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What Challenges are Fintechs Facing As They Look to Become Net Zero?

Now encapsulating a focus on societal impact and the environment, the term ‘fintech for good’ has evolved from its initial meaning of charity. But it doesn’t stop there. This July, we are on the hunt to find out how the fintech industry is doing ‘good’ for local communities and the world, revealing current and future plans to make change.

As we unravel some of the biggest ways fintechs are ensuring their priorities are not solely profit-based but also focused on sustainability, we take a look at net zero ambitions and how they are being worked towards. While many firms may have good intentions and look to ensure their carbon impact is non-existent, this is much easier said than done.

After all, partnering firms may have the perfect solution but not hold the same sustainability values. This means the fintech has to make a choice, does it stick with the unsustainable solution, or look for a carbon-aware alternative which could potentially uproot the service in its current state? In light of this, we set out to find out what challenges fintechs are facing in their quest to be net zero.

A lack of planning will equal failure
Bill Harter, principal ESG solutions advisor at Visual Lease net zero
Bill Harter, principal ESG solutions advisor at Visual Lease

Bill Harter, principal ESG solutions advisor at Visual Lease, the lease optimisation software provider, highlights how many organisations are very vocal about becoming net-zero but when asked how they will achieve this, do not have an answer.

“One of the main obstacles for companies hoping to reach net zero is also one of the very first steps they should be taking in their ESG journey – gathering the data needed to determine their baseline. Without this information in hand, they can’t feasibly set related goals. For example, simply stating that your company plans to be ‘net zero by 2030’ means very little if you don’t actually know what your company’s current emission levels are.

“It’s also worth noting that the Security and Exchange Commission‘s (SEC) climate disclosure rule includes requirements for certain US companies to disclose their targets and goals, and if they’re material, report on the progress they’re making against them. That includes goals like reaching net zero. Furthermore, the SEC’s enforcement policy dictates that environmental statements hold the same weight as financial statements – meaning they are subject to the same level of scrutiny and should therefore be supported by data.

“While the SEC’s rule is currently paused, that policy remains. Moreover, many other jurisdictions are following suit with similar, far-reaching guidance that will require impacted companies to show proof alongside any progress that they claim.”

Avoiding reporting errors

Harter also noted how firms can avoid certain challenges by focusing on ESG goals over the next few months: “Gathering related data is such a heavy lift because it requires collaboration across many departments, including finance, real estate, legal, sustainability, and others. Getting each of these teams in sync with one another takes time and effort, which is why we urge businesses to start the process sooner rather than later, regardless of whether they’re legally required to report on it yet.

“In fact, I’d go as far as to say that those who remain focused on ESG-related goals over the next few months are more likely to avoid reporting errors, as they would’ve taken advantage of this time to find and gather the right data. On the flip side, those who pause their efforts will inevitably scramble to achieve the same outcome, risking inaccurate reporting, which can negatively impact their relationships with investors, consumers, and employees.”

The need for reliable data
Maureen Doyle-Spare, head of financial services at IT firm UST net zero
Maureen Doyle-Spare, head of financial services at IT firm UST

The lack of consistent data and disclosure standards is the most significant hurdle for financial institutions hoping to reach net zero according to Maureen Doyle-Spare, head of financial services at IT firm UST, the digital transformation solutions company. She explains: “Inconsistency hampers their ability to accurately measure, report, and reduce emissions – particularly scope three emissions.

“These include indirect emissions from their investments and other financial activities. Without reliable data and standardised reporting, it becomes challenging to track progress, set effective targets, and implement strategies to achieve net-zero emissions.

“Another obstacle is the difficulty in assessing and validating the emissions of every investee company, especially for assets managed on an advisory basis. As a result, investment managers must rely heavily on external data sources. While improved disclosure regulations could enhance data availability, steps would still need to be taken to ensure data quality and credibility. This is particularly important for forward-looking projections like temperature alignment or emission budgets.

“These challenges underscore the need for robust and consistent data standards. As the industry evolves, better data practices and regulatory support will be essential to achieve net-zero goals and foster more sustainable financial practices.”

Decarbonisation challenges are business challenges
Mark Chadwick, executive managing director at ENGIE Impact net zero
Mark Chadwick, executive managing director at ENGIE Impact

For Mark Chadwick, executive managing director at ENGIE Impact, the sustainable consulting firm, the way fintechs approach net zero can be a challenge if they view it as an isolated issue.

“Firms aiming for net zero face numerous challenges, but the most significant may be their limited approach to a decarbonisation strategy. ENGIE Impact’s 2024 Net Zero Report indicates that while 20 per cent of organisations acknowledge that their current business model conflicts with long-term decarbonisation goals, many still view this issue solely through risk management or compliance lenses. They’ve failed to develop a compelling business case for decarbonisation investments.

“Furthermore, many companies haven’t recognised that decarbonisation is fundamentally tied to their present and future operations. Treating decarbonisation barriers as isolated issues will result in fragmented, inefficient solutions. Instead, companies should view decarbonisation challenges as business challenges. This perspective shift allows for solutions that not only address carbon reduction targets but also strengthen the entire organisation.”

Complexity and cost
Jenny Pidgeon, VP of sustainability at FTSE 250 Eurowag
Jenny Pidgeon, VP of sustainability at FTSE 250 Eurowag

Jenny Pidgeon, VP of sustainability at FTSE 250 Eurowag, the payments solutions company explains that the primary obstacle for firms aiming to reach net zero is the complexity and cost (perceived or actual) associated with transitioning to sustainable practices.

“This includes the challenge of overhauling existing infrastructure and integrating new technologies, as well as adapting and transforming the business model to generate revenue from alternative, lower-emission activities.

“Financial constraints also play a significant role, as the initial investment required for green technologies and practices can be substantial, and the return on investment may not be immediate. Many companies, especially small businesses are concerned about the ability to grow while also achieving net zero.

“Moreover, many firms face difficulties in accurately measuring and reporting their carbon emissions, which is critical for tracking progress toward net zero. The lack of standardised metrics and transparency can lead to discrepancies and hinder effective action. In the mobility sector, for example, the barriers preventing trucking companies from transitioning from diesel are much steeper than is acknowledged by many policy-makers.”

Financial burdens
Paul Holland, CEO of Beyond Encryption
Paul Holland, CEO of Beyond Encryption

In a similar vein to Pidgeon, Paul Holland, CEO of Beyond Encryption, the email encryption service provider, identifies costs as the biggest challenge facing fintechs in their mission to decarbonise.

“For business leaders and owners, reducing environmental impact can seem like a costly task – both in terms of time and money. In such challenging economic conditions, with many areas that need to be tackled and multiple ways in which they can be addressed, it can quickly feel like a very overwhelming task that is easily deprioritised.

Recent reports indicate that many companies are retreating from their green targets, viewing the financial burden of achieving net zero as insurmountable. This perception is a significant barrier to change. However, for organisations still committed to reducing emissions, it is crucial to manage costs effectively.

“Adopting a strategic approach to carbon reduction as part of broader digital transformation efforts can enhance operational efficiencies and sustainability. For instance, the use of paper-based communications is still prevalent in financial services. Transitioning to digital communications can not only significantly reduce a company’s carbon footprint, but elevate the customer experience with AI-enhanced solutions and create operational efficiencies to not only facilitate reaching net zero, but deliver tangible value to the business.”

Author

  • Francis is a journalist and our lead LatAm correspondent, with a BA in Classical Civilization, he has a specialist interest in North and South America.

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