Banking has changed significantly in the last two decades—online banking tools, mobile depositing with smartphones, digital credit monitoring, and other innovations have permanently changed traditional money management.
Like digital financial technology developments, climate change has also taken center stage in the last twenty years as expert predictions became increasingly glum. But, in an age of peak technological advancement, can’t we harness the power of fintech to promote sustainable initiatives?
The short answer—yes. In this guide, we’ll explore everything you need to know about climate fintech, the different types of initiatives available today, the relationship between climate change and banking, and the potential impact you can make with the power of fintech sustainability.
What is Climate Fintech?
Before we explore existing climate fintech solutions, let’s define fintech and its sustainable relative, climate fintech. You may be more familiar with these terms than you think.
What is Fintech?
Fintech is a portmanteau of “financial technology.” Fintech describes any digital tool or technology used to support or facilitate money management tasks like:
- Debit and credit transactions
- Deposits and withdrawals
- Statement delivery
- Transaction history data compilation
Debit and credit cards are a familiar example of fintech—the technology significantly reduced the number of cash transactions completed for everyday purchases and rendered paper checks nearly obsolete.
But, discussions of green fintech generally consider more recent developments like:
- Mobile banking apps and browser tools
- Digital investment platforms
- Mobile device depositing
- Online bill pay
- Digital account transfers
- Purchase protection
- Enhanced privacy and security measures
- Cryptocurrency payments and trading
- Digital loan application tools
- Credit monitoring apps for smartphones and browsers
- Cashless banking via online-only financial institutions
You likely use some aspect of green fintech every day—if you Venmo a friend to split a bar tab, pay for a rideshare service on your smartphone, or pay your utility bill online, fintech is a part of your everyday life.
If the exponential growth of fintech for the last two decades is any indication, financial technologies will continue to grow and change significantly, disrupting old guard financial services providers and giving consumers more power over their money.
How Do Climate Action and Fintech Intersect?
Massive fintech development and increased visibility of climate risk data appeared mostly simultaneously. As a result, some innovators have combined the power of fintech with the motivation for climate action, building sustainable financial services options for environmentally-focused consumers.
The result is climate fintech—harnessing fintech tools to tackle climate change and other environmental issues.
Climate fintech prioritizes automation, one of the most significant impacts of fintech developments. Instead of encouraging consumers to donate to environmental causes or physically participate in climate action, climate fintech customers passively contribute to positive change just by banking as usual.
Financial services providers empower consumers to passively impact the environment in numerous ways. Some examples include:
- Carbon offsetting – When consumers deposit funds, make purchases, or complete other financial tasks, their financial services providers donate to carbon offsetting projects (e.g., tree-planting, carbon capture, or alternative energy infrastructure development) on consumers’ behalf.
- ESG investing – Financial services providers typically use capital deposited by customers to provide loans for various projects. Fintech companies strategically invest in initiatives prioritizing environmental, social, or governance (ESG) responsibility.
- Carbon footprint monitoring – Fintech companies can monitor consumers’ purchases to determine the environmental impact of their transactions.
Climate fintech continues to grow, and traditional investors seem to like the idea—as of the first quarter of 2022, VC firms have awarded over $475 million in funding to fintech startups.
Types of Climate Fintech
While we explored some examples of climate fintech developments above, let’s get into the nitty-gritty of current technologies and market offerings.
Green Debit, Credit, and Savings Accounts
The idea of the climate bank has opened countless doors for environmentally-responsible consumers.
Climate fintech innovators strive to combine positive climate impact with the convenience of financial automation to make environmental action as simple as possible. Financial services providers typically build a green banking experience using tools familiar to consumers:
- Debit cards – Consumers widely use debit cards to pay for purchases directly from their checking accounts. But, some financial institutions offer an eco friendly debit card. While different service providers offer different packages, most complete or contribute to a climate-positive task for each purchase made with the card.
- Credit cards – Consumers who wish to finance purchases with a credit card while acting environmentally responsible are in luck. Many fintech institutions offer a green credit card. The process is usually similar to eco-friendly debit card policies—purchases support environmental action—but some providers offer additional environmental benefits when consumers reach a purchase threshold, make payments, or accumulate points.
- Savings accounts – Climate fintech providers offer environmental benefits to consumers simply for using their savings accounts. Providers employ various savings-related climate strategies—some include the responsible investment of consumers’ saved cash, donation of service charges or fees, or incentive-based climate action for reaching savings goals.
ESG Investment Tools
Environmental, social, and governance (ESG) investing is growing in popularity—in 2021, consumers invested a record $649 billion in ESG investment funds worldwide.
Some financial services providers harnessing climate fintech are making it simple for consumers to invest in companies that reflect their values. ESG investment tools take two general forms in fintech:
- Green investment platforms – Green stock aggregators, carbon-neutral crypto trading platforms, and eco-friendly brokerage firms help consumers choose investment products (e.g., stocks, mutual funds, and target-date funds) from environmentally responsible brands.
- Green advising and ethical evaluations – Some fintech companies monitor publicly traded brands’ ESG-related actions, compiling this data to make an ethics recommendation to investors. Consumers could use these tools to verify a company’s responsibility before signing on the dotted line.
ESG investing tools facilitate and/or advise on two types of ESG-aware brands:
- Businesses that sell products or services that facilitate ESG action (e.g. a plastic recycling company)
- Businesses that don’t sell ESG-related products, but have transparent and actionable ESG-aware values.
Carbon Credit Trading
Carbon offsets describes the purchase of carbon credits to offset your individual carbon footprint. Carbon credits are, essentially, funds donated to climate-focused causes or initiatives like:
- Carbon capturing efforts
- Building alternative energy infrastructure
- Indigenous land stewardship
- Alternative energy initiatives for developing economies
Independent carbon credit trading platforms—websites or apps where consumers can contribute to causes and offset their footprints on their own—are a type of fintech. They harness the power of online purchasing and electronic funds transfer infrastructure to both offer products to consumers and transfer that capital to environmental projects.
But, some green financial institutions offer built-in carbon offsetting. For example, Aspiration integrates the following measures to help consumers offset their footprints:
- Planting one tree for each purchase made with a credit or debit card
- Allocating carbon credits for each gallon of fuel purchased with a credit or debit card
- Investing consumers’ dollars in climate action projects
Carbon Footprint Tracking
Fintech can help consumers track their individual carbon footprint, helping them measure, reduce, and offset their environmental impacts.
There are a few different types of fintech-related carbon footprint monitoring technologies:
- Purchase monitoring – Some financial services providers will review your purchases to determine the environmental cost of the goods you buy. For instance, after a trip to the grocery store, an app may use your purchase total and account for your transportation to estimate your potential carbon emission.
- Alternative method tracking – Some apps track the impact of alternative lifestyle choices and products to determine the extent of your carbon footprint reduction. If you opt for taking the bus, riding your bike, or carpooling to work instead of driving alone, and you enter the information in an app, it can aggregate your data to estimate the carbon emission you’ve prevented.
- Offset trackers – Some financial services providers like Aspiration offer apps to track progress made with their built-in carbon offsetting benefits. For instance, the Aspiration app can help you neutralize your monthly carbon footprint and track your progress towards carbon neutrality.
Does Climate Fintech Make an Impact?
Climate fintech has streamlined clunkier aspects of environmentally friendly spending, financial planning, and investment. When it comes to fintech sustainability, significant impacts include:
- Increased demand for banking transparency – With the advent of eco-friendly financial services, consumers began to ask their current banks tough questions about their values. More than 60% of consumers plan to increase their efforts to choose environmentally responsible companies, putting pressure on their banks to act ethically.
- Automated environmental impacts – The impacts of climate change can feel daunting—so can calls for climate action. But, climate fintech has made it easier than ever to automate and simplify climate actions, making environmental responsibility more accessible to climate action newcomers.
- Innovation and economic growth – The growing climate fintech industry proves that the green economy is viable, profitable, and financially sustainable. As a result, more and more innovators are taking their fintech solutions to the marketplace, empowering consumers to participate in the economy while facilitating climate actions.
Aspiration: Climate-First Financial Services
Climate fintech lies at the crossroads of technological innovations in the finance sector and growing calls to climate action. Via banking alternatives, ESG or climate change investing, carbon offsetting, and carbon footprint tracking, the growing climate fintech sector empowers consumers to meet their financial goals while making a positive impact on the planet.
It’s at the heart of everything we do at Aspiration.
We facilitate climate action daily, putting your hard-earned (and responsibly spent) dollars to use. Our built-in carbon offsetting helps you neutralize your carbon footprint without hassle—we handle the calculations and logistics, and all of your daily financial tasks stay the same.
It’s time to join the financial institution that embodies your environmentalist values—Aspiration is helping to heal the world one dollar at a time.
Forbes. What Is Fintech and How Does It Affect How I Bank?. https://www.forbes.com/advisor/banking/what-is-fintech/
Crunchbase. More Early-Stage Funding Flows to Climate Tech and Finance. https://news.crunchbase.com/news/venture-funding-startups-climate-fintech-finance/
Reuters. Analysis: How 2021 Became the Year of ESG Investing. https://www.reuters.com/markets/us/how-2021-became-year-esg-investing-2021-12-23/
The Guardian. A Complete Guide to Carbon Offsetting. https://www.theguardian.com/environment/2011/sep/16/carbon-offset-projects-carbon-emissions
Popular Science. How Banks Are Using Technology to Fight Climate Change. https://www.popsci.com/environment/climate-fintech/