The IPCC climate change report: How is the fintech community responding?

The IPCC climate change report: How is the fintech community responding?

A ‘code red for humanity’ has been declared, in the form of the first major review of climate change since 2013, and the sixth report from the UN’s Intergovernmental Panel on Climate Change (IPCC) – published on Monday. In response, the fintech community has called for further collaboration, and widespread investment in natural capital and clean technology, in order to meet the climate targets set out by the Paris Agreement.

A body of the world’s leading climate experts – created in 1988 and mandated to produce reports on the ongoing climate crisis – the IPCC, published this report which revealed that the Earth’s climate is beginning to change in irreversible ways, and attributed a global warming of 1.1.C since 1850 to human influence.

Global warming, however, is just one of the climate challenges facing humanity in the next ten years if the current course is not altered. According to the report, freak weather phenomena, such as wildfires – as we have seen across Greece, Turkey, and western North America – and severe floods will become increasingly common, unless drastic and immediate action is taken to stem greenhouse gas emissions.

IPCC report key findings:

  • Human influence is “very likely” (90%) the main driver of the global retreat of glaciers since the 1990s
  • CO2 levels are the highest they have been in two million years
  • The past five years have been the hottest on record since 1850
  • The recent rate of sea level rise has nearly tripled compared with 1901-1971
  • It is “virtually certain” that hot extremes including heatwaves have become more frequent and more intense since the 1950s
  • The Arctic is likely to be “practically sea ice free” in September at least once before 2050

It is crucial that when reviewing the findings of this report, argued Manuel Piñuela, CEO of Cultivo, in a Finextra interview, we remember global warming is just one part of a triple planetary crises – including biodiversity loss and land degradation. This ‘triple crisis’ will shape our planet in the years to come, and “should serve as an urgent wake up call to leaders in public office, businesses and financial institutions to realise and address the issue,” he said.

The fintech response

The work of fintech firms such as Cultivo – which exists to drive investment in natural capital – form part of the necessary response from the finance industry to restore nature at scale, and support the development of clean technology. “Everyone has a role to play in the decarbonisation of the global economy – and the part for the financial technology sector is bigger than most,” argued Michael Kent, chairman and co-founder of Azimo. However, “pricing the risk and financing the investment for the green revolution will run to trillions of dollars for consumers, businesses and governments all over the world.”

The pivotal role of fintechs in helping to raise this level of capital is no longer in doubt. “Fintech was born to change financial services for the better,” claimed Alex Reddish, managing director at Tribe Payments. “Much of fintech’s success to date is because of this shared mission to make financial services more inclusive, more transparent, and more ethical. Now, as an industry, we need to apply the same principles to fighting climate change,” he said.

While many fintech firms are already making individual efforts to become more carbon neutral, a climate crisis on this scale must be fought on a united front. Indeed, as fintech has already proved, there’s strength in a shared purpose: “With all the resources we have across the industry, there’s so much more we can do,” said Reddish.

Michael Ourabah, CEO of BSO, agreed: “To fight climate change we need a united effort, and fintechs can play an important role in this. As we get our own house in order, it’s imperative we don’t just stop there – fintech can support other sectors to become carbon negative also.”

ESG-focussed investment on the rise

Meanwhile, on the investor side, environmental concerns are having an impact:

“Forward-thinking VCs are actively seeking out fintech innovations that are good for society and not just their business value, mirroring a rise in environmental, social, and governance (ESG) focused investing,” noted Shawn Tan, CEO of AI Ecosystem Builder and venture capital firm, Skymind.

Indeed, in 2021, 38% of financial professionals were using or recommending ESG funds, with nearly a third of financial professionals planning to expand their use or recommendation of ESG funds over the coming year, stated Tan. “This symbolises a paradigm shift into a more socially responsible form of capitalism, where there is an emphasis on serving ‘stakeholders’ like customers, employees and communities as opposed to only shareholders,” he said.

Yet, beyond genuine environmental concern, ESG investing can also be seen as a risk-management strategy: “There is more long-term viability for companies that are run sustainably, from both consumer and regulatory standpoints,” added Tan. “In an increasingly globalised world with large-scale challenges never faced before, we firmly believe that venture building with ESG credentials will become the gold standard for investing in the future. We are excited to be taking this approach ourselves, and we hope that it won’t be long before others follow our lead.”

Fortunately, Umer Suleman, UK general manager of ethical investment platform, Wahed Invest, is observing a rise in the number of people looking at ethical ways to invest – demanding a principled approach from companies: “The whole world is increasingly feeling the effects of climate change and more and more people are trying to play their part in stemming the crisis by putting their money where their values are – by becoming a more conscious consumer,” said Suleman. “We believe a lot of that drive stems from the desire to invest in a socially impactful way that does not harm the environment or society at large.” Naturally, financial technology makes it accessible and easier to do so. “You can literally help change the course of history by choosing to invest ethically – with just a few clicks from your mobile phone,” he added.

Integrating the learnings: COP26

For some, by the time the next IPCC report is published, it may be too late for humans to affect any meaningful change to the climate. According to the United Nations, greenhouse gas emissions must be slashed in half by 2030, in order to stop global surface temperatures increasing at the current rate.

Just as the IPCC’s 2013 and 2014 paper laid the groundwork for the Paris Agreement in 2016, the fintech community’s hope is that this latest report will help steer the COP26 climate conference agenda in October.