Shifting Investor Priorities Are Changing ESG Initiatives Among Fintechs

Environmental, social, and governance principles have been shaping investment initiatives for two decades, ever since the UN released a report entitled ‘Who Cares Wins’. In recent years, however, ESG initiatives have faced increasing scrutiny, amidst widespread accusations of greenwashing and conflicting views on social aspects, politics, and regulations.

Fast-forward to today, and investors are significantly less interested in the ESG credentials of businesses. According to a survey by the Association of Investment Companies (AIC), there has been a steady decline over the last three years of investors considering ESG factors when investing, dropping from 66% in 2021 to 48% in 2024.

Nonetheless, the report also found that transparency and disclosure are still key concerns for investors – likely because they come with extensive regulatory coverage in most jurisdictions. This is especially the case in financial services and fintech, whose brand reputations hinge on consumer trust. 

Consumers, especially younger generations, are also accurately aware of environmental and sustainability concerns, so it stands to reason that ESG is still an important driver of business growth and economic sustainability – even if investors don’t always feel the same.

Innovations in areas like decentralized finance, AI, and big data analytics can either help or hinder ESG initiatives. For example, big data analytics can assess factors like climate risk, but can also end up at odds with privacy regulations like GDPR and CCPA. Decentralized finance is similarly contradictory – on one hand, it can provide greater security and transparency for financial transactions, but lax regulatory standards can potentially have the opposite effect.

One of the reasons why investors are losing faith in ESG credentials is that they’re often built on insufficient and inaccurate data. According to a recent report by KPMG, this is the most common challenge fintech firms currently face. To address the issue, businesses must adopt a more standardized approach to collecting and reporting on ESG data and collaborate closely with traditional financial institutions, regulators, and environmental and social organizations.

When it comes to investor priorities, investors are primarily interested in financial sustainability, just as they always have been. Therefore, it’s vital that your ESG initiatives align with business and operational sustainability too. After all, environmental and social principles and business growth and profitability shouldn’t be viewed as competing disciplines, but rather initiatives that complement one another. 

The ever-changing global regulatory situation is also another key factor to consider when it comes to achieving sustainability. The EU, for instance, continues to be the global leader in sustainable finance, having issued over €65 million in NGEU Green Bonds as of November 20, 2024. The fintech sector, given its widespread and early adoption of new technologies, is a natural match for sustainable finance, and that’s only likely to remain the case.