ESG stands for Environmental, Social and Governance and it’s not new, it’s been around since 2015 but it became an important acronym since 2019 and provides a wealth of opportunity to emerging and established fintechs.
According to Mckinsey “ESG-focused investing has experienced a meteoric rise. Global sustainable investment now tops $30 trillion—up 68 percent since 2014 and tenfold since 2004."
The acceleration has been driven by heightened social, governmental, and consumer attention on the broader impact of corporations, as well as by the investors and executives who realize that a strong ESG proposition can safeguard a company’s long-term success. Lets take a closer look at each aspect of the term and what it entails:
Let’s begin with the “E”
The environmental aspect of ESG splits into two parts. The first part of the E is climate change, and energy a Company uses to power our world, therefore, it’s all about carbon impact. The second part of the E is all about natural resources and their impact on biodiversity, the effect the Company has on the water systems of our natural ecosystems.
Now let’s look at the “S”
The “S” splits in two parts internal stakeholders and external stakeholders. The internal stakeholders are basically your own workforce. So that’s diversity, equity, and inclusion, work force, wellbeing, workforce safety and health, for example. And the external stakeholders look at, the broad corporate human rights and the effect the Company has on the wider society around it, particularly from a human rights dimension.
And finally let’s look at the “G”
The “G” also splits down into two parts when it comes to figuring out how do you attract investors. The first part of the G is what we can call traditional corporate governance for public companies. And that’s all about shareholder rights, shareholder protections and treating all shareholders equally and fairly. Whereas the second part of the G is corporate culture and business integrity. So risks such as bribery, corruption, money laundering, and how the company ensures that its culture is one in which integrity and compliance is deeply ingrained.
In 2019 The United Nation issued the Principles of Responsible banking, a total of 132 global banks signed up and in 2020 this figure rose to 190 banks. The principles are mainly focused on how banks should invest more in saving people and planet and how this should be their focus. But the banks know for a fact that they cannot achieve this without the right technology hence the fintech sector is regarded as the engine of sustainable economic growth. Deutsche bank said it perfectly when they stated, “Banking is what we do while Technology is How we do it”. In fact, KPMG reported that “global investment in Fintech has doubled more than six times, from $18.9 billion to $111.8 billion in recent years”
If we look at Europe alone, we find that it has half of global sustainable assets. European demand for sustainable investing has prompted 253 European funds to change their investment strategy or portfolio in 2020. In addition, Europe also saw 505 new sustainable fund launches in 2020 alone.
And if we look at assets under management (AUM), According to Bloomberg, that are invested globally in sustainability funds and portfolios could reach $53 trillion by 2025, accounting for more than one-third of projected total AUM of $140.5 trillion.
But also let us not forget Covid-19 as it played a big role in mindset shift when it comes to saving our planet. New research of consumers in 24 countries was commissioned by Mastercard revealed a marked increase in consumer passion for the environment as a result of COVID-19.
There are two main objectives that fintech start-ups and unicorns want to achieve. One is attracting the right investors who share their vision and purpose and two attracting the right customers who will help them grow. To achieve these two objectives these fintechs must start thinking about how their work and operations will save the planet and its people and if they don’t move quick, they will miss the train or even worse get fined a large sum of money by the regulators who are clamping down on companies who do not demonstrate their ESG credentials.
Gihan Hyde is the award-winning communication specialist and the founder of CommUnique, an ESG Communication start-up. She has been implementing ESG campaigns in 8 sectors, across 6 countries over the past 20 years. Her campaigns have positively impacted over 150,000 employees, 200,000 customers, and have closed over £300m in investment deals. Some of the clients she advised included The World Health Organisation (WHO), HSBC, Barclays, M&S, SUEZ, Grundfos, Philip Morris, USAID, and the Saudi Government. Get in touch with Gihan through LinkedIn or Twitter @gehanam