Green fintech takes off as the financial sector embraces sustainability

Glasshouse Mirage Gstaad (Copyright: SIF)

A rapid expansion of the green fintech sector is underway at various hubs across the globe. Switzerland, renowned for its financial centre and innovation, is one of its champions. “Switzerland has turned into a nexus for finance, technology and sustainability over the past years,” says Fabian Ligibel from Sustainable Fintech, a think-tank.

Demand for sustainable or green fintech solutions is booming. “Sustainable and competitive tech-driven financial products are in great demand,“ Ligibel underlines. Swiss green fintech companies are well placed to actively shape the ongoing fundamental change in the financial industry as the entire sector slowly but surely embraces sustainability as the new standard.

Greening of investment solutions …

“People buy organic food, eco-friendly clothing, green power, switch from planes to rail… They also want to invest sustainably. There aren’t so many good financial solutions out there for those who want their investments to make a clear difference. Yova was set up to provide sustainable investment solutions for normal people,” explains Yova’s CEO Tillmann Lang. The start-up’s investment solutions mostly attract 25 to 45-year-olds, though its oldest client is above 80. “Traditional banks offer all sorts of funds with a ‘green’ label. In reality, few of these funds are truly sustainable and many don’t live up to their promises,” Lang adds. Yova currently only offers its services to Swiss residents but plans to enter the German market in 2021. “The financial system is key when it comes to societal progress toward a more sustainable future,” stresses Lang.

… and in the insurance sector

CelsiusPro is another actor in the rapidly growing Swiss green fintech scene. “We provide climate-related insurance based on big data, billions of data. Every single day around 180 million new data points from NASA and other providers enter our IT platform to calculate the risk of drought and flood, extreme temperatures and tropical cyclones … relating to climate change,” explains the CEO of CelsiusPro, Mark Rüegg. Traditional insurers and their products are not well positioned to provide efficient insurance against the effects of climate change. “With a ‘proof of loss’ as requirement, traditional insurance cannot tackle the global problem efficiently. Global climate data enables us to provide parametric climate insurance products where we automatically calculate pay-outs for policy holders based on pre-agreed values and triggers, without this proof of loss,” Rüegg notes. 

Competitive advantage to be located in Switzerland

A stable and competitive business environment combined with low taxes and strong knowledge in wealth management, as well as easy access to risk capital and highly educated technical graduates from some of Europe’s best universities – Zurich’s ETH and Lausanne’s EPFL – are some of the main advantages of basing a green fintech company in Switzerland. “Switzerland is also associated with trust, the foundation of finance,” explains Ligibel. “Swissness is general and the country’s excellent reputation is a very good brand by itself,” echoes Rüegg. “We are in a position to turn into a prime location for green fintech if a regulatory framework is put in place and we better bridge the gap between academia and the industry. We’ll then have perfect investment solutions,” underlines Ligibel.

Call for a financing instruments, greater disclosures…

The Swiss State Secretariat for Financial Matters (SFI) recently conducted a survey among the Swiss-based actors in the green fintech sector to find out where they see opportunities, but also learn about the obstacles faced in terms of funding, availability of data or the regulatory environment. The creation of financing instruments for green fintechs, facilitated obtention of work permits for technical experts, mandatory disclosure of environmental risk and impact information for large companies and financial products were some of the recommendations that emerged. In addition, the SIF, together with industry representatives, launched the Green Fintech Network on 3 November 2020.

Bright future ahead

Already now, green fintechs face a bright future. “Sustainability will be the standard way of doing business in finance. The societal trends clearly point in this direction, with an increasing number of fintech companies already being green,” says Lang. “We’re in the midst of digitization wave affecting the entire financial sector. We’ll have perfect conditions for investment in Switzerland, if we manage to bridge the gap between academia and the industry and fully use the potential of the tech-driven financial solutions emerging,” says Ligibel. Projections for the size of the global fintech market hover near 500 billion US dollars by 2025, with green fintech set to reap an increasing share of this fast-growing market.  

What is green fintech?

Fintech emerged over a decade ago and describes technologies that strive to improve and automate the delivery and use of financial services to clients. As for green fintech, there is no formal certification at hand. Green fintech typically describes companies or initiatives which have a positive impact on the environment, e.g. resulting in lower greenhouse gas emissions or greater biodiversity. Things are, however, moving forward. The EU earlier this year adopted a Taxonomy Regulation that creates a proper classification system for sustainable economic activities. The regulation entered into force across the EU in July 2020.