Sustainable finance encompasses a broad area that involves considering the environmental, social, and governance-related impacts of relevant decisions. How can fintech companies prioritize these goals in their operations and growth strategies?
Require Reporting and Accountability From All Service Providers
It is much easier to make and sustain progress when all service providers connected to the fintech company understand which standards they must meet and can provide proof of adhering to them. The involved parties may need to agree that:
- They have met or are working toward stated emissions goals
- They treat all workers fairly and do not engage in questionable practices
- They have determined how their actions affect the planet
- They have created a company structure that supports responsible decision-making
- They have described and committed to internal sustainability actions and goals
After all, a service provider’s outcomes can affect the sustainable finance practices of the fintech company doing business with it. Besides showing transparency, all service providers must display consistency, making it easier to see improvements. That means all participants should agree on fundamental practices, including what they will report on and how often.
Fintech clients may wish to insist that service providers meet specific metrics to keep their working relationship secure. Otherwise, the companies may initially meet the outlined sustainable practices but fall short later.
Handle Data Responsibly
Cybersecurity is undoubtedly one of the defining social elements of sustainable finance practices. If criminals steal customers’ financial data, the victims could deal with identity theft and other long-lasting complications that make their lives harder.
Fintech companies must only collect, process, and store the data that is genuinely necessary to meet customers’ needs and run operations. It is also ideal if they publish public statements that explain which data they use and for what reasons. Additionally, such explanations should cover how the information is stored, including the applicable cybersecurity measures that protect it.
Those involved in the fintech organization must also know how emerging technologies may elevate their cybersecurity and data breach risks. For example, the 5G network is as much as 100 times faster than its predecessor. That speediness is excellent for supporting a fintech company’s infrastructure, but 5G broadens the attack surface, potentially making cybersecurity problems more likely.
Use Automated Features to Prove Compliance
Fintech organizations that receive grant funding must submit reports to prove compliance with standards. Some specialized platforms can create those documents automatically, saving people time by eliminating manual input.
Whether the company receives money from grants or not, it will almost certainly have to show that it follows particular regulations since the financial industry operates within tight controls. Automated features make it easier to generate the relevant reports.
Using them saves time and significantly reduces the likelihood of errors. Even conscientious people make mistakes, but some automated capabilities flag them early. This allows individuals to catch and correct themselves before the wrong reports are submitted and potentially cause audits.
Organizations can also uphold the governance arm of sustainable finance practices by instituting access control measures that dictate who can create or edit reports. It’s also ideal to divide duties among those parties. Besides upholding accountability throughout the organization, this approach minimizes instances where one or two people have too much control over essential content.
Practice Cost Management When Pursuing Growth
What does responsible growth look like for fintech companies showing sustainable finance practices? A 2023 study contained perspectives from more than 100 leaders, highlighting some fascinating insights.
One finding was that 50% of public fintech companies achieved profitability in 2022 following their initial public offerings. Additionally, cost management was a key differentiating factor between the profitable and unprofitable entities.
Both groups achieved 13% year-over-year growth, but the profitable fintechs also recorded a median of 3% cost reductions. In contrast, costs at unprofitable fintech companies rose by 27%, cutting into their profit margins.
Whether the expenses relate to a new cloud computing provider or traditional office supplies, be as responsible as possible regarding finding the best option for the most reasonable price. That doesn’t mean cutting corners and finding the cheapest possibilities but ensuring there are no excessive expenditures.
Operate Under the Sustainable Umbrella
There is no universally applicable definition of sustainability among fintech companies. Therefore, leaders and other involved parties must agree on what makes sense for their organizations at this point in time, knowing that the definition could change as the company grows or expands its focus. When everyone agrees with and commits to sustainable finance practices, it will be much easier to prove to stakeholders that the business is eco-friendly.
