ESG evolution: Paytech perspectives

Any technology advancement that modifies how we make payments is referred to as paytech. First up, we’re going to concentrate on ESG financing.

Environmental, social, and governance, or ESG, is one area of finance that keeps gaining interest. The public’s awareness of environmental goals has grown, and companies of all sizes have been accused of “greenwashing” while neglecting to fulfil their responsibility.

However, as the name implies, ESG is more comprehensive than environmental factors alone. Additionally, the governance and social aspects of ESG are drawing more and more attention. We asked experts, “How has the culture surrounding ESG changed in finance?” in an attempt to better grasp how this landscape has evolved over time.

“Small businesses can receive funding with the help of good ESG information”

The CEO of SME BANK, Virginijus Doveika, provided an explanation of the rising desire for transparency: Transparent ESG impact data from businesses is in greater demand now than it was a few years ago, especially given the current business environment.

Global trends and regulatory frameworks like as the EU taxonomy are giving investors and banks a greater interest in these themes, and ESG data is becoming an essential tool for businesses to demonstrate their global influence. Nonetheless, there is still a significant disparity between large corporations—especially smaller ones—that can offer transparent ESG information and those that cannot.

Investor demand for portfolios that consider social and climate impact has expanded ESG data use as a risk management indicator. A project’s acceptability and performance against benchmarks like the EU Green Bond standard are assessed using ESG data. SMEs without correct data have trouble getting loans, limiting their opportunities in sustainable financing, which is growing rapidly.

High-quality ESG data is essential for small enterprises seeking financing. Maintaining competitiveness increasingly requires ESG concerns. New enterprises need this information, thus transparency is essential. Startups need high-quality ESG data. In this circumstance, transparency is necessary.

We’ve seen SMEs’ need for capital for innovations, digitalization, and sustainability efforts rise rapidly. This year, as part of InvestEU, we signed a guarantee agreement with the European Investment Fund to back a portfolio of new loans totaling over €37 million for SMEs in the Netherlands, Finland, and the Baltic States. In nine months, we funded 80% of the portfolio for SMEs investing in sustainable projects.

Putting more of a focus on responsible growth

“In recent years, the culture surrounding ESG in finance is moving from a mere checkbox exercise to a pivotal driver in decision-making,” says Markus Prommik, CEO and co-founder of embedded lending platform Finfra.

“The financial industry, which was formerly primarily motivated by profits, now gives responsible expansion equal weight. As the founder of a fintech company in Indonesia, a country particularly vulnerable to socioeconomic inequality and climate change, I have personally seen the transformational potential of incorporating ESG principles.

Indonesia and other emerging markets are at the core of this change. The growing recognition of the economic and ethical benefits of sustainable practises coincides with the rise in demand for financial inclusion. ESG-focused tactics frequently result in business models that are more robust, serve a wider market, and are long-lasting.

“As the CEO of an embedded lending platform, I think it’s our collective duty to spearhead this change, making sure that we tread lightly on our planet and leave no one behind as we advance.”

“ESG initiatives are still reactive in many cases”

Co-founder of SaaScada, a core banking engine, Steve Round, shares his thoughts on why responding to ESG initiatives only in reaction is no longer sufficient: “FS firms are under pressure to disclose information transparently as a result of customer aspirations for responsible finance and the quick evolution of ESG regulation.

However, many businesses still approach ESG issues reactively rather than proactively, and by integrating ESG into their core values, they might significantly increase the positive effects they have on the environment and society.

Businesses can now measure everything from the carbon footprint of daily purchases to the ESG impact of pension investments, allowing them to better understand how investments and purchasing decisions affect the environment. FS firms have the potential to be the best corporate citizens if they adopt a data-driven strategy for loan origination and transaction monitoring.

“Cloud banking engines can break down data silos and bring together real-time data from disparate sources, giving financial institutions the visibility they need to monitor the social and environmental impact of business operations.” This makes it possible for FS companies to swiftly and affordably obtain data to support commercial decisions, make moral decisions, and provide incentives to clients to affect genuine change. But most businesses aren’t using this technology yet.

Ultimately, reaching sustainability targets will require a more coordinated approach. We won’t make a difference unless financial institutions everywhere take ESG seriously. The finance sector will be able to influence real social and environmental change that goes beyond its own borders if they work together.

“Stakeholders are expecting more from companies”

The Upright Project’s creator and CEO, Annu Nieminen, Although there are many different reporting standards and a plethora of information available regarding a company’s “sustainability,” “ESG,” or “impact,” it is generally acknowledged that the finance industry should be “doing” ESG in 2023. However, the amount of information available can be rather intimidating.

Sometimes it’s even difficult to discern what these nuances are trying to tell us and how they relate to actually changing the course of the firm.

“I’ve witnessed a shift in culture these days where stakeholders are expecting more from firms. In the past, a business could get by with only making money as long as it complied with the law.

Fintech companies now have to provide a justification for their existence that goes beyond shareholder profit.

This is not limited to the investor or regulatory community; an increasing number of employees are also requesting more thorough justifications for the goals and effects of their employers. It is a significant transition overall, and not everyone will come out on top.

“Banks cannot afford to depress the ESG pedal”

“According to recent research, sustainable banking was a top concern for almost half (41%) of UK banks in 2022, but in the space of a year this has slipped to just over a quarter (26%) of banks,” said Peter-Jan Van De Venn, VP of global digital banking at Hexaware Mobiquity.

Sustainability has had to take a backseat as banks, from the board level down, have been focused on their bottom lines during the past year.

Although it makes sense that banks are under financial strain, there’s a chance that by concentrating only on the current issue, they won’t be able to take advantage of the long-term advantages that sustainable banking can offer.

“They should be concentrating on sustainability projects more than ever as they can yield a number of benefits, such as improved brand reputation and increased customer retention. The difficult market circumstances don’t mean that banks can afford to ease off on the ESG pedal. They must continue moving forward or else they will halt short of their goals and allow rivals to pass them.