I see five major groups squeezing the financial markets these days. The first one is obvious: it’s the FinTech start-up community, which is now valued as a third of all banking value.
The second is clear too: it’s the Big Tech firms like Facebook and Amazon, who are launching their own currencies and putting pressure on firms like Visa to remove fees.
The third is also fairly obvious: it’s the governments and regulators who want banking to be more open and competitive.
Who are the other two?
Well, one is the customer. Whether it be the consumer or corporate, the agenda for sustainability has clearly risen to the fore, and the customer wants banks to behave responsibly. Greenwashing and errant behaviours investing in fossil fuels and fracking the world are no longer acceptable. Greta Thunberg, David Attenborough, Extinction Rebellion and more have made this clear.
The other is maybe the hidden jewel: the activist investor. Pension funds and institutional investors are increasingly worried about financial market activities and how they encourage shareholder return at the expense of communities and, potentially, the planet. Therefore, activist investors are encouraging stakeholder capitalism, and placing climate at the head of that agenda.
Between activist consumers and activities investors, ESG – Environment, Societal and Governance – topics are front and centre. Thing is, I’m not sure the banks realise this. Mark Carney can claim $130 trillion of assets being directed towards climate protection, but that’s all double counting and the usual cooking of the books.
Nevertheless, I can feel this squeeze from the top and squeeze from the bottom. The squeeze of the activist investor and activist customer.
Now, maybe banks don’t get this, but the FinTech community does. Take a company like Amplify.
Amplify! The Irish ESG FinTech start-up who, supported by the Irish Government via Enterprise Ireland, donate two percent of each transaction to the user's chosen climate action campaign every time they shop at an Amplify merchant partner.
Amplify along with other activities like Ant Forest and Alandsbanken’s Baltic sea card are leading the way in showing that financial firms can create positive forces for the good of society. Thing is that it tends to be new firms or small firms. Why aren’t the big banks doing this?
I guess the answer hit home during the COP26 talks about the role of finance in climate challenges, and the fact that loans to carbon emitters account for 14% of Eurozone lenders’ assets.
In other words, banks cannot wean themselves off the teats of their fossil fuel clients as it makes money, increases profit, delivers greater shareholder returns and increases the bonus pool for all. Well, for all of the people inside the bank. It doesn’t do much for those outside.
Eventually, this will be addressed by regulation. I wholly expect that by COP30, governments around the world will be mandating that for every $1 loaned to a fossil fuel firm or carbon-emitting project, $2 has to be invested in a renewable energy and carbon-offset project. Until that mandate is in place, all the talk at COP26 will still be blah, blah, blah.
Meantime, the new wave of FinTech, Big Tech and community firms have found an opening in the market: green finance. Way to go!
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...