Navigating Financial Services ClimaTech: The Leader's Cheat Sheet

Financial institutions have a key role to play in the fight against climate change, and leaders need to remain informed. As sustainable and ESG initiatives move to the forefront of business planning and strategy, firms will need to consider the challenges of creating credible decarbonisation plans, increased financing of green solutions, and reducing the carbon output of the financial industry itself.

For financial organisations to achieve these goals, they will need new approaches, values, and, crucially, technology, particularly ClimaTech.

ClimaTech is one of the fastest-growing areas of investment in the world, accelerated by the events of the global pandemic.

Over the last six years, venture capital fundraising for ClimaTech increased nearly 3x and venture capital investment increased more than 5x, reaching $56 billion in the US.

The Scope Of ClimaTech

The applications of ClimaTech are widespread and cover a variety of disciplines.

Use cases range from improving the sustainability of communications to heightening customer engagement.

To meet their sustainability goals, financial institutions will need to leverage a range of solutions to manage their responsibilities and reduce their emissions in a holistic, sustainable way.

While the ClimaTech market is young and dynamic, leaders in the financial sector can’t afford to fall behind this new wave of technology.

In this guide, we explore ClimaTech's progress so far, advantages for businesses, and key use cases for businesses and customers.

What Is ClimaTech?

ClimaTech is defined as technologies that are explicitly focused on addressing the impacts of global warming. Its applications can be grouped into three broad sector-agnostic groups, those that:

• Directly mitigate or remove emissions
• Help us to adapt to the impacts of climate change
• Enhance our understanding of the climate

The sector is highly diverse, covering a range of industries and applications, including:

• Mobility and transport
• Energy
• Food, agriculture, and land use
• Industry, manufacturing, and resource use
• Built environment
• Financial services
• GHG capture, removal, and storage
• Climate change management and reporting

Given the wide scope for transformation and innovation, investment in ClimaTech has been rapidly expanding over recent years.

$87.5bn has been invested in ClimaTech – a 210% growth in investment year-on-year since 2013.

More notable still is the heavy investment of the finance industry itself in ClimaTech solutions, where financial incumbents have snapped up new technologies to increase the relevance and environmental insight of their services.

How Does ClimaTech Affect Financial Services?

Financial services is a key partner for ClimaTech, as part of a broader focus on ESG responsibilities and the greening of investment, operations, and processes.

Facing pressure from investors and customers and the potential introduction of emissions mandatory regulation, to date, around 50% of major financial services providers have set net zero targets for 2050.

Goals within financial services organisations include:

• Facilitating the shift of investment towards renewable energy and away from oil & gas
• Tracking emissions and changing behaviour at the business/consumer level
• Financing of new infrastructure for energy and transport
• Management and mitigation of climate risk

Key areas for climate investment within finance include:

• Carbon accounting & offsetting
• Impact investing & financing
• ESG reporting
• Climate risk management
• Sustainable banking
• Carbon credits trading

However, one of the biggest challenges is also the operational impact of legacy models of operation within the industry, particularly regarding paper.

Despite widespread digitisation, paper use endures, with 72% of customers still receiving printed documents even if they use a banking app or online banking service as well.

Advantages of Sustainable Financial Services

In addition to the ethical and social incentives to implement ClimaTech-based solutions in their workflows and businesses, there are a number of advantages for financial institutions to adopt new technology:

• Customer alignment with sustainability and environmental concerns
• Efficiency and speed from increased digitisation
• Improved investment outlook based on margins and customer service
• Reduced regulator scrutiny on processes
• Improved competitive positioning in a rapidly changing market

Use Cases For ClimaTech In Financial Services

Paperless Services

In many institutions, investment in new digital capabilities to improve service and engagement with customers has been carried out in parallel with under-investment in traditional analogue communication channels.

Relying on paper communications is not only a poor choice for sustainability, it’s inefficient, insecure, and slow. This often creates a digital divide among services offered, increasing inefficiencies and affecting the ability to optimise customer journeys and other trade flows.

Secure Communications

Stakeholders can send sensitive documents and forms to customers over an encrypted channel, directly to their inbox.

Moving from inefficient paper-based systems to secure, centralised, paperless digital communications is essential.

Mailock is a tailor-made secure email solution for financial services businesses, allowing providers, advisers, and customers to communicate securely using a single system.

Carbon Measurement And Visibility

Financial services businesses working with large portfolios of investments and assets can struggle to track their environmental impact at scale.

Without visibility over the output of assets held, institutions are unable to act proactively in managing their responsibilities and are unable to effectively guide their ESG policies or those of their portfolio businesses.

A recent example is Doconomy – climate technology that helps banks, brands, and consumers to measure, understand, and reduce environmental impact.

Now used in 30 countries by banks looking to track the environmental impact of what they buy, promoting more sustainable choices, including BNP Paribas, Klarna, Nordea, and Standard Chartered.

Climate Risk Modelling & Reporting

ClimaTech involves expanding the traditional model of risk that banks and other financial institutions have relied on for decades.

Whereas before, institutions have based risk assessments on what has happened in the past, classifying and appraising climate threats is a fundamentally different exercise requiring a vision of what could happen in the future based on as-yet unseen scenarios.

Firms that can develop advanced climate risk modelling capabilities may be better prepared, more resilient, and ready to manage climate risk, as well as creating products that account for similar hazards.

Recent years have seen agencies such as Moody's and S&P Global, along with other financial firms, acquiring companies that model climate risks.

Products are also being developed within the industry such as Blackrock’s Aladdin software, introduced in late 2020.

Leveraging The Technology Of The Future

Financial services are at the vanguard of building the green future the planet needs.

In order to maximise impact, leaders must think holistically about changing processes to maximise sustainability while also creating the necessary culture shift that can incentivise teams and managers within the organisation.

This starts at home – in the way teams operate, communicate, and interface with customers.

Green Communications For A Better World

Mailock is a secure email solution designed specifically for the financial services industry that integrates easily with existing systems and processes.

By removing the need for paper documentation, Mailock enables institutions to put sustainability at the heart of their processes, demonstrating to customers a commitment to a better future.

In a click, you can exchange files quickly and securely with advisers, clients, and customers, minimising the need for paper and protecting against interception and fraud.

References:

Cost Savings of Going Paperless in UK Financial Services, NS Business Hub, 2022

Doconomy, Global Standard Carbon Calculator, 2024

Aladdin Climate, Blackrock, 2022

State of ClimaTech 2023, PWC, 2023

Reviewed By:

Sabrina McClune, 27.06.24

Sam Kendall, 05.06.24