Politics & Money

GDFA taxonomy defines fintechs’ ‘third wave’ as green

The Green Digital Finance Alliance (GDFA) and Swiss Green Fintech network announced Monday a drafted taxonomy aimed at coordinating a standard for policy makers, investors and market actors to assess green fintechs.

The taxonomy, announced at the Building Bridges Summit in Geneva, is accompanied by a report that sets an initial classification of green fintechs, the databases leveraged and examples of services from each. According to the GDFA, the report is an interim publication and will require stress tests with green fintechs and policymakers through the early part of 2022. The final report will be established in the first quarter of next year.

“The guiding principle in the taxonomy design has been to align closely with existing or emerging fintech taxonomies or with established categorizations used in agenda-setting market assessments,” the report said. “It also ensures global applicability of the categories as this taxonomy is intended to be relevant also beyond Switzerland.”

Per the report, green fintechs will be categorized into seven divisions:

  • Green digital payment and account solutions
  • Green digital investment solutions
  • Digital ESG-data and -analytics solutions
  • Green digital crowdfunding and syndication platforms
  • Green digital risk analysis and insure-tech
  • Green digital deposit and lending solutions
  • Green digital asset solutions

The report stressed that a fintech company which offers users a green option will not necessarily
be considered a green fintech company as a whole. However, the green functionality or green part of the business will be classified as such. For example, a robo-advisory platform that offers a specific green-investment customer journey among its other offerings when onboarding will be taken into account.

Structuring Internet of Things (IoT) and data in infrastructures – such as national or regional data hubs – has potential to accelerate green fintech innovations across the taxonomy categories, adds the report.

Monday’s global taxonomy release and report arrives at a time when economic policy makers are ushering climate risk initiatives further up the to-do list.

Following Jerome Powell’s re-nomination to the chair of the Federal Reserve the week prior, President Joe Biden said addressing climate risks will also be a “top priority” for the head of the Fed.

“We have to make sure our financial system can withstand climate change and is prepared to transition to clean energy,” the president added. “The Fed must be a leader among central banks globally in addressing climate-related financial risks.”

In October, Biden released a 40-page report titled “A Roadmap to Build a Climate-Resilient Economy” that aims to mitigate financial risks climate change can have on people’s retirements, pensions, savings and more. The following month, 105 world leaders agreed to cut methane emissions by 30% by 2030 at the UN climate summit.

Aside from policy actions, many financial institutions are taking their carbon footprint into their own hands. In 2019, Goldman Sachs staked its claim as the first mainstream Wall Street bank to renounce fossil fuel investments. By April 2020, Citigroup joined Goldman by denouncing financing thermal coal miners by 2030. Deutsche Bank, Germany’s largest lender, vowed to cut ties with banks that continued to finance the coal industry by 2025.

“The time is right for the introduction of a green fintech taxonomy, given how much the past year’s fintech market evolution has been marked by a new wave of fintech solutions with a green intent,” the report said.

“This third wave is defined by fintech solutions designed to better align the behaviors of the financial system with green objectives—by either unlocking new and more green finance or by better aligning existing financial and capital flows with green objectives. Given this latest wave in fintech’s market evolution, an updated taxonomy is in order,” added the report.

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