With a growing number of litigations against the financial sector on sustainability issues – the first climate lawsuit against a commercial bank recently launched by a French NGO – the role of finance in climate action has repeatedly been evidenced.
The Paris Agreement, in particular, holds the financial sector accountable to make financial flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
Given its critical role in financing the economy, the scrutiny on the climate and sustainability action of the financial sector, from both regulators and civil society, is heightened, as evidenced by tightening regulation and a growing number of legal actions against established financial institutions.
Yet, the transformation of finance has not reached its full potential, and amid the environmental transition storm, professionals are increasingly looking at Fintechs.
As businesses offering innovative products and services based on digital technologies in the banking and financial services industries, they represent critical actors through their agility and out-of-the-box approach. Moreover, they are often praised as seamless and agile technology enablers as they brought a revolutionary approach to an old-fashioned sector.
A journey into the role of the Fintechs in disrupting finance
Fintechs were once the missing brick capable of revolutionizing the financial sector: first with the dematerialization of physical stock markets in the 20th century (in France, the Paris Stock Exchange closed in 1979), but also with the digitalization of the payment services, from the bank card enabling an unprecedented volume of data being exchanged in a short period to the online platforms and so-called “neo-banks”.
Although the transformation of the financial sector shaped by digital technologies sometimes goes unnoticed compared to other industries, such as manufacturing or services, it has been no less fundamental, as it has disrupted all traditional business practices.
Fintech has yet to do it again, this time helping the industry factor in both the costs and the impacts of the ecological transition while ensuring it is acceptable for all. This means, for instance, adding value to the financial system by offering a holistic approach to the money flows, considering not only traditional financial indicators but also externalities.
A growing part of Sustainable Fintechs set to gain market share
With the global Fintech market still a driving force, looking at a growth rate of 20.3 % from 2021 to 2030, the time is right to stimulate the emergence of sustainable fintechs.
In most financial centres, a “green” or “sustainable” fintech market is incidentally emerging, set to conquer substantial market shares.
In France, the market of Fintechs at large has achieved a critical level of maturity, legitimizing the sector while creating the right conditions for a swift deployment of the ecosystem, according to France Fintech, the reference association promoting the excellence of the industry in France and abroad.
Fintechs are leaders in the Next40 ranking, bringing together the 40 most successful start-ups in the French economy and the most represented typology in French unicorns. In particular, one of the significant trends of 2022 for all stakeholders in the French Fintechs ecosystem was about sustainability at large, taking into account the environmental, social and societal impacts of their activities.
Tech for good: a mere trend or the new normal?
Although sustainability has become a clear trend in the Fintech universe, this consideration should go beyond the mere trend and become the new normal. And the truth is that the French market, albeit expanding, is not there yet.
The entrepreneurship ecosystem in France is still supremely reigned by the economic criteria of fundraising and financial valuation. Those criteria are affecting the way start-ups creating alternative models at the service of the ecological transition are valued, even though, in the end, companies that will create the most value today are the ones that have a holistic approach to their footprint.
As a result, the Institut de la Finance Durable (Paris Institute for Sustainable Finance) is looking to build on the current momentum to turn the sustainability trend into the new standard, with the consolidation of the Fintechs ecosystem pushing for solutions integrating sustainability holistically.
To this end, we scaled up our 2022 edition of the “Fintech for Tomorrow Challenge”, a call for projects to foster the development of innovation players supporting the sustainable transition of the economy by including both more partners and financial prizes.
In particular, we also introduced a new award dedicated to Fintech for Diversity and Inclusion to set the path in France.
It is still difficult to address the Diversity, Equity and Inclusion issues and overcome the substantial uniformity and social homogeneity within entrepreneurs’ profiles.
A comprehensive overview of Sustainable Fintechs in France and beyond
We also released, last October, the first comprehensive overview of Sustainable Fintechs in France to better understand their characteristics, development, and challenges and to track the evolution of the market.
In the last five years, the number of Sustainable Fintechs more than doubled in France, reaching 102 in 2022. The dynamic is accelerating, and the landscape is mature enough to define the leading categories.
The biggest emerging category focuses on data collection and management, representing 33% of Sustainable Fintechs in France.
Regarding recent regulations, the interest in data processing solutions is not surprising, as data is critical to ensuring transparency, guiding investment decisions and capital allocation towards climate-resilient development.
Other leading categories include project funding (crowdfunding, syndication platform…) and payment services/neo-banks. All in all, Fintechs focusing on sustainable finance represent 11% of Fintechs in France.
The number is set to grow with the remaining challenges, such as developing impact finance and ensuring diversity and inclusion within the sector.
With the belief that finance should be at the service of society, the Institut de la Finance Durable proudly contributes to setting a clear direction to align the financial system with sustainable objectives by empowering the development of innovative and inclusive projects in favour of the ecological transition.
The 2023 “Fintech For Tomorrow” challenge, planned to launch in May, will pursue this path.
About the Authors:
Pauline Becquey is the Executive Director at Institut de la Finance Durable.
Camille Buewaert is the Sustainable Finance Project Manager at Institut de la Finance Durable.