.

In 2017, Macquarie paid £2.3 billion to acquire the UK government’s Green Investment Bank, a vehicle that invests in green infrastructure projects in the UK and Europe.

Earlier this year, ANZ paid $50 million to acquire a minority stake in Pollination, a climate change investment and advisory firm.

In fact, there has been a recent trend in global banks and investment firms to hire climate scientists and sustainability experts from the nonprofit world for top prices.

For example, BlackRock recently hired Paul Bodnar as its head of climate and sustainability research. Bodnar is a clean energy expert who previously worked at a nonprofit as a chief strategist.

JP Morgan has hired Ben Ratner from the Environmental Defense Fund to help advise banking customers on reducing their carbon footprint.

fall short

But although many efforts have been made, experts believe that Australian banks are still far from truly embracing the ESG movement.

Despite promises of net zero, the big banks have undermined their own commitments by continually lending to fossil fuel companies.

About $10 billion in loans to the coal, oil and gas industry still sit on the balance sheets of major banks, bringing the total amount lent since 2016 to more than $45 billion. This released more than 1 billion tons of additional CO2 into our atmosphere.

A report by the Rainforest Action Network (RAN) shows that ANZ stands out among banks for the scale of its lending to fossil fuel companies.

ANZ ranks particularly well for lending to offshore oil and gas companies, ranking 25th globally among all banks.

Source: RAN

Fintech as an alternative ESG investment

Given all these issues, ethical investors are increasingly looking for alternative investments when it comes to investing in the financial sector.

Many experts now believe that as the fastest growing player in the industry, fintechs are the ideal alternative to traditional banks.

Fintechs, especially non-bank lenders, possess many of the qualities sought after by ethical investors.

First, unlike traditional banks, the lack of a physical branch network means that non-bank lenders operate with a much lower carbon footprint.

Second, given their much smaller size, fintech lenders have understandably avoided lending to the fossil fuel industry.

And third, while fintech lenders are still primarily focused on combustion engine auto loans, many have now started to offer “green loan” products as well.

ASX side Plenty (ASX:PLT) for example, offers interest-free financing (also known as BNPL) for renewable energy technology products like solar.

This special green loan allows homeowners to spread the cost of their investment in solar panels and batteries over up to 72 interest-free monthly payments.

The company has also partnered with AGL Energy and Energy Australia to offer interest-free loans and drive adoption of solar and battery technology.

Another fintech listed on the ASX, Wisr (ASX:WZR)also offers a wide range of green loans that cover purchases such as solar panels, the installation of water tanks and energy-efficient appliances, as well as the purchase of Tesla cars.

CSO of Wisr, Dr Lili SussmanTold Stockhead there is growing evidence that creating long-term shareholder value is best done by creating positive impact.

“Goals-driven companies outperform long-term value creation because goals unite employees and customers,” Sussman said.

She quoted Blackrock’s Larry Fink, who said “profits are in no way incompatible with purpose – in fact, profits and purpose are inextricably linked”.

According to Sussman, Wisr has always been a goal-oriented company built around creating positive impact since its inception.

“Our Purpose guides everything from our business model, strategy and products to our culture and behaviors.

“We exist to help Australians improve their financial well-being.

“We are a climate positive and carbon neutral workforce; we have no gender pay gap and our board includes 40% women, which is above the ASX200 average of 34.6%,” Sussman added.

The growing world of climate fintech

Recently, a new breed of fintech is exploding in the form of climate fintech.

Climate fintechs are platforms that allow companies or users to contribute to solutions to climate change.

Perhaps the biggest and best-known climate fintech platform is Xpansiv, a global leader in the carbon credit market.

Xpansiv’s trading platform executes at least 90% of all exchange-traded voluntary carbon credit transactions globally, connecting companies that want to buy carbon credits with suppliers who run projects that reduce carbon emissions. greenhouse effect (GHG).

Xpansiv aspired to be listed on the ASX, but decided to go private after receiving a $400 million investment from Blackstone last month.

Several climate-focused “neo-green bank” startups are also emerging, with names like Openinvest and Tomorrow.

Australian startup Bloom Impact Investing is another rapidly growing climate fintech platform.

Backed by the founders of Envato and tech accelerator EnergyLab, the fund gives investors access to alternative, bond and infrastructure investments that were previously only available to wealthy, sophisticated or institutional investors.

Recently, Bloom has just launched Australia’s first climate impact investing app where clients can invest for as little as $500, with no brokerage fees, while institutions can do the same for a minimum of $5,000.

Other ESG news on the ASX this week

As Stockhead green expert Jessica Cummins reported:

Earlier this week, US President Joe Biden signed into law the long-awaited US$430 billion ($604 billion) climate package, designed to cut greenhouse gas emissions as well as cut prescription drugs and high inflation.

The bill, also known as the Cut Inflation Act, includes nearly $370 billion in climate and clean energy investments like wind and solar, and support for households to run on clean electricity.

Woodside Energy (ASX:WDS)BGC and Centurion are seeking to accelerate the adoption of hydrogen transport in Western Australia with a proposed self-contained generation, storage and refueling station in the Rockingham Industrial Estate, around 50km south of Perth.

Called Hydrogen Refueller @H2Perth, the project would be located next to Woodside’s proposed H2Perth project – a domestic and export hydrogen and ammonia production facility currently under development.

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