A £250 Billion Opportunity: How fintechs can lead the charge in greening UK homes for Net Zero

One of the newer startups of the Scottish fintech ecosystem, Snugg, is dedicated to making energy efficient homes simple and affordable for everyone. Co-founder Robin Peters spoke to us about his concept of climate finance and challenges, as well as his recommendations for fintech companies entering the space.

In the UK, homes make up a fifth of total carbon emissions, and it is estimated £250 billion pounds of investment is needed to make homes energy efficient if we’re to hit our net zero objective by 2045. To get there, the private sector will have to play a significant role in support of that. While investment in large infrastructure projects, such as wind farms, are supported by quite mature financial vehicles, there has been very little progress in innovative finance solutions for homeowners. 

“One of the key challenges is that investment related to decarbonising homes is generally quite expensive and intrusive. And frankly, the investment case often isn’t very attractive to people,” points out Peters. “So it’s quite a difficult nut to crack, but also extremely important.”

Climate finance plays an important role in tackling this challenge because it brings together different elements of the private sector to underpin finance initiatives to help the world achieve its net zero ambition. The goal is to not only direct investment into getting projects off the ground, but it’s also about helping financial services customers to invest in climate-positive activities. 

Yet there are a number of barriers that need to be overcome, including the need for more consistent government policy around green incentives, and the fact that general consumers have got to want this more. Further, there needs to be more integration across the supply chain. “People need things to be made simple for better take-up of the pro-climate incentives that are on offer,” explained Peters. “There should be a deeper alignment amongst the different providers across the supply chain, for example, between a trusted installer, the financial provider, manufacturers and the government.”

The financial sector now also has an opportunity to pave the way more seamlessly. Firstly, they can put all their data to more intelligent use by targeting personalised initiatives and engaging with customers in a more meaningful way. Secondly, there is scope for innovation in green financial products, such as pay-as-you-go (where people can repay loans based on savings they have achieved from making their homes more energy efficient) or property-linked finance (where a loan is linked to a house rather than a person). Peters notes a slight degree of reluctance in the financial sector at present, yet he is optimistic that in the future there will be better auditing of banks to assess whether financial products are truly delivering. 

His top  three recommendations to Scotland’s fintechs wanting to incorporate climate concerns into offering?:

1. Focus on the data: There’s a lot of data out there that can be improved and interrogated for better insights
2. See the opportunity: A perception shift is needed to see that this is an opportunity for real innovation. There’s a huge investment opportunity for financial services, yet patience is needed as banks can be particularly slow in adopting truly new innovations
3. Collaborate: It’s an incredibly dynamic market which literally needs to grow by a factor of ten in the next 4-5 years. There’s also an enormous amount of innovation, and sharing different ideas with emerging players and other participants will help come up with the best solutions for the market.

Defining Climate Finance

Kirsteen Harrison, the Environment & Sustainability Advisor at the digital-assets platform, Zumo, is a stubborn optimist with a fierce conviction that businesses should be a force for good. As such, she works with leaders to facilitate the mindset shift required for businesses to thrive in a net zero future. 

She notes that the term climate finance’ is a multifaceted concept, which in her view, may be used as an all-encompassing term and often gets confused with green or sustainable finance. “Climate finance has been specifically defined by the United Nations Framework Convention on Climate Change (UNFCCC) as finance for climate mitigation, adaptation or resilience,” Harrison explains. “To me it also includes generally enabling and delivering  flows of climate finance to the parts of the world where it’s needed most.”

To support the flow of climate finance, financial institutions are having to establish transition plans that show not only how they will meet their own net zero targets, but to ensure financial flows actually shift towards supporting decarbonisation. This requirement has not quite yet filtered down to most fintechs. Harrison cautions that the requirement for fintechs to consider the financed emissions they are facilitating will arrive sooner than they think, and that the pace towards transition will move extremely quickly and not in a linear fashion. “I think as businesses, we tend to look at past events and timelines as a way to predict what might happen in the future. And with climate change we cannot do that, that is actually quite a dangerous thing to do,” cautions Harrison. “In terms of evolution, I think it is going to be much faster than we are used to seeing. Not only is that needed, it’s to be encouraged.” 

Harrison also believes that improvements to ESG investing need to be made. She acknowledges that while this is a fast-evolving landscape and there is rightly a fear of greenwashing, there is nevertheless a much higher burden put on ESG investing. “ESG investments rightly need to prove that they meet certain criteria through data, whereas non-ESG investment does not.”

She has confidence, however, that blockchain technology will be a true enabler for delivering climate finance. Because blockchain provides an immutable ledger, it can ensure that finance is delivered to the points it actually needs to be delivered to, which is especially important for jurisdictions lacking in good governance structures. Blockchain can also play an important role in supporting the role of quality carbon credits and renewable energy certificates (RECs) by avoiding legacy issues such as double counting.  

Harrison has three main pieces of advice for fintechs wanting to incorporate climate finance into their offerings:

1. Do it authentically: Rather than simply launching a green product, sustainability principles need to be embedded in your business alongside credible net zero commitments.
2. Stay two steps ahead: Because we’re working within such a rapidly changing landscape, planning needs to determine what might be needed in three, five or seven years’ time, or risk quickly becoming out of date. 
3. Be mindful of financed emissions: A big part of the carbon footprint of the financial industry is financed emissions’,  which are the greenhouse gas emissions linked to investment and lending activities. Fintechs need to very carefully consider how their work might be impacting financed emissions, and, if necessary, pivot and support climate-friendly choices and investments instead. 

Awareness is key. Ultimately, fintechs need to take responsibility for the impact that investment decisions can have on harming the environment, as well as the impact that they as technology providers might have on affecting the system as a whole for the greater good. In doing so, they will attract and retain new talent, increase trust in their brand and prepare themselves for the fast-evolving sustainability disclosures landscape.

FinTech Research & Innovation for Climate Finance

The impact of climate change across the world is disrupting national economies and affecting lives. It requires urgent action from all to address the growing issue.

Priority areas in Climate Finance

Roadmap next steps: Climate Finance

A range of proposed next steps are laid out in the published Roadmap, which specifically identifies 8 actions relating to Climate Finance, and categorises each into one of three phases over the next 10 years. These actions are illustrated in the graphic below. the report also references 25 different stakeholders who can support the implementation of these actions, which are broken down into research projects and innovation calls.

More information about FinTech Scotland’s Research & Innovation Roadmap can be found here, where the full Roadmap can also be downloaded.

How Scotland’s Fintechs plays a role in saving people and planet

The most recent IPCC report has shown us how much we need to change to keep the warming of our planet below 1.5º. Climate change is no longer in the future – it is now. Heatwaves, droughts and floods are already exceeding plants’ and animals’ tolerance levels and with 80% of people in the UK being concerned about the warming climate, the appetite for making changes that positively impact our futures is there.

All eyes have been on Scotland since COP26 was held in Glasgow last year, and the coverage and the attention made it clear that Scotland must do more to become a climate and social leader. While there have been changes it is clear that they are too incremental, that a radical overhaul is not yet here. The will for change is there though ”“ especially amongst Scottish people.

Scotland has a reputation as being socially and environmentally progressive ”“ they are ahead of the rest of the UK in the legally binding target to hit net zero, co2 emissions are already half of what they were 30 years ago. At the start of 2020, Scotland was already creating enough renewable energy to account for 97% of total gross energy use in the country. Socially, also, Scotland is setting an example ”“ with free university education, fantastic baby boxes for every newborn and the new young carer’s grant.

Scottish Fintech has been a fast-growing industry since the beginning of the pandemic; there were 119 in March 2020, and there are now almost 200. With the analysis of our cluster as being positive and vibrant’ in the Kalifa review, along with the fantastic collaboration between small and large companies in the Fintech sectors in Scotland, it is no wonder that Scotland has become a hub and a leader in the industry. This brings with it the responsibility to build environmental and social governance (ESG) into our organisations ”“ this is much easier than trying to retrofit later on.

Some Scottish Fintech organisations that are working to be changemakers in society include Iceni Earth (The Experian of Nature) – which help landowners assess their land and give them a biodiversity score, along with clear instructions on how to improve this score. A lot of Scottish Fintech is also focused on social inclusion, with HI55 helping people get access to their pay more frequently and when required. Inbest is using data capture and analysis for good, helping people who are entitled to benefits receiving them. These are just a few examples of fintech organisations that are using their skills to bring benefit to people and the environment, as well as helping people feel empowered to impact the biodiversity of their land, or simply their personal finances.

Fintech has the opportunity to help customers take control of aspects of their lives, using data to see and control their finances and investments. This has been shown to be vital in keeping eco-anxiety (the chronic fear of environmental cataclysm) at bay. This is vital if we are to keep activated, moving forward and not frozen in fear. With all eyes on Scotland, the time to prove they are the social and climate leaders we know they can be is now.

However, there is still plenty of work to be done and the changes that have been made so far could be described as modest. While it is possible to hit net-zero targets, it has been recognised that this will take a radical change in every part of Scottish lives and businesses. But there is the drive to make that change ”“ Scotland has a socially responsible culture, environmentally thoughtful perhaps because of the strong connection to the fantastic landscape.

Gihan Hyde is the award-winning communication specialist and founder of CommUnique, an ESG communication start-up.

She has been implementing ESG campaigns in eight sectors, across six countries over the past 20 years.

Her campaigns have positively impacted over 150,000 employees and 200,000 customers and have closed over £300m in investment deals. Some of the clients she has advised include The World Health Organisation (WHO), HSBC, Barclays, M&S, SUEZ, Grundfos, Philip Morris, USAID, and the Saudi Government. 

Get in touch with Gihan through LinkedIn or Twitter @gehanam.