Fintech: Leading the fight against greenwashing with data and transparency

In an era of heightened consciousness, consumers, investors, and regulatory bodies are scrutinising companies’ environmental, social, and governance (ESG) practices more than ever. According to one?Edelman?report, almost three out of four institutional investors do not trust companies to achieve their ESG commitments.

This scepticism has been driven by the prevalence of greenwashing – the misleading marketing of purportedly eco-friendly credentials. In a 2021 study, the European Commission (and other national authorities) ran a?cross-sector examination?of websites and found that in 42% of cases, green claims were exaggerated, false, or deceptive.

But all is not lost in the battle for truth and transparency.

Fintech has emerged as a powerful ally in the fight against greenwashing. By leveraging data analytics, open platforms, and stakeholder engagement, fintech empowers informed decision-making, fosters transparency, and promotes genuine ESG initiatives.

Open platforms: A gateway to transparency

A prime example of the transformative impact of fintech in promoting transparency is the emergence of open data platforms and their ability to provide an overview of an organisation’s ESG performance.?Cogo, for instance, provides a solution that allows consumers to track companies’ carbon emissions, water usage, and deforestation efforts. This access to crucial ESG information empowers stakeholders to access data-driven insights that can be shared with the world.

Other fintech companies, such as?Sustainalytics?and?MSCI ESG Research, are also enabling more informed decision-making. Sustainalytics provides ESG research, ratings, and analysis, helping investors and businesses identify, manage, and mitigate ESG risks and opportunities. MSCI ESG Research offers ESG data, research, and analytics. Investors widely use both to track the ESG performance of their portfolios.

Fintech companies are collectively paving the way for a more sustainable and accountable corporate landscape. By democratising access to ESG data and promoting transparent reporting practices, businesses are held responsible for their environmental and social impacts, fostering a more ethical business environment.

Data analytics: Unveiling the truth behind ESG claims

Fintech’s ability to collect, analyse, and interpret vast amounts of data is critical for combating greenwashing. Companies like?Flowcarbon?and?Greenly?help businesses become accountable for their ESG claims allowing them to track their carbon emissions and other environmental footprints with unprecedented precision. By turning nebulous ESG claims into quantifiable metrics, fintech companies are empowering stakeholders to make decisions based on tangible evidence. This approach separates genuine sustainability efforts from mere greenwashing rhetoric.

Flowcarbon leverages technology to increase accuracy and transparency at every stage of the carbon lifecycle – using blockchain to make carbon markets more accessible. They seek to tokenise the voluntary carbon market to aid in price discovery, transparency, and access.

Meanwhile, Greenly employs data analytics and machine learning to assist businesses in measuring and managing their environmental impact. Their platform helps firms measure, monitor, reduce and offset their carbon footprint based on international carbon accounting standards while engaging their ecosystem, from employees to suppliers, on their climate journey.

API integration: A seamless path to ESG adoption

Application programming interfaces (APIs) developed by fintech companies are streamlining the integration of ESG data and analytics into existing business processes. These APIs allow companies to seamlessly incorporate sustainability considerations into their decision-making, from sourcing materials to managing supply chains.

API integration simplifies ESG adoption and facilitates real-time monitoring and optimisation, enabling companies to improve their sustainability performance continuously.

This real-time visibility into ESG data empowers businesses to identify areas for improvement and make proactive adjustments to their operations, ensuring that sustainability remains an integral part of their overall business strategy.

Digital transformation: Embracing a sustainable future

Digital technologies, spearheaded by fintech, offer a more sustainable alternative to traditional methods of financial transactions and communication. By reducing the use of physical materials, fintech contributes to minimizing environmental impact. For instance, mobile payment solutions like Apple Pay and Google Pay eliminate the need for physical cash and cards, reducing paper and plastic waste historically associated with transactions.

Digital platforms also expand financial inclusion by reaching underserved communities and providing access to financial services. This democratization of knowledge empowers individuals to make informed choices that align with their values and contribute to a more sustainable future. A notable example is microfinance institutions leveraging digital platforms to provide loans and financial literacy training to individuals in low-income communities, fostering economic empowerment and sustainable development.

Fintech has a crucial role to play in encouraging more informed decision-making with greater transparency, which is a critical element in improving the legitimacy of long-term ESG initiatives. As the world transitions towards a more sustainable future over the coming decades, fintech ‘s role in upholding corporate accountability and driving honest sustainability practices will only become more significant.

Arshad Khan Phil Fogel Georgia Hanias Ahson Saeed Najat Ferchachi