Climate fintechs are popping up to fill a void in green banking
Headlines about catastrophic wildfires and storms made worse by climate change can make people anxious or unsure of what they can do to help.
Some banks and fintechs hope their mobile apps will provide guidance. Features that calculate a user’s carbon footprint based on their spending, recommend ways to live a more sustainable life, and incentivize them to offset their environmental impact through approved or certified carbon offset projects, gain momentum. magnitude in Europe. Companies include German sustainability software provider Ecolytiq, Swedish climate impact company Doconomy and a number of sustainability-focused neobanks.
In the United States, banks have made efforts to measure and reduce carbon footprints of their investments and loans, and have published reports on their climate risk exposures.
However, “the consumer side is not the focus for them,” said Ariana-Michele Moore, retail banking and payments advisor at Aite-Novarica Group.
There are a growing number of climate fintechs in the United States serving consumer needs. Aspiration, one of the first challenger banks to focus on the environment, has added climate impact measurement functionality. There are also new challenger banks focused on green living, including Andō, Atmos Financial and Greenpenny. Other companies are integrating carbon footprint calculators with US financial institutions such as Carbon Zero Financial. Green banking is also likely to generate more interest among consumers with the passage the Inflation Reduction Act, which encourages energy-efficient home renovations and the purchase of electric and hybrid vehicles.
Build effective tools
Certain data points make some of these climate tools more useful than others. Transparency and localized data are two of the key elements, according to Moore.
Ecolytiq helps financial institutions to offer green features on their apps such as carbon footprint calculations, personalized insights (e.g. reducing red meat consumption) and the ability to donate to projects certified by the offsets standard setter, Gold Standard. It uses country-specific government data to calculate a user’s carbon footprint and is based on the Open Sustainability Registry, a publicly available source of sustainability information. To assess the impact of a customer’s consumption behavior when it is not possible to know exactly what they have purchased – for example, a steak or a salad at the restaurant – Ecolytiq will integrate the information they have collected by asking users about their habits, such as their daily diet looks like. The Berlin-based company has also published its methodology in a public document blog post.
These tools “help imprint in people’s minds that they have a connection to the environment,” said Max Honzik, public relations and content manager at Ecolytiq.
Ecolytiq hopes to strengthen its presence in the North American banking market. Its banking clients in Europe include Rabobank in the Netherlands, German neobank Tomorrow and Grenn-Got, a French neobank.
Clean Energy Credit Union in Centennial, Colorado, has developed its own calculator. The all-digital credit union uses customer deposits to fund its clean energy loans, including those for electric or plug-in hybrid vehicles, e-bikes and solar electric systems. It posted a calculator on its website in July that estimates how many pounds of carbon offsets a customer is funding based on the amount of money in their savings accounts. The calculator also translates that number into the equivalent of miles traveled by an average gas-powered car, charged smartphones, and tree seedlings grown for 10 years.
“When we tell people their deposits go to clean energy, it’s hard for people to understand what that means,” said Nicole Burford, chief marketing officer of the $31.4 million credit union. . To build the calculator, the credit union drew inspiration from a study it commissioned from Climate Action Reserve, an offset registry, in 2018 to calculate the carbon offset based on each of its loan types. He calculated the equivalencies using data from the Department of Energy website.
“We have enough fear and negativity about climate change, so we wanted to highlight what we can do if we work together and invest money in places where we can help others get energy. clean energy,” Burford said.
The next step is a calculator that does the opposite: estimating how many pounds of carbon customers are accumulating with their purchases. Clean Energy is working with Carbon Zero Financial for this project.
Cathryn Peirce, co-founder and CEO of Carbon Zero Financial, also believes that a positive approach is best. “We oppose the pessimism of ‘Look what you’ve done,'” she said. “That’s not how you get people to change their behavior.” Carbon Zero uses a proprietary algorithm to calculate the carbon footprint of a user’s spending at a financial institution. Peirce originally planned for Carbon Zero to launch its own credit card, but switched to a business-to-business model a few months ago. It expects to have around 10 partner financial institutions in place by September.
Like Clean Energy, some challenger banks say that simply moving your deposits to a company that facilitates green lending will do some good.
Ando and Atmos Financial, which both debuted in early 2021, are challenger banks with similar models: funneling deposits from their customers to fund clean energy loans from community banks. Ando is not currently taking on new clients.
For now, Atmos is focused on large-scale solar lending. To entice customers, Atmos offers a checking account that earns up to 5% cash back for purchases at dozens of sustainable businesses. Its savings account earns 1.5% for users who make recurring donations to one of the climate nonprofits on Atmos’ platform. The company claims to have thousands of customers to date. The deposits are held by the $777 million asset Evolve Bank & Trust in West Memphis, Arkansas.
“One of the most impactful things people can do behind voting and political activism for climate-aggressive candidates is to move their money from a fossil fuel finance bank to a climate-positive entity. “said Ravi Mikkelsen, co-founder of Atmos Financial.
It is important to note, however, that all of these tools have data and coverage gaps. “Carbon footprint calculators are so high-level, in part, because they can’t access your payment data,” Aite-Novarica’s Moore said. “At a grocery store, you have no idea what I’m buying. At Macy’s, you see the merchant, but you don’t get the granular details of the purchases.”
Still, she said, now is the time for banks to prepare.
“Banks should definitely educate themselves on this and start thinking about how they can respond to the industry,” Moore said. “Banks want to stay on top of the game even if the solutions aren’t quite where they need to be.”
Peirce compares the utility to his Fitbit. “I have no idea if I actually took that number of steps,” she said. “I know it helps me be aware of my behaviors and measure my progress.”