#GreenFinance the new Banking Protagonists

Updated: Jun 8

Climate change is no longer a hypothetical threat, it is a reality that is manifesting itself today, before our eyes. Heat waves, floods, wildfires… The occurrence of natural disasters is increasing and the effects of global warming are ricocheting around the world.

The Intergovernmental Panel on Climate Change (IPCC) has been scrupulously analysing and synthesising data collected throughout the years by scientists. This UN organisation, responsible for assessing the state of knowledge on the evolution of climate changes, its causes and its impacts, is currently working on its sixth assessment report.

The latest report provides an alarming summary of the increasingly devastating impacts of climate change on societies and economies, their vulnerabilities and how we may adapt to inevitable climate change. With each new IPCC report, scientific evidence of rapidly advancing climate change and its dire consequences for life on Earth is mounting.

At the same time, Russia’s invasion of Ukraine has led to a rude awakening as to the consequences of Europe’s energy dependence on fossil fuel exports. In this context, accelerating Europe’s socio-economic transition to climate neutrality is not just about preserving a habitable planet in the future, but a pragmatic policy choice in the short term.

Investing in a better future

This transition to a climate neutral future requires enormous financial resources. The European Commission estimates that climate change mitigation and adaptation investment needs to be to the tune of €520bn a year. A large part of these resources is to be channeled through financial markets, which will need to be cleaned up and aligned with a ‘net zero’ future in the process. Greening banks is a core tenet of the EU's climate neutrality strategy.

Financing adaptation is a huge challenge and will require cross-government support with the development of new business cases for drawing in private sector flows. Meanwhile, COP26 (UN Climate Change Conference) last year highlighted the failure to deliver $100bn climate finance for both mitigation and adaptation by 2020, as promised in the 2009 Copenhagen Accord. Clearly, the gap is significant and widening with every passing year, and governments are unable to meet this gap nor the modest targets agreed upon over a decade ago.

Meanwhile, losses from climate-related impacts continue to mount – Munich Re estimates that 2021 losses were second highest in history – and these financial impacts are a clear risk to societies, businesses and the economy.

Traditional bank’s place in Climate change

Commercial banks have a critical role in financing the transition to a low carbon, sustainable and equitable future. Through their lending, investment, and other financial services, commercial banks play an indispensable role in mobilising and allocating financial resources for the private sector. As such, they are in a unique position to either help further entrench patterns of energy production and intensive energy use that are based on the burning of fossil fuels, or to catalyze the necessary transition to an economy that minimizes GHG pollution and relies on energy efficiency and low/no carbon energy sources. This influential position comes with a special responsibility for banks to play a leadership role in addressing the challenges of climate change.

As an article from Bloomberg explains, there is a need from banks to present results, however this comes with the difficulty of interpreting the figures proposed.

"For the first time, many banks are publishing relevant data this year on criteria such as lending to fossil fuel industries, as Europe’s central banks scrutinise their loan books and threaten higher capital requirements for those with excessive climate risks. [...] While they’re giving hard numbers on the money loaned to companies that will be challenged as the world tries to reduce CO2 output and avoid climate disaster, the disclosures provide a limited view into only a portion of their business. [...] As a result, investors, regulators and the public would face difficulty in determining which lenders face the highest risks and are taking the most determined action."

To some degree, banks may place climate change within the logic of the “business case” for sustainability. After all, there are substantial opportunities to profit from investments in renewable energy, energy efficiency and the adaptation to a changing climate. Most banks will also add the business opportunities provided by carbon trading to this list. Focusing on climate change is thus presented as a winning business strategy.

A large number of conventional banks pledged to back the Paris climate accord and cut their funding for fossil fuels, yet despite this, in 2021 global banks provided $750bn in financing to coal, oil and gas companies.

US banks continue to be the largest financiers of fossil fuel companies. JPMorgan Chase remained the leading player, Citigroup, Wells Fargo and Bank of America followed in second, third and fourth place respectively.

Climate change is increasingly being examined by regulators globally, including the US Federal Reserve, the Bank of England and the European Central Bank, which conclude it to be a material threat to the stability of the global financial system. Together with emerging campaigns from pressure groups — backed by institutional investors supporting environmental, social and corporate governance, or ESG — such organisations are now accelerating change in the industry after years of resistance.

Green Neobanking

Green Neo-banks are nothing new. Some have existed for several years already, such as Aspiration, launched in 2013 in the United States, which has already raised a total of $824m and reached a $2.3 billion valuation.

A green Neo-bank is characterised by a desire to operate with a reduced carbon footprint and to mobilise its resources in favour of ecological actions.

A common feature of green banks is that they only invest assets (your savings) in "green" projects, whereas a large number of conventional banks still continue to finance fossil fuels as discussed above, causing polluting investment to double since 2016.

Most of the digital banks, owing to their branchless and paperless business models, may be considered relatively greener than their traditional counterparts. In addition to this, with many of the green banks, you no longer have to sacrifice getting a high APY on your savings or even perks like cash back rewards.

Aside from being fossil-free, most green Neo-banks also boast certifications like B Corp or Community Development Financial Institution (CDFI), or are members of the Global Alliance for Banking on Values (GABV).

Green banks are often carbon-neutral in their operations and offer loans that fund renewables, home energy efficiency improvements, or electric car purchases. Oftentimes, the physical debit card you receive is made from recycled plastic or more sustainable plastic alternatives.

However, there is a flip side. Their technology-powered business runs on millions of servers with considerable impact on the climate. In recent years, many Neo-banks have stated their objectives to achieve net-zero carbon emissions by planting trees, using renewable energy sources or preventing deforestation.

In 2020, Nubank and Oaknorth Bank claimed to have achieved net-zero carbon emissions targets. What’s more, these Neo-banks have also launched initiatives to enable their customers to pursue a climate-conscious lifestyle with various initiatives.

Green neobanks are blooming in France

The French banking scene, which has expanded to numerous online banks and Neo-banks over the past ten years, welcomes new “green” protagonists this year. Their goal, to finance ecological projects while offering customers the same tools as leading digital banking players, such as Revolut or N26. After multiple delays, one of them was celebrating its exit from the “maze” of banking regulations.

Helios, born in Paris, has just completed a very respectable seed round one year after its launch, earning itself 9 million euros. The fresh funding was led by Racine with the participation of Raise Seed for Good funds, tiers one business angels such as Hugues Le Bret, the founder of Nickel, and the C-suite of several startups such as Malt, Swile, Meero, or Blissim (formerly Birchbox).

On a mission to limit global warming, Helios was co-created in 2020 by Maeva Courtois and Julia Ménayas as a new sustainable and ecological banking solution, allowing environmental investments. At Helios, not a single euro funds polluting industries such as oil or coal. On the contrary, the ethical player only supports environmentally-friendly investment projects from the very first euro. Unlike conventional banks, Helios ensures complete transparency regarding the destination of the financing.

At around the same time, Green-Got celebrated the opening of its first accounts with recycled plastic or wooden cards. Currently, there are 25,000 prospective customers on the waiting list. At Helios, which enjoyed an earlier opening to Green-Got, 7,500 customers are already using its services. They will be 100,000 within a year and a half, according to the bank’s outlook.

Both green banks have the same objective and the same angle of attack. For Helios and Green-Got, savings should no longer be tainted with such a high carbon footprint. The two Neo-banks seek to denounce traditional banks in their practice and to inform customers of the usefulness of their money, educating users of their money’s potential when not dormant in their account.

Helios and Green-Got want to change the banking industry with a 100% online model whose offer is taken from that of well known Revolut or N26. Not everything is designed in-house : institutions follow the same methods as other Neo-banks, relying on partners to be able to launch their offer more quickly and at lower costs.

The complexity of banking regulations means that even with partner support, building a bank from scratch is a huge job. Green-Got has delayed its plans two years from its original targets which called for a late 2020 launch.

Helios’s banking architecture, for example, is managed by Solarisbank. Similarly, to offer savings in life insurance, Green-Got also called on a traditional player, the Suravenir subsidiary of Crédit Mutuel Arkea. Not all of them are fully-fledged banks yet, and this is also a weak point for green Neo-banks.

So far in 2022, the seedlings of new green Neo-banks are steadily appearing, but will have to compete with those that are already sprouting. OnlyOne, since April 8, 2021 with nearly 6,000 pre-registrants, this start-up allows its users to open a ‘positive impact’ payment account. The account allows them to participate, from the moment of subscription, in useful and sustainable projects and to be accompanied in their understanding and estimation of their carbon footprint.

Users will have access to a selection of financial and lifestyle services that promote sustainability and solidarity directly through their application. Offering to open an account in just 5 minutes, in the short term, OnlyOne hopes to attract nearly 20,000 customers.

The Dutch account “Easy Green” from Bunq has been around for several years. That said, their pricing plan shows that the model will not be suitable for everyone, particularly at a time when establishments such as Boursorama's online bank offer very complete and completely free accounts.

Helios, OnlyOne and Green-Got matched prices. Count 6 euros per month to open a classic current account (or 3 euros with OnlyOne and Helios if you are under 24). According to Helios, the moment it hits 20,000 customers, the Neo-bank will be able to achieve profitability.

On the investment and life insurance side, FinTechs such as Goodvest have also gained strong popularity, taking advantage of individuals’ increased interest in an alternative to traditional savings accounts that don’t generate significant passive income. Helios is fine-tuning its research to offer investments. However once again, the regulatory requirements are significant and the Neo-bank announced it was abandoning its ESG life insurance project to instead focus on the development of an unpaid savings account.

What it means for FinTechs

The emergence of online banking in particular has brought an increasing number of banking options to consumers and companies around the world that are targeted against fossil fuels. Finding a bank or credit union that supports your environmental values has never been easier.

New digital propositions are offering innovative services that allow customers to conveniently align all of their money with climate action and environmental values while earning better returns than big banks and conventional banking options.

Allowing you to both have your cake and eat it too, several Neo-banks offer online savings accounts with nationally leading rates, cash-back including hundreds of sustainable businesses and award-winning customer technologies, all while funding exclusively climate-positive infrastructure.

Not only does your personal banking not have to harm the planet by supporting things like fossil fuels and other environmentally harmful industries, it can help regenerate a healthy and balanced earth by reinvesting in things like healthy soils, renewable energy and equitable access to financial services.

The FinTech industry is ideally placed to use its prominent standing on the global stage and positively influence these crucial issues we face. It can set a ‘green’ example for others to follow, ensuring businesses adopt sustainable practices and leading the way towards a lower-carbon future for industries across the board.

Millenials are increasingly driving the demand for greener products while simultaneously seeking greater transparency in how companies integrate Environmental, Social and corporate Governance (ESG) with their products, services and policies. FinTech startups are now responding to this greater demand for knowledge and transparency by providing information and greater overview of investment supply chains.

The positive case for taking a stand on sustainability is clear. It’s what is needed if we are to head off total climate catastrophe. This movement also holds significant benefits for individual businesses in terms of their reputation and place in the community. Sustainability is also an issue close to people’s hearts, and staff can rally around such a cause. This increases morale and creates an inclusive working environment that promotes well-being and productivity.

Apart from the key benefit of creating a more sustainable operating environment for businesses within the industry, FinTech’s considerable influence could also affect far-reaching change in other industries. It is in the perfect position to lead on financial and environmental sustainability. Introducing new ‘green’ financial products and creative payment systems not only helps other businesses on a practical level, but also sets the high environmental and financial sustainability standards that we need, and that others will follow.

To learn more about N26 and its journey, get the report or subscribe to get access to our full list of FinTech deep-dives.

Any information that lacks a hyperlinked source has been taken directly from the report, in which each source is cited. For any queries about our sources, please contact us here.

Corporates: For unlimited access or bespoke research projects, please contact us!