Startup founders looking to raise funds must be able to anticipate ESG issues now
- The promise of FinTech is to drastically change the way we interact with the financial sector, but FinTechs are often rowing against the current; rarely are they heading downstream with it
- Trillions of dollars facing the impact of regulators, investors and customers ratcheting up their expectations faster than financial institutions can respond leave room for FinTechs
- FinTechs who understand what investors are looking for in responsible finance have an opportunity to race ahead of their peers and competitors
One of the most transformative opportunities that most innovative applications of technology in finance promise is to cut through all the inefficiencies in the legacy financial sector. FinTech promises a new way for customers of whatever profile to interact with the financial sector, free from the constraints built up over decades of legacy systems. But often the same constraints that FinTechs are trying to surmount end up slowing them down. Responsible finance is one case where FinTechs and mainstream finance are moving in the same direction, and FinTech’s ability to change their own culture can give them an advantage.
Given this landscape, responsible finance, ESG and impact strategies should be the center of attention for the FinTech sector. Resources are being invested in the responsible finance transformation, yet many financial institutions struggle. Instead of legacy systems holding back FinTech innovators and protecting incumbents, in responsible finance it slows the incumbents more than the challengers.
That should be an opportunity too good for FinTech startups to pass up. They cannot afford to repeat the same evolution of growth-first followed by a re-envisioning of their business model once they face ESG-related challenges or start seeing missed opportunities. A new article from the World Economic Forum summarizes the challenge and opportunity for startups clearly:
“Retrofitting a company’s culture to solve for ESG issues is much harder compared to embedding it in the company’s DNA from the beginning. Further, given the VC industry’s increasing focus on ESG, startup founders looking to raise funds must be able to anticipate ESG issues now and as the company scales up in the future!”
This is a good summary of the problem statement for FinTechs that the Global Virtual Innovation Hub was built to solve for FinTech startups working in or expanding into the Middle East.
The region is at a critical turning point. Regulatory guidance on responsible finance is just beginning to be developed, FinTech startups are growing rapidly, and several countries have set long-term climate goals to reach net zero emissions by mid-century. Yet, many established financial institutions are still taking early steps on their own responsible finance journeys.
FinTechs can transform faster and be early adopters in a rapidly developing market, which provides big opportunities but also requires effort. FinTech startups need to race to summit the steep learning curve they face as small companies with limited time and resources. This is why the RFI Foundation is offering the Global Virtual Innovation Hub. It will provide a hands-on, interactive 12-week program that continues with SME membership in the RFI Foundation to ensure that FinTech startups start their responsible finance journey early and on the right track.
The program is built around three core modules focusing on:
- Understanding the growth of sustainability and ESG, and how emerging reporting frameworks impact FinTech startups;
- Learning how investors think about responsible finance for different types of businesses, balancing different priorities balancing impact, growth and materiality;
- How FinTechs can take knowledge of sustainability, ESG and responsible finance to inform their development of impact strategies.
We are now recruiting startups for the cohort!
Applications are due by 21 January 2021