Exploring the Interconnection of FinTech and Climate Sustainability: Scoping Through a Qualitative Methodology

1. Introduction

Sustainability has become our prime focus ever since the adoption of the 2030 agenda by the United Nations (UN) in 2015, which seeks to achieve sustainable development in its three dimensions, namely, economic, social, and environmental, in a balanced and integrated manner (United Nations, 2015). Decision-making should take into account the interdependencies and trade-offs of all three pillars to ensure that the development pathways adopted guarantee a sustainable future (Mensah, 2019). In the last few years, the rapidly growing climate emergency has risked environmental health, raising apprehensions over sustainability in the long run. Both human and planetary well-being is in peril (IPCC, 2022a), leading to escalated risks, uncertainty, and costs, reduced productivity, and resulting in rising sea levels and carbon pricing, brutally affecting the food and energy sector, the realty sector, and many others (Hong et al., 2020). The reckoning is at hand and any further delay in action may cause irreversible and collateral damage to the people and society.

Nordhaus (2018) says that the 2°C targets of the 2015 Paris Climate Accord need the support of significant policy initiatives—extensive planning and institutional frameworks aid in combating climate change (Fuso Nerini et al., 2019). However, the funding bottleneck could stymie climate action. There is a growing gap in the current global financial flows and there is a high chance that the adverse climate crisis impedes national economic development, further increasing the financial constraints for adaptation, especially in developing and least-developed countries (IPCC, 2023). Thus, it is crucial that we seek alternative modes of climate finance for a just transition, and technology could be a driver in this feat.

The application of technology to finance, popularly called FinTech, has brought drastic transformation, with segments such as digital investment solutions, payment and lending solutions, blockchain, cryptocurrencies, RegTech, InsurTech, etc. A vast majority of these FinTech market segments have risen in prominence globally, with double-digit growth rates in many countries (Stolbov & Shchepeleva, 2023). The Green Digital Finance Alliance (GDFA) and the Swiss Green FinTech Network, with the support of the Swiss State Secretariat for International Finance (SIF), in their green FinTech taxonomy released in 2022, which is the first of its kind in the world talks about three stages of FinTech evolution. Digitised versions of already prevalent financial products like digital payment, wealth management, and lending solutions led the first wave. In contrast, innovations like programmable utility tokens or security token offerings led to the second one. The third wave saw the onset of solutions that leverage FinTech for environmental good (GDFA, 2022). They are known as green FinTech, a portmanteau of green finance and FinTech. They could be alternatively called climate FinTech as the climate crisis has become the cardinal green concern. In sum, green FinTech or climate FinTech is a FinTech solution based on data analytics, artificial intelligence (AI), Internet of Things (IoT), blockchain, etc., with novel business models that aid in environmental conservation.

Climate FinTech may include platforms for green investments, green bonds, crowdfunding, emissions trading, carbon footprint reduction, ESG (Environmental, Social, and Governance) data provision, planting plants and trees and forests, wooden smartcards, etc. Doconomy, Ant Forest, Paygreen, and FNZ are some of the top climate FinTech solutions (GDFA, 2022). Though climate FinTech solutions are rising in number, the research is yet to gain scholarly attention. To bridge this gap, this chapter is an attempt to examine the progress and the prospects of the concept and applications of climate FinTech, using a qualitative methodology. This is expected to aid in the awareness of innovative opportunities for environment enthusiasts and climate activists, aid investors in comparison with peers, and identify alternative business opportunities and investment options for profit-oriented investors.