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Hi y’all, Cokie here.

Let’s talk about the planet - specifically the relationship between climate and fintech.

I decided to write this piece somewhat selfishly -- for my own learning and understanding. I hope that you also find it instructive. Scott Hickle, Founder of Carbon Zero, landed in front of me by chance a few months ago, and I’ve been totally ignited by his passion and decided to dig deeper.

I’d like to caveat this post -- I will not be covering crypto here except to acknowledge that the question gets significantly more complicated when we consider crypto and mining-power. Bloomberg released a great article in January stating: “The Bitcoin algorithm demands increasing amounts of computational power to validate transactions. If it were a country, its annualized estimated carbon footprint would be comparable to New Zealand at about 37 million tons of carbon dioxide. One Bitcoin transaction would generate the CO2 equivalent to 706,765 swipes of a Visa credit card, according to Digiconomist’s closely-followed index, albeit with none of the convenience of plastic. Add in Bitcoin’s primary use as a speculative instrument and the frequent regulatory warnings it draws, and it’s hard to imagine it ever scoring high on ESG.”

I will consider doing a follow up post on this if it is of interest to y’all! As Saira Rahman at HM Bradley pointed out to me when reading this, “people just don’t recognize how much work is involved in the tiniest transfer of Bitcoin. Moreover, the fact that once the Bitcoin is mined people will have to maintain their fields to power the ledger.”

So, back to climate and fintech (minus Bitcoin). In the words of Manik Suri, Founder of Therma, “fintech sits at the intersection of economic incentive, human behavior, and institutional incentives. One can shift and shape behavior by realigning or misaligning incentives.” The same values that drive general consumer fintech will drive climate conscious fintech going forward.

*Note: Therma builds smart cold chain technologies designed to reduce energy waste, product waste, and refrigeration waste.

The goal for many of these companies is simple: they want you to think about your carbon footprint the same way you’d think about calories if you were on a weight loss journey. That said, climate change is a collective action problem and coordinating climate action is complicated to say the least.

WHY NOW?

We can all safely agree that the last year or so in particular has been absolutely chaotic for the climate. From the destructive Australian wildfires, to heat waves, to Northern California sky turning red, to cold fronts in the literal desert.

People all over the world have had 12-months+ locked away in their homes to contemplate some of life’s great existential questions, like climate change and preservation. It feels like the time is ripe for change. This is doubly true for younger generations, who have continuously shown us that they like buying with their conscience. According to Aaron McCrery of New Energy Nexus, youths almost globally believe that climate change is a serious threat, with a 10 point differential to the older generations.

WHAT CLIMATE FINTECH?

As defined by the New Energy Nexus* Climate Fintech Report, it is “simply digital financial technology which catalyzes decarbonization.” While Europe currently has the highest level of Climate Fintech innovation, this report posits that the US and China have the potential to catch up through “dynamic government policies and increasing sustainable capital flows.” To put that into layman’s terms: capital accelerates innovation.

*Note: New Energy Nexus is a global investor focused on clean energy entrepreneurship and was one of the earliest investors in Tesla.

Let’s follow the money. According to the aforementioned report, spending on renewable power will overtake oil and gas drilling for the first time this year and according to Goldman Sachs, clean energy represents a $16T investment opportunity (yes, you read that right. T = trillion).

Here’s what Aaron McCreary of New Energy Nexus had to say about it:

“Historically, I think fintech was regarded as a digital financial intermediary, facilitating the movement of capital or decision making (i.e., saving. investing). Those actions have the ability to channel to climate change mitigation and climate protection. As there’s more and more awareness around the role of an intermediary, the intermediaries’ ethical foundation can be channeled to decarbonize the planet. There’s definitely a relationship, it just hasn’t been explored deliberately or with the resources that are now available to founders.”

I thought it would be useful to provide an adequate framework for our understanding. According to the GHG Protocol Corporate Standard, a company’s greenhouse gas emissions are classified in three scopes:

Software companies mostly come from Scope 2 or 3, meaning that they don’t emit much from their central business activities, but the activities around the business are harder to quantify and combat.

RESPONSIBILITY FOR STARTUPS

I’ll bet you’re thinking, “well, Cokie, this is all well and good, but I’m an early stage founder so can’t really justify making the product climate conscious.” Let’s see if I can change your mind.

In fintech, we talk almost endlessly about abstraction layers. Fintech companies abstract all sorts of things for their customers -- access to brokerage services or establishing an LLC or corporation -- why not abstract climate complexity for users?

Many small companies have struggled with either offsetting or removing their carbon production because of the noticeable lack of a demand marketplace to buy offsets or removals. Stripe Climate has set up to solve this, allowing any business to direct a fraction of their revenue to help mitigate climate change. Nan Ransohoff, Stripe Climate, was quick to remind me that working together is the only feasible solution.

Hickle determined that it’s down to mission: is it aligned with your target audience? That is a question for each business to wrestle with itself, but he went on to note that it can be a superior brand differentiator. I’ve said it before and I’ll say it again, people want to bank with their values. Furthermore, incentives are traditionally economic in nature, which places fintech at the perfect nexus for climate change activism.

James Regulinski and Zach Stein, co-founders of Carbon Collective, put it more eloquently than I ever could:

“It’s too early to verge off your product roadmap. So PUT IT IN YOUR PRODUCT ROADMAP!” They went on to add, “you’re either baking [climate] into the DNA of your company or you’re not. Think about it the same way you’re thinking about gender equity.”

When it comes to early-stage fintech, most of us aren’t enormous emitters. Think about the packaging of your physical products and reduce them. Do you really need to fly to see that investor, or is Zoom adequate? We all understand that in your company’s earliest days, you’re fighting for your right to exist. But building climate into your customer acquisition cost can be a very sexy brand move as you approach younger audiences.

RESPONSIBILITY FOR CORPORATIONS

The answers here from all interviewees were largely similar. Rethink the business model top to bottom.

• What are the goods and services we are producing?
• To what end are we producing those goods and services?

Try as we might, the climate problem is nuanced, and therefore won’t be solved by a silver bullet action. It’s likely to take 10M solutions to solve the problem as a whole (if there even is a solution). Regulinski indicated that many corporations think about this in an antiquated fashion and pointed to Orsted’s historic decision to depart from the oil and gas industry altogether, opting instead to repurpose their infrastructure and capital for green initiatives.

Rethink your supply chain and replace massive emitters with green-friendly options. I know, easier said than done, but now is the time for dramatic action.

SMALL THINGS YOU CAN DO TODAY

Buy carbon offsets as a company. Carbon Zero will hopefully be making this super easy on a personal level in the not so distant future via a credit card that measures and offsets your carbon footprint with every transaction.

There are B2B products that can help too! Patch is an API that connects developers with carbon offset and carbon removal projects who partner with offset developers to list inventory and make it transactable. And you’re in luck because they work with a lot of fintechs! Patch’s CEO & co-founder Brannan Spellacy gave the best advice here: “do less stuff.” The economic incentives are on your side -- if you do less stuff, you spend less money, and you have no negative impact on the environment.

I’d be remiss if I didn’t mention investing. Deploying capital has long been the strongest accelerant of change. Stripe Climate wants to make it really easy for consumers to do the right thing through a frictionless abstraction layer that manifested as their marketplace. But, as early purchasers of many removal and decarbonizing techs, they know they can push climate change technology companies forward, faster. Capital allocators have long defined what gets made or built, closely coupling the world of finance with significant climate outcomes.

Our world is about compromise. There is certainly a way to find a middle ground so you’re not compromising on the commercial pursuit of your ethical foundation. Aaron McCrery tells me that there’s a ton of resources that will ONLY support you if you have a climate overlay. This trends towards favorable momentum for companies interested in climate.

CONCLUSION

I’ll let Scott conclude this article for me, he really does say it best: “No question about it, the future of finance is sustainable.”

Collective action requires a collective solution. Alone, our small companies can make changes, and that’s great. But imagine if we did it all together? Well, these experts think we can change the world.

There is no big solution, there is no silver bullet. But there may be thousands of small solutions and, with luck, we can mitigate some of the damage we’ve done and aim for a brighter future.

I hope you’ve all found this as instructive as I have. Fintech, as always, inspires people to make it their own in interesting and creative ways. The companies noted and many others are all using fintech to solve climate change -- what will you do?

Huge thank you to Bruno Werneck de Almedia for providing many of the introductions and resources for this project. Bruno keeps a list of companies operating in this space here. Enormous thank you to all the interviewees and participants in this research.

I had a blast learning from you and others will too. You can check them all out below:

• Aaron McCreary - New Energy Nexus​
• Manik Suri - Therma
• Scott Hickle - Carbon Zero
• James Regulinksi & Zach Stein - Carbon Collective
• Brennan Spellacy - Patch
• Nan Ransohoff - Stipe Climate​

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