Transatlantic Climate Dialogue: Climate FinTech

To meet the objectives of the Paris Agreement, we need to invest around $3 trillion – $5 trillion annually for the next 30 years and fintech can play a significant role in making that happen, said Dharmendra Kanani, COO and Chief Spokesperson at Friends of Europe, opening the third and last session in the Transatlantic Climate Dialogue series dedicated to Climate FinTech.

“Most innovation starts with finance,” said Jacqueline van den Ende, Founder and CEO of climate investing platform Carbon Equity (Netherlands). “Finance ultimately decides what happens in the world.” Carbon Equity is an impact investing fund that invests in venture capital and growth equity markets because it believes that is where it can have the biggest impact. For non-specialist investors, the options for early-stage investment are either to invest directly in companies, which can have a huge impact but is very risky or to invest in a fund. “But you typically need at least €5 million. Carbon Equity reduces that right down to €10,000. By lowering the threshold, Carbon Equity seeks to unlock the $2 trillion ‘mass-affluent’ market of people with a net worth of €100,000-€10 million to power breakthroughs in climate technology by investing alongside the world’s top climate investors. In this way, we will unlock much more capital to power innovative solutions.”

The key ways to create impact with your investments are to hold stock in public companies and vote as an active investor or to allocate capital into inefficient markets where it is difficult to attract investors, said Franz Hochstrasser, Co-Founder and CEO of local impact investing marketplace Raise Green (U.S.). “The latter is what we do. Raise Green is the first inclusive platform in the US focused on climate solutions with a social mission.” With 59% of Americans alarmed or concerned about climate change, they want to do something meaningful. “Raise Green gives individuals and companies the ability to participate in community financing, enabling them to join the ranks of heroic entrepreneurs and innovators and invest directly in early-stage climate technology companies and project finance companies deploying proven technologies like solar or wind at community scale. And they can do that from as little as $100.”

All of our carbon footprint comes from how we spend money or how our banks manage it, said Maud Caillaux, Co-Founder of eco-responsible neo-bank Green-Got (France). “Today, banks are investing in fossil fuel industries. They have a huge carbon footprint and no one knows anything about it. You can do lots of things to lower your own carbon footprint but your money cancels your efforts out tenfold. If you can redirect your money, it can have a big impact. Every citizen should be able to participate in the energy transition and put their money towards things like low carbon transport, green energy and sustainable agriculture,” she said. “We’re also bringing transparency on where your money goes.”

Regulation is one of the key challenges to financial start-ups. “It is insanely hard to set up a fintech company – there are a ton of regulatory requirements. Many of them make a lot of sense and are there to protect consumers, but sometimes the burden is unnecessarily high,” van den Ende said. An example of that is when retail investors can make individual angel or crowd equity investments, which have a very high chance of failure, but they are not allowed to invest in funds where expert advice is available, and they can diversify their investments across multiple companies to lower their risk. EU policymakers should have a pragmatic approach, so we acceptable risks can be taken, consumer protection is still high, but there is more flexibility to operate.

Innovating in fintech does require compliance, Hochstrasser said, as non-compliance in certain crypto investments has shown. “It is time-consuming, but it’s essential to have fair rules of the road.” Yet the rules are different in every market and there is a lack of harmony in regulations between, for example, the U.S. and Europe that could be fixed.

Caillaux pointed out that while her company only launched five months ago, “we have been working on this for two years. It took so long because of the regulators”. Green-Got is not even allowed to describe itself as a neo-bank in France, she added. “We are here with a bigger goal than making money. We’re very, very stressed about climate change. I picked finance because the banking industry has the biggest power to shape the world and stop climate change.”

Another challenge for small companies in the sector is to “earn the eyeballs it takes to scale fintech companies in the attention economy of today”, Hochstrasser added. “We know people want to act on climate and if they were aware of this, there would be a high probability of conversion, but getting in front of them is a problem.”

Climate investing is increasingly a no-brainer, van der Ende said. “Even from a purely financial point of view, you don’t want to miss out on growth industries. In the next 10, 20, 30 years, we will have one of the biggest waves of innovation we have ever seen, in everything from the way we eat to how we travel, build and produce things. “Even if you don’t care about climate, impact or green investing, it still makes so much sense to invest in climate solutions, so you have exposure to the winners of the future and divest from the losers, which are fossil fuel-intensive companies.”

There is a great signal from countries uniting around the Paris Agreement and charting a path towards a 1.5C future, added Hochstrasser. “Those that move quickly and innovate to fill that space will be the leaders of the future. Investing in these companies now is a good idea.”

Caillaux concluded that we need governments to be bold. “We need them to understand that we are at a crossroads of history whether we like it or not. This is the most important moment for humankind. History will judge harshly leaders that don’t have a response for the challenge in front of them.”

This series is part of the European Young Leaders programme led by Friends of Europe that connects young leaders throughout Europe and beyond. They are trailblazers, exceptional business and civil society leaders, politicians, entrepreneurs, academics, artists, scientists, journalists and athletes.

The EYL40 programme builds bonds across nationalities, areas of work as well as different political and ideological viewpoints, develops innovative solutions for the challenges facing our societies and promotes role models who are passionate and committed to Europe and who can inspire our citizens.