How technology is enhancing green finance and supporting ESG efforts.
Over the last decade, the negative impact of climate change has become increasingly evident worldwide. Today, the importance of sustainable measures to protect our planet is more significant than ever.
Fortunately, the financial industry is responding with vigor. There have been noticeable efforts to promote sustainability - from supporting green finance to adopting technologies that reduce carbon emissions in day-to-day financial operations.
What exactly is green finance?
Simply put, green finance refers to financing sustainable projects that aim to promote environmental protection, social responsibility, and economic growth. It includes loans, debt mechanisms, and investments to encourage the development of green projects to minimize the climate impact of existing plans or combine both.
In recent years, the lending market has been gradually focused on allocating more resources towards small and medium-sized enterprises (SMEs) to support green projects. In 2020, the EIB (European Investment Bank) approved €3.3 billion in financing for SMEs, with a focus on clean energy, circular economy, and sustainable transport projects. (1)
Although investing in sustainable projects is vital to green finance, this is only one part of the equation. Companies must also be accountable for their environmental and social impact. This is where ESG (Environmental, Social, and Governance) comes into play.
Environmental, Social, and Governance Awakening.
ESG refers to a set of factors that shareholders use to assess a company's sustainability and ethical impact. These factors enable investors to make informed decisions about investing in a particular company and its green and moral effects on the planet. As a result of this initiative, we have seen more companies putting ESG activities into their agendas in the last few years.
The magnitude of investment flow indicates that ESG is more than a feel-good exercise. Global sustainable investment has surpassed $30 trillion, reflecting a 68 percent increase since 2014 and a tenfold rise since 2004. (4)
How is fintech promoting sustainability and enabling ESG?
Fintech (financial technology) is playing a critical role in ESG endeavors and green finance. A way that fintech companies are driving the sustainability agenda is by leveraging technology to provide investors with ESG data and analysis. This data empowers investors or lenders to make reasonable decisions to direct capital towards green-friendly projects while generating financial returns.
Fintech companies are also creating new investment products that align with ESG principles. Such as sustainable funds, green lending, and social impact bonds to boost sustainable initiatives, especially for SMEs and entrepreneurs.
Migrations to public cloud result in up to 30-40% total cost of ownership (TCO) savings (2)
Furthermore, technology is transforming financial processes and making them more sustainable. For example, cloud-native SaaS solutions can diminish a carbon footprint by reducing the need for an on-premises infrastructure and minimizing energy consumption. As a result, financial institutions, including lenders, neo banks, and some traditional banks, are embracing cloud-native software intending to achieve g net-zero emissions.
Replacing on-premises workloads to Microsoft Azure is helping financial services to reduce their carbon footprint by up to 98% (3)
How is °neo an ESG enabler?
At five°degrees, we understand that climate change presents one of the most significant challenges to our planet today.
Therefore, when creating our cloud-native core banking platform we made deliberate design principles to support sustainable practices and contribute to the advancement of green finance. Our solution has been designed to enable a remarkable reduction in carbon footprint compared to traditional on-premises computing equivalents.
We are committed to providing our clients with a SaaS platform that delivers cutting-edge technology, supports sustainable practices, and contributes to a greener future.
Reference:
- EIB approves € 12.6 billion financing for transport, clean energy, urban development and COVID-19 resilience
- Cloud Computing Sustainability & The Green Cloud | Accenture
- Microsoft Azure Sustainability - Microsoft Sustainability
- ESG framework | McKinsey
