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The State of Green Finance | FinTech Roundup 2022

If there’s one thing that can be agreed upon, it is that 2022 has been a year of many lessons. Natural disasters brought upon by climate change set the tone for what will become the new normal and emphasised the push for sustainable practices in all aspects of life and economies.


For the Green Finance sector, 2022 brought a significant increase in the amount of sustainable financing, as investors and financial institutions became more aware of the importance of addressing climate change and supporting sustainable development. Despite a rocky beginning in the first half of 2022 due to the influence of macro conditions, the year witnessed a sharp focus on trends like the issuance of green bonds, accelerated use of impact investing, while sustainably transforming the financial system as a whole.


Having previously explored the Green Cogs in the Corporate Machine: A Business Case for Sustainability and Unearthing The Bustle In Green Finance, we are now broadening the lens to round up the major developments that shaped the Green Finance sector, especially through FinTech, in 2022.


Hungry for more? We've got you covered 😉 Download the detailed Green Finance 2022 roundup report that covers use case-based trends, activity-wise trends and much more!

In a bid to meet the worldwide net-zero target, significant movement was observed in five key areas:


Carbon Management

Carbon management – in the form of carbon footprint management, decarbonisation, and carbon credits technology – is becoming increasingly important from a risk management perspective, as investors and stakeholders consider an organisation's environmental, social, and governance (ESG) performance when making decisions about where to allocate capital.


Financial institutions have embarked on the journey to demonstrate their commitment to long-term value creation and responsible corporate citizenship by implementing carbon tracking in their offerings, reducing emission-contributing activities, and decarbonising their projects or funding startups that develop carbon reduction solutions. They are also building infrastructure to facilitate the trade of voluntary carbon credits in a reliable and secure manner.


While carbon footprint management solutions were found to be more consumer-facing, decarbonisation and carbon credits technologies are increasingly being developed and applied to commercial applications to reduce the carbon footprints of businesses and organisations.


Green Financing

Several financial institutions took to providing capital for projects that have a positive environmental impact, while also generating financial returns for investors. Many have also recognised the business opportunity presented by the growing market for sustainable products and services, and have developed green financing products and initiatives to meet this demand – taking various forms of loans, bonds, equity investments, and guarantees – especially on the B2B front. Currently, green financing efforts are focused on helping governments create a supportive environment for green financing, encouraging partnerships between the public and private sectors, and providing training and resources to community enterprises to help them access microcredit for green projects.


ESG Reporting, Data & Analytics

As market participants seek greater focus on sustainability, there is a rising demand for robust internal controls and efficient processes to accurately collect and report data for ESG disclosures. With sustainability no longer being a tick-the-box exercise, organisations are developing various tools and platforms to help institutional clients make more informed sustainability decisions and manage their energy consumption, while also reaping the benefits of profitability and competitive advantage.


Sustainable Initiatives

According to the Global Sustainability Study 2021, 85% of consumers reported that they have made an effort to purchase more sustainable products in the past five years. This trend has not gone unnoticed by the industry, where companies have begun taking actionable efforts to combat climate change and improve consumer trust.


One such initiative is the launch of eco-friendly cards by banks, introduced to not only make donations to support sustainability efforts, but also have features that directly reduce carbon emissions or encourage environmentally-friendly behaviours through rewards.


Sustainable change is also brewing in web3, where recent advancements in blockchain technology have focused on increasing energy efficiency, open-source programs to facilitate access to carbon trading markets and storing data on product histories to enable consumers to make more informed and environmentally-conscious purchasing decisions.


Regulatory Guidance

Green finance regulation has become a global priority, with regulatory efforts focusing on areas such as taxonomies, ESG and climate risk management, product requirements, and green bond frameworks – with the aim to increase transparency in the market and reduce the risk of greenwashing.


Regulators in various regions are using frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) to mandate climate disclosures by financial market participants, while central banks are implementing stress tests and climate scenario analysis to assess banks' climate change risk exposure. Some central banks are also considering incorporating climate-related risks into their reserve management frameworks.

 

The Green Finance happenings in 2022 highlighted the need for a fair, equitable, and balanced transition towards a carbon-neutral economy. While previously, environmental preservation was a secondary concern for most, in today's world, building an eco-friendly economy is becoming first priority.


More and more governments, institutional investors, and corporations are acknowledging the threat that climate change poses to the economy and to the inhabitants of Earth. And as world economies learn how to grow sustainably and mitigate environmental risks, green finance will continue to have a big role to play.

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