The ESG FinTech Sector: Is it Expanding Rapidly Enough?
The environmental, social, and governance (ESG) FinTech sector is gaining attention, but is it growing rapidly enough? Market value isn’t the sole measure of the sector’s importance, but it provides insight into its prioritization, as highlighted in Fintech Global News. According to Opimas, the market for ESG data is projected to reach $2.1 billion in 2024, up from $1.9 billion in 2023. ESG data is essential for assessing a firm’s impact, investment insights, and supporting ESG reports.
Lindsay Schreiber, Head of Data at IntellectAI, highlighted the sector’s growth: «The FinTech sector is thriving, with ESG FinTech emerging as a particularly promising niche. Post-COVID, the focus on ESG has surged, spurring a variety of players in the industry. Financial institutes, corporations, and consulting firms are backing ESG tech startups and developing their own applications and platforms.»
Despite this, the sector’s progress is crucial for sustainability and equality in business. Although funding for most FinTech areas declined in 2023, ESG FinTech remained stable at $28.8 billion, according to KPMG’s Pulse of Fintech 2023 report. Schreiber noted the promising trends but questioned the pace of growth: «Growth projections are for the future, yet the need for solutions is immediate. Even rapid growth may seem insufficient given the enormity of the climate crisis.»
ESG FinTech is projected to attract $123.7 billion in investment by 2026. Schreiber emphasized, «The time for action is now to mobilize funds and technology to address global sustainability challenges.»
ESG FinTech provides powerful tools like carbon footprint tracking, centralized ESG data management systems, sustainable investment platforms, and green lending platforms. These services help companies support the evolving market and new customer expectations while staying compliant with regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD).
Financial institutions can play a critical role in combating climate change by integrating climate considerations into their investment decisions. Schreiber added, «A robust, climate-focused FinTech sector can serve as the financial engine propelling us toward a more sustainable future. The time for action is now, and financial institutions must ramp up their investment in ESG FinTech to meet the immense challenge of our changing climate.»
As ESG issues continue to attract focus, the ESG FinTech sector is likely to grow. A KPMG report found that insufficient and inaccurate data was the most common challenge firms faced with their ESG processes. To overcome this, banks are adopting flexible target operating models for ESG data, collaborating with ESG FinTech data providers, and building internal data analysis capabilities.
Schreiber pointed out the challenges: regulatory and policy cohesion, standardization of ESG data collection and reporting, and technological advancement. «Emerging technologies like AI and blockchain can create more sophisticated ESG FinTech solutions. Collaboration between FinTech startups, financial institutions, and environmental organizations can lead to more effective solutions and broader market reach.»