Three fintech innovations for fighting climate change

At last week’s COP27 summit, world leaders congregated to address the bad news: that, under present frameworks, the world is headed toward catastrophic levels of global warming that pose an existential threat to human existence. 

While they may have noble intentions, many financial solutions—from carbon offsets to green investments—are not enough alone, and need both complementary and supplementary political support to help effectively decarbonize the planet. In anticipation of that political assistance, three fintech products are establishing their place in the market, and demonstrating the potential for products that solve for wealth and ecology. 

1. Sustainable investment portfolios

Through the proliferation of wealth-management platforms like Betterment and Wealthfront, climate-conscious investment portfolios have seen a surge in interest. While many of these portfolios are a bundle of standard low-carbon ETFs, their distribution and definitions diverge. Betterment, for example, follows a proprietary “socially responsible investing” (SRI) framework to inform its work, as does Wealthfront. 

But SRI-based ETFs are an imperfect solution. For one, many of the companies that meet these frameworks aren’t explicitly “green” companies—the likes of Amazon, Meta, and Microsoft—meaning investing in sustainability isn’t the same as sustainable investment. And, as Adrienne Buller further explains in her book The Value of a Whale, fund managers, rather than ETF holders, retain voting rights, meaning conglomerates like Vanguard and BlackRock often hold a plurality of seats across major corporations, diluting the power of activist investors who seek to balance profit with ecology. 

2. Proof of stake

According to researchers at the University of Cambridge, Bitcoin miners have emitted almost 200 million tons of CO2 since Bitcoin’s launch. The White House says domestic crypto activity accounts for .4% to .8% of all emissions in the US—about the same as all diesel fuel used to power the country’s railroads. 

Core to these emissions are proof-of-work models, which are an energy-inefficient process of mining and managing cryptocurrencies. Major cryptocurrencies, namely Ethereum, have switched to proof-of-stake models, which reduce energy consumption by more than 99%. Nicknamed The Merge, Ethereum’s migration to proof-of-stake demonstrated crypto’s capacity to cut energy costs and contribute to decarbonizing goals. 

3. Risk mapping

Some financial tools require highlighting the stakes involved in climate change. Risk models and mapping help demonstrate the potential costs involved in ecological destruction—flooding shorelines, mass migration, and other costly consequences. In an interview with The Financial Revolutionist, Infima CEO Hendrik Bartel said climate modeling can help mortgage providers determine the cost and creditworthiness of certain geographies. Doing so can help lenders, residents, and policymakers alike acknowledge and prepare for potential ecological futures, and help catalyze best-case decarbonization scenarios.