Alternative Investment

The Ethical Investor: Green finance is booming and fintechs offer ESG alternatives to banks

  • Ethical investors are looking for sustainable investments within the financial sector
  • While progress has been made by the Big Four, many say they fall well short on ESG commitments
  • Climate fintech is a rapidly growing segment in the ESG space

ESG has seen rapid momentum within the banking and finance sector. More and more, consumers are beginning to pay closer attention to the link between their financial providers and global climate challenges.

A recent survey in Europe conducted by Kearney showed that one in four customers is likely to switch banks if they perceived their bank was not engaged in ‘ESG’ issues.

The survey also revealed that 41% of respondents wanted reassurance their deposits are not used to invest in companies that produced weapons or polluted the environment.

In Australia, big banks recognise this shift and have undergone a massive transformation over the past few years.

ANZ, CBA, NAB and Macquarie have recently joined the Glasgow Financial Alliance for Net Zero, a group that brings together initiatives from across the financial system to accelerate the transition to net-zero emissions by 2050.

Of all the big banks, Macquarie is the first to pivot into the green economy.

In 2017, Macquarie paid £2.3 billion to acquire the UK Government’s Green Investment Bank, a vehicle that invests in green infrastructure projects across the UK and Europe.

Earlier this year, ANZ paid US$50 million to acquire a minority stake in Pollination, a climate change investment and advisory firm.

In fact, there’s been a recent trend in global banks and investment firms hiring climate scientists and sustainability experts from the world of non-profit for top dollars.

For example, BlackRock recently hired Paul Bodnar as head of climate and sustainability research. Bodnar is a clean energy expert who previously worked in a non-profit as its chief strategist.

JP Morgan hired Ben Ratner from the Environmental Defense Fund to help advise banking clients on lowering their carbon footprint.
 

Falling short

But while a lot of effort has been made, experts believe that Australian banks still fall far short when it comes to truly embracing the ESG movement.

Despite making net-zero pledges, the big banks have undermined their own commitments by continually making loans to fossil fuel companies.

Around $10 billion of loans to the coal, oil and gas industry still sit on the big banks’ balance sheets, bringing the total amount loaned since 2016 to more than $45 billion. This has enabled more than 1 billion additional tonnes of CO2 to be released into our atmosphere.

A report released by the Rainforest Action Network (RAN) shows that ANZ stands out among the banks for the magnitude of its lending to fossil fuel companies.

ANZ ranks particularly high for lending to offshore oil and gas companies, ranking 25th in the world among all banks.

Source: RAN

 

Fintech as an alternative ESG investment

Given all these problems, ethical investors are increasingly looking for alternative investments when it comes to investing in the financial sector.

Many experts now believe that as the fastest growing player within the sector, fintechs provide the perfect asset alternative to traditional banks.

Fintechs, specifically non-bank lenders, have many of the qualities that ethical investors are looking for.

First, unlike traditional banks, the lack of a brick and mortar branch network means that non-bank lenders operate with a much lower carbon footprint.

Second, given their much smaller scale, fintech lenders have naturally avoided lending to the fossil fuel industry altogether.

And third, while the focus of fintech lenders is still mainly on combustion engine automotive lending, many of them have now started to offer ‘green loans’ products as well.

ASX-listed Plenti (ASX:PLT) for example, offers an interest-free (also described as BNPL) finance for renewable energy technology products like solar.

This special green loan enables homeowners to spread the cost of their investment in solar panels and batteries over up to 72 interest-free monthly payments.

The company has also entered into partnerships with AGL Energy and Energy Australia to offer interest-free loans and drive uptake of solar and battery technology.

Another ASX-listed fintech, Wisr (ASX:WZR), also has a wide range of green loans that cover purchases such as solar panels, installing water tanks and energy-efficient appliances, as well as for buying Tesla cars.

Wisr’s CSO, Dr Lili Sussman, told Stockhead there is increasing evidence that long-term shareholder value creation is best done by creating a positive impact.

“Purpose-led companies outperform in long-term value creation because purpose unites employees and customers,” Sussman said.

She cited Blackrock’s Larry Fink, who said that “profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”

According to Sussman, Wisr has always been a purpose-driven company built around creating positive impact since inception.

“Our purpose guides everything from our business model, strategy and products to our culture and behaviours.

“We exist to help Australians with financial wellness.

“We’re a climate-positive and carbon-neutral workforce; we don’t have a gender pay gap, and our Board of Directors comprises 40% of women, which is above the ASX200 average of 34.6%,” Sussman added.

 

The growing world of climate fintech

Recently, a new breed of fintechs is exploding in the form of climate fintech.

Climate fintechs are platforms that allow companies or users to contribute to the solutions of climate change.

Perhaps the biggest and most well known climate fintech platform out there is Xpansiv, a world leading marketplace for carbon credits.

Xpansiv’s trading platform executes at least 90% of all exchange-traded voluntary carbon credit transactions globally, matching corporates who want to buy carbon credits with suppliers who run projects that reduce greenhouse gases (GHG).

Xpansiv did have aspirations to list on the ASX, but has decided to remain private after receiving a US$400m investment from Blackstone last month.

Several climate focused “green neo-banks” startups are also sprouting, with names like Openinvest and Tomorrow.

Australian-based startup Bloom Impact Investing is another climate fintech platform that’s rapidly growing.

Backed by Envato founders and tech accelerator EnergyLab, the fund gives investors access to alternative, bonds and infrastructure investments that were previously only available to wealthy, sophisticated or institutional investors.

Recently, Bloom has just launched Australia’s first climate impact investing app where customers can invest for as little as $500, with no brokerage fees, while institutions can do the same for a minimum of $5000.

 

Other ESG news on the ASX this week

As reported by Stockhead’s green expert, Jessica Cummins:

Earlier this week, US President Joe Biden signed into law the much anticipated US$430 billion ($604 billion) climate package, designed to cut greenhouse gas emissions as well as lower prescription drugs and high inflation.

The bill, also known as the Inflation Reduction Act, includes nearly $370 billion in climate and clean energy investments like wind and solar, and support for households to make them run on clean electricity.

Woodside Energy (ASX:WDS), BGC, and Centurion are looking to accelerate the uptake of hydrogen fuelled transport in Western Australia with a proposed self-contained production, storage, and refuelling station in the Rockingham Industry Zone, roughly 50km south of Perth.

Named the Hydrogen Refueller @H2Perth, the project would be located adjacent to Woodside’s proposed H2Perth project – a proposed domestic and export-scale hydrogen and ammonia production facility currently under development.

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