To succeed in an increasingly competitive fintech sphere, startups and long-established businesses must demonstrate they are socially conscious and have ethical management practices. Here are the main ways a fintech company may improve its ESG objectives
Fintech startups focused on sustainability are particularly attractive to both institutional and individual investors. Besides, such companies have better customer retention and engagement levels, increased profitability, and highly-motivated employees. Considering all the benefits of being an ESG-focused fintech, here is a quick guide on becoming one.
1. Invest greener
Fintech tools such as AI and ML, advanced data analytics, and blockchain can seamlessly and quite precisely assess whether certain investments are environmentally friendly. By adopting sustainability as the foundation of any investment decision, fintech companies can support and accelerate the transition toward a more resilient and responsible economy.
Whether it is additional technology companies deploy in their daily activities or a startup they partner with / acquire, fintech leaders must consider the soundness of these practices, judging from an ESG perspective. For example, fintech businesses can invest in firms dealing with renewable resources or eco-friendly blockchains, transfer part of their profits to environmental initiatives, facilitate transition finance, develop climate investment apps or sustainable loan programs, and more.
2. Boost inclusivity at the workplace
Including all types of people in your startup team and making them feel comfortable at the workplace is very important for an ESG-focused company. Creating an inclusive workplace culture is much harder than simply adding diversity to the company’s team. However, inclusive teams have a lot of benefits for an employer besides sticking to the moral imperative of justice.
The research shows that people who feel included perform better, fully commit to their work, improve their skills and knowledge, act cooperatively and purposefully, can better manage work-related stress, persist longer on frustrating tasks, and feel more connected and valued. Besides, the presence of different cultural norms and opinions within a team enriches a discussion and helps find creative solutions.
To boost inclusivity at corporate level, start by including it in your business strategy. Next, incorporate inclusivity awareness into HR and management training, promote pay equity, create mixed teams, and acknowledge all cultural differences of your employees (e.g. give them a day off to celebrate national holidays etc).
3. Facilitate financial inclusion
Fintechs have a unique position within ESG discourse. Not only can they help the environment with introducing paperless financial processes, but also fintech plays a central role in promoting financial inclusion globally.
For example, India launched 75 digital self-service banking units in villages and small towns last year to enhance financial inclusion that remains low in rural areas. Citi Start Saving program allows US municipal and nonprofit organisations to expand access to financial services and advance economic progress in underserved and low-income communities, using City Builder data-driven platform.
Meanwhile, mobile banking startups and crypto continue to play an important role in expanding access to financial services in African countries. Any ESG-focused fintech can and should address financial inclusion issues pertaining in its local community and wider area of operations. Given the variety of tech means to do that, it shouldn’t be too hard.
4. Expand your decarbonisation efforts
Driven by a combination of climate change, finance, and digital technology, fintechs are empowering communities to reduce greenhouse gas emissions and create transparent carbon accounting systems.
While some fintech providers enable businesses to track the carbon impact of their transactions, carbon offsetting providers help them to compensate for the emissions. Open banking enables third parties to access daily payment transaction data and analyse the amount of carbon emissions related to each purchase.
As a fintech, you can both facilitate carbon tracking and reinvest offset fees in environmental projects to provide a net-zero balance for your business customers. Besides, fintechs possess a great range of tools to seamlessly become net-zero themselves.
Additionally, financial institutions are increasingly adopting ‘robo-advisors’ and AI-driven software to optimise their portfolio management with regard to the ESG agenda and avoid opaque carbon accounting. Developing such tools, climate-centred fintechs can create attractive incentives for their climate-conscious stakeholders.
5. Increase diversity within the company
To make your fintech more diverse, adjust your talent acquisition strategy. Make sure that your human resources hiring approach will bring in a diverse pool of applicants.
Remember that diversity is key to the project’s or team’s success. People from similar backgrounds often fail to acknowledge certain issues that may be obvious to those with different experience ranges. Therefore, try to diversify all your teams, including employees of different gender, ages, ethnicity, etc.
Constant diversity and inclusion training will help your staff to navigate the complex multicultural environment and foster a more accommodating work environment. Conduct regular assessments of your company’s diversity successes and failures to improve related policies.
6. Inform your clients on ESG issues and topics
Although ESG and sustainable finance initiatives are currently the top priority for financial services firms, this may not always be the case for their customers. Or else, they may care for the environment and social causes, but lack awareness of how they can measure and improve their impact.
Fintechs can help clients better understand what ESG means for their businesses, and then transform these insights into actionable strategies that bridge purpose and profit. Start with informative blog posts and newsletters, educational events, etc. Moreover, educational components may be as well included into a fintech app.
Next, you can highlight important ESG aspects in your consulting practices, investing advice, support chats, and even promotion activities. Informing your business clients will help them make their “green” investments wisely amid stronger regulatory scrutiny of ESG funding and practices.
7. Practise disclosure proactively
Greenwashing is a word that often scares off potential investors when they deal with sustainable projects funding. As with all other organisations and industries, companies that focus on ESG need to report on their progress to stakeholders. At the same time, the lack of regulatory clarity and divergence of legal demands in various regions often means the lack of transparency when it comes to corporate ESG practices.
Therefore, it is important for any ESG-focused fintech to stay ahead of the disclosure demand. Find out about the regulatory bodies that regulate ESG compliance in your area of operations. Be attentive both to mandatory reporting requirements and those recommended. Even if there is no compulsory ESG reporting in your country, you should proactively provide updates on your progress for the stakeholders to know your business is socially responsible.
In order to ensure consistency and comparability, ESG disclosure should be based on guidelines and formats set forth in one of the major ESG reporting frameworks. These include the Global Reporting Initiative (GRI), the Principles for Responsible Investment (PRI), Sustainability Accounting Standards Board (SASB), or Climate Disclosure Standards Board (CDSB), among others.