WealthTech Opportunities
To address some of the most challenging Environmental, Social, and Governance (ESG) issues, a thriving FinTech ecosystem is growing. But do businesses turn words into action in terms of social impact? Does Governance play an underestimated role in this? And what are the latest developments when it comes to financial advice?
Catch up with the latest news and stories:
Many banks and FinTechs are positioning their products and services as tools for doing good. But besides impact the often-discussed environmental impact (e.g., climate action and sustainability), there is also social impact to be considered.?
The authors of a study on social impact describe their main concern: "In the last year alone, equity funding raised by fintech companies around the world nearly doubled […] Yet while the industry has increasingly become synonymous with impact potential, fintech companies and investors have little insight into whether the industry is actually living up to its grand promises. Without more rigorous approaches to identifying and measuring impact, investors will continue to guess at the impact these companies have while fintech leaders pitch their products as saviors for society without necessarily delivering on that pitch."
What can be done, and which role can FinTechs play in this regard?
"The good news is that there are clear ways in which fintech companies and investors can begin to advance impact measurement and management, and these strategies can be applied beyond the fintech industry to any firm seeking to identify and strengthen its impact." An action plan lays out five steps for social impact measurement:
1.??????Parse specific impact goals that are aligned with revenue models.
2.??????Experiment with approaches to quantifying social impact of products.
3.??????Champion standards for financial inclusion and health.
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4.??????Embrace interim metrics on the path to outcomes.
5.??????Establish flexible systems.
The article by investment analyst Nicolo Bragazza highlights the importance of "Governance" in ESG (Environmental, Social and Governance), one of the hottest topics in wealth management and banking. He argues: "As interest in ESG has increased in the past few years, attention has been mainly directed towards the environmental -‘E’ – aspect of the acronym. The environment is definitely a topic of concern for many people and investors but it seems that too often ESG has been reduced from a three-dimensional concept to a single dimension, which, even if significant, misses the importance of the other two factors. […] if you believe that good decisions on environmental and social issues are important for companies, look for good governance first!"
The author lists reasons for the status quo: "there are some practical reasons: […] environmental risk can be measured and defined more easily, for example, through the amount of CO2 produced and other metrics related to pollution and waste. The definition of good corporate governance, however, cannot rely only on quantitative factors and usually the assessment should leverage a high degree of subjective judgement".
In its 2022 "How America Saves" report, investment advisor Vanguard provides a substantial basis to discuss behavioural patterns in retirement planning. ThinkAdvisor examined the data and put it into the context of other studies: "Default retirement plan features such as auto-enrollment and target date funds have proved their merit". However, "a more active engagement with the plan than the defaults provide […] increased with age, account balance, annual contribution level and changes in marital status." One more factor leading to more engagement with the plan was the availability of online tools: "We find strong, I would even argue causal, evidence that participants with web access to their accounts are much more likely to seek advice."