How FinTechs can play a key role in the rise of Green Finance
Adrian Rimmer, Senior Advisor at the London Stock Exchange Group, explains the ins and outs of Green Finance — and what FinTechs need to keep in mind.
A summary of some of the insight and advice shared by Adrian Rimmer, Senior Advisor, Green & Sustainable Finance, London Stock Exchange Group at a recent Rise virtual event.
State of the market
The Green Finance market is driven primarily by investors and asset managers. Many of those asset managers are acting on the instructions of pension funds, to push companies to disclose more information about the risks and opportunities associated with environmental, social and governance factors. They are concerned about the long-term impact of climate change and the physical and structural risks in certain sectors.
“Green Finance has seen enormous growth in that past few years,” says Adrian. “There are now $35 trillion of assets under management associated with above average ESG (Environmental, Social and Governance) strategies of different types. It’s being mainstreamed in a lot of asset management companies and you now have ESG analysts that sit alongside sector analysts.”
In addition, more than $80 trillion in assets under management are now associated with the Principles for Responsible Investment (PRI), a UN body that works with asset owners and managers—which requires certain green behaviours and considerations from those investors. The London Stock Exchange expects to see further interest in Green Finance in the future.
“We’re now seeing focus from the regulators around the world who are looking at how they drive disclosure and drive it in a consistent way,” Adrian says.
Green opportunities for FinTech startups
Investors and regulators are clamouring for a service that can aggregate non-financial information like ESG considerations and also deliver insights. Even better is if it can help investors meet their compliance requirements. Data analyst FTSE Russell already gathers data on 14,000 companies around the world in a very structured and clear way that is publicly available. A startup that can harness this data will fast-track the ability to invest in green businesses.
There are also a number of new financial markets, particularly around commodities, such as biofuels, that may be of interest to startups. The US has a carbon market in place for many years now—which can help drive low-cost reductions in harmful emissions and air pollution. There are 22 similar schemes around the world currently being put in place. These markets will grow rapidly, so we will see a huge uptick in technology that is able to support the transacting of those commodities and information flows around it.
Analytics around the insurance market and ‘greening our pensions’ is also a key driver.
Fixed income and equities seeing growth
Fixed income has seen massive growth in recent years because more businesses are engaging with Green Bond Principles—a set of rules aimed at increasing transparency and reporting with clear accreditation for those that meet the requirements. The London Stock Exchange currently has 240 green bonds listed on the exchange amounting to around £50 billion in assets raised across 14 different countries.
“But it’s equity markets where we've seen the most rapid growth,” Adrian says, “now that we're seeing more companies transition towards green business models. Companies are coming to market with billion-pound valuations, such as energy smart meter group Calisen, and we’ve also seen a number of new green funds being listed as well — the largest having a £2 billion market cap.”
The US is playing catch-up
The governments of the UK, EU and China are driving the adoption of green finance, while in the US the responsibility is firmly on the shoulders of investors. Blackrock is a great example of an asset manager that has been vocal in its shift towards green investments—and that helps with adoption. Lots of American firms are behind the shift, too, because they recognise the risks now that they are looking at long term, multi-generational timelines.
FinTech will bolster the green economy
A good example is the Alipay Ant Forest project, a service that provides users with “green energy points” each time they reduce their emissions. The green energy points grow into a virtual tree on the Alipay app. Once it has grown to fruition, Alipay will plant a real tree in one of its conservation areas and has planted 100 million trees to date.
Impact finance is another area seeing the benefits of FinTech. Several new platforms have launched recently that allow investors to choose projects within their own communities, or in a specific region abroad. These platforms allow investors to choose a tangible investment, set their return profile accordingly and gain direct control over their impact investing. The London Stock Exchange also bought a stake in a company called Nivaura — a blockchain distributed ledger company. “One of the areas where we’re using that new technology is to see if we can help new commodities markets operate in a more efficient manner.”
Rewatch the entire Green Finance event on our Rise YouTube channel.
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