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Emphasis on ESG will guarantee rapid growth to fintechs

The ESG (environmental, social, governance) movement has received considerable attention and financial support in recent years, leading to a number of new investment products and funds being launched around the world. ESG investments already account for more than $20 trillion in AUM, or almost one-quarter of all professionally managed assets globally, and their rapid rise is building on a much older socially responsible investment (SRI) movement. The rise of ESG investing can also be seen as a proxy for how markets and society are evolving, as well as how valuation principles are responding to these shifts.

Investors who are providing green start-up or social start-up financing should make sure sustainability-focused venture capital funds are always directed towards companies who are committed to following an ESG strategy. There is additional motivation for providing strong governance to fintechs specifically because they can expect to get asked about their commitments to the ESG framework, with investors becoming more and more conscious about the risks associated with the ESG, and looking for companies who meet higher governance standards, as per customer demands.

ESG-focused fintech companies hold a unique potential to grow rapidly, drive paradigm-shifting innovations, and engage in financing for social and environmental improvements. Moreover, they may attract capital investment to support their efforts to improve the environment and society, while providing significant returns. ESG-focused fintechs assist individual investors to build more ESG-friendly portfolios, whether offering a dedicated market for accessing ESG-friendly investments, or managing consumers portfolios, focusing on building an aggregated portfolio that meets quantifiable ESG goals.

Large financial institutions will be compelled to engage with or invest in sustainable fintech businesses in order to gain a competitive advantage over their industry peers as they seek to embrace these ESG tenants. Most ESG data is supplied at the enterprise level at financial institutions anticipating to see a greater emphasis on integrating ESG data into more granular lending and investment decisions. In the long run, credit risk assessments and lending choices are expected to include ESG and climate concerns, and banks and financial institutions will increasingly aim to help people and businesses decrease their carbon footprints by providing education, insights, and incentives. Companies adopting a recognized accounting standard embracing ESG, according to both regulatory bodies and investment sector participants, are being encouraged to incorporate managing ESG risks into their remuneration structures and performance indicators as investors become more concerned on companies' responsibility in regard to ESG issues.

A range of trends includes regulation on ESG disclosure, the rise in investment in green technologies, renewables, and infrastructure, as well as heightened standards related to sustainable finance. ESG issues are driven by consumer, investor, and stakeholder demands, as well as by rapidly changing regulation have experienced meteoric growth. In other terms, ESG offers huge opportunity for fintechs to embrace net-zero commitments to sustainability instruments in order to design new climate solutions. Whether it is billions invested in green and sustainable instruments, significant institutional efforts to consider ESG as a risk driver for lending and investing, large banks restructuring themselves to embrace net-zero pledges, or fintechs developing new solutions to climate-related problems, all of these efforts point to a recognition that the financial services sector has the potential to play an important role in meeting ESG objectives. Fintechs might be at the forefront of providing consumers with solutions that combine financial gains/savings with ESG ideals, as well as less tangible but equally important metrics of success.


Comments: (2)

Richard Peers
Richard Peers - ResponsibleRisk Ltd - London 09 June, 2022, 16:271 like 1 like

Thanks for the great article Yayhya

Yahya Mohamed Mao
Yahya Mohamed Mao - Swiss GRC - Switzerland 28 June, 2022, 08:14Be the first to give this comment the thumbs up 0 likes

My pleasure Richard!

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