Key trends in sustainable finance
By Katerina Mansour - 25 March 2021
Sustainable finance has become an issue at the forefront of the fintech sector. Efforts to tackle sustainability have led to the birth of ESG investing, socially responsible investing (SRI), impact investing and more.
Data shows that global sustainable investments amounted to $13.3 trillion in 2012, versus $30.7 trillion in 2018. Meanwhile, the European ESG fund market reached a value of €882bn in Q2 2020, accounting for 9.3% of total European assets. Furthermore, 74% of professional investors worldwide plan to increase their allocation to socially responsible investments.
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The rise in demand for sustainable finance
Millennials have had a significant influence on this growth, as younger generations are increasingly demanding for more sustainability all around, including in their investments. Surveys have shown 95% of millennials are interested in investing sustainably. On a broader scale, 70% of people believe their investment decisions can impact climate change.
Large traditional banks have faced significant backlash for directly funding polluting industries. Indeed, reports indicate that between 2015 and 2019, large banks provided $1.7 trillion in funding to 40 companies in the global plastics supply chain. Since the Paris agreement, large banks have funded fossil fuels to the tune of $3.8 trillion. With rising awareness of the banking sector’s role in climate change also comes rising demand for sustainable finance.
Sustainable investing has shown strong performance over the years. This arguably further contributes to its rising popularity worldwide. ESG investments often garner excess returns. Data has shown that in 2020, ESG investments outperformed traditional investments. In a 2018 survey, 90% of institutional investors stated they believe ESG portfolios can perform as well or better than non-ESG investments. Furthermore, 55% of impact investment opportunities have been shown to result in competitive, market-rate returns.
The rise of challenger banks
The movement towards more sustainable banking and investing has been accompanied by sharp growth in challenger banks. These digital-only banks often provide a plethora of sustainability-oriented options, aside from their obviously reduced footprint from operating digitally.
TreeCard is a startup that offers a wooden debit card that consumers can use to help reforestation efforts. Every time a consumer spends $60, Ecosia, the startup’s partner, plants a tree. The rated startup Doconomy, on the other hand, offers its customers the ability to monitor, reduce and offset the carbon impact of their transactions.
In terms of impact investing, Wealthify offers ethical investment plans to its users, which can be adapted to their risk profile. Yova, another investment banking platform, helps beginners and experts place impact investments.
The success of challenger banks is clear not only when looking at their large customer-base but also their massive fundraisers. Monzo has raised a total of £125 million just since the start of the Covid-19 pandemic.
Overall, the sustainable finance market shows no signs of slowing down. The Covid-19 pandemic has only increased its growth. Indeed, surveys indicate the pandemic has brought social and environmental issues to the forefront of many peoples’ minds. In turn, these issues have become a priority for many when making investment decisions.