FinTech and Sustainability: A Mini-Review

sustainability
Review
Fintech and Sustainability: Do They Affect Each Other?
Cristina Chueca Vergara * and Luis Ferruz Agudo
Citation:Chueca Vergara, C.; Ferruz
Agudo, L. Fintech and Sustainability:
Do They Affect Each Other?.
Sustainability 2021, 13, 7012.https://
doi.org/10.3390/su13137012
Academic Editors: Salvador
Cruz Rambaud, Joaquín
López Pascual and Bruce Morley
Received: 14 April 2021
Accepted: 19 June 2021
Published: 22 June 2021
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Accounting and Finance Department, Faculty of Economics and Business, University of Zaragoza,
50005 Zaragoza, Spain; [e-mail]
* Correspondence: [e-mail]
Abstract: Current concerns about environmental issues have led to many new trends in technology
and financial management.Within this context of digital transformation and sustainable finance,
Fintech has emerged as an alternative to traditional financial institutions.This paper, through a
literature review and case study approach, analyzes the relationship between Fintech and sustain-
ability, and the different areas of collaboration between Fintech and sustainable finance, from both
a theoretical and descriptive perspective, while giving specific examples of current technological
platforms. Additionally, in this paper, two Fintech initiatives (Clarity AI and Pensumo) are described,
as well as several proposals to improve the detection of greenwashing and other deceptive behavior
by firms. The results lead to the conclusion that sustainable finance and Fintech have many aspects
in common, and that Fintech can make financial businesses more sustainable overall by promoting
green finance. Furthermore, this paper highlights the importance of European and global regulation,
mainly from the perspective of consumer protection.
Keywords:Fintech;sustainability;green investment;socially responsible investing (SRI);green
finance; greenwashing; digitization
1. Introduction
Currently, more and more new issues are emerging that affect financial management.
These are the consequence of increasing customer concerns for sustainability and respect
for the environment in the goods and services they purchase and consume, as well as with
growing digitization.
Important examples of these issues are corporate social responsibility (CSR) and envi-
ronmental, social, and governance (ESG) factors. Similarly, the 2030 Agenda for Sustainable
Development Goals (SDGs) promoted by the United Nations plays an important role in
combating climate change.
The growing awareness of global warming and its negative impact on the planet
means that customers are increasingly demanding ecological or environmentally friendly
products for a more sustainable lifestyle. Customers, investors, and public administrations
are exerting increasing pressure on organizations to obtain more transparent information
on the environmental impact of their activities.For example,Nielsen Media Research
reports that “66% of global consumers” (and 73% of millennials) [1] “are willing to pay
more for environmentally friendly products. Thus, when these customers perceive firms to
be socially responsible, they may be more willing to buy the products of these firms, and at
a higher price” [2].
Hence, firms strive to differentiate their products and their brands from their com-
petitors,setting up “green marketing” campaigns and modernizing their technologies.
In addition, they compete for consumers’ approval by advertising their products as en-
vironmentally friendly.These green marketing initiatives “are helpful to consumers by
letting them know which products possess said green properties, but only if the claims in
advertisements and product descriptions are honest and accurate” [3].
Sustainability 2021, 13, 7012. https://doi.org/10.3390/su13137012 https://www.mdpi.com/journal/sustainability

Sustainability 2021, 13, 7012 2 of 19
On the one hand, the innovations of green technologies provide additional financial
resources, because green investment is an alternative option for financing such moderniza-
tion. On the other hand, the existing competition for obtaining green-oriented investors
and consumers leads to the use of “greenwashing” by companies as an unfair marketing
instrument [4].
Greenwashing is a set of deceptive behaviors or practices that deliberately mislead
consumers about the ecological activities of an organization or the environmental benefits
of a given product, which appear to be sustainable but are not. Such practices are conducted
using ambiguous words and images in the description of the environmental features of
a product or via vague, unprovable, and even false ecological claims, exaggerating the
ecological features of the product by omitting or masking important information, or by
presenting data in a misleading way.
In other words, “greenwashing” is an attempt by a company to make its products
appear environmentally friendly when, in reality, they are not. The concept was created
by Jay Westerveld in 1986 and can be defined as “the intersection of two firm behav-
iors: poor environmental performance and positive communication about environmental
performance” [5].
Certain factors, such as CO2-neutral certification, contribute to this phenomenon, as
they allow a highly polluting company to appear ecologically sound by attaching a green
label with this kind of certification for its products. However, such labels are not always
meaningful,and it is important to distinguish reliable companies and those providing
independent verification with standardized protocols from those that are not.
Greenwashing practices undermine the credibility of any corporate social responsibil-
ity (CSR) endeavor, since they threaten to negate the effects of communicating a company’s
efforts to act in an environmentally and socially responsible manner. At the same time, they
threaten to erode customer confidence. “Whereas reporting about corporate social respon-
sibility (CSR) initiatives is a reasonable and even often economically sound thing to do,
greenwashing threatens to dilute the entire CSR movement, thereby reducing the pressure
on companies to act economically and socially responsibly”. Moreover, we must consider
that “greenwashing is hard to detect with reasonable effort, so it goes unnoticed most of
the time”, and “even if greenwashing is detected, it is not perceived as very negative” [6].
As a result, “consumers increasingly mistrust statements regarding CSR, as they sus-
pect they are being lied to, or important information is being withheld”. Moreover, because
greenwashing is not often detected, it “thereby does not have any negative consequences
for the respective manufacturer or vendor” [3].
In addition, concern for the environment and sustainability not only affects consumers
but also investors,who increasingly consider certain non-financialattributes in their
investments,such as environmental,social,and governance (ESG) criteria.Related to
this is socially responsible investment (SRI),which “appeals to investors who wish to
go beyond the financial utility of their investments and derive non-financial utility by
investing in companies that reflect their social values” [7].
It must also be considered that “investors are increasingly willing to incorporate
into their investment decisions not only financial criteria (returns and risk), but also the
non-financial attributes of SRI” [8] and that “country-specific factors tend to affect the
relationship between corporate social and financial performance” of a company. Another
issue to bear in mind is that “there is some evidence that the label “socially responsible”
might be more a marketing strategy, thus not assuring investors that an SRI fund is really
socially responsible” [8].
Related to the above are “green bonds”, a type of fixed-income instrument applied
exclusively to the partial or full financing or refinancing of eligible green projects, whether
new and/or existing,which are in line with the four core components of Green Bond
Principles (GBP) [9]. There are different kinds of green bonds on the market, and in 2019,
$257.7 billion in green bonds were issued, a 51% increase on the 2018 figure and constituted
a new world record [9].

Sustainability 2021, 13, 7012 3 of 19
Furthermore,as the supply and demand for sustainable financing have evolved,
several providers of (new) products and services have emerged over recent years. These
providers offer solutions for the (new) needs or demands set out in the new sustainability
paradigm.These new products and services have emerged in support of the ecological
transition process to promote the link between sustainability and economic and financial
activities. Their various objectives include increasingly available information on climate;
support for the design of more sustainable products and services; and the improvement
of public transparency and information. For example, in Spain, the Fundación Ecología y
Desarrollo, or ECODES (Ecology and Development Foundation), offers a climate-change
risk assessment model that enables the financial sector to assess the predisposition to risks
and opportunities of its credit and investment portfolios. This service was designed to be
used by the banking sector, but is also useful for other financial sector entities, such as fund
managers, investment advisers, insurance companies, and public sector entities in charge
of socio-economic planning and development [10]. On a global level, the organization that
conducts this kind of activity is the Intergovernmental Panel on Climate Change (IPPC),
the United Nations body for assessing the science related to climate change [11].
Notwithstanding the above, digitization, internationalization, and risk analysis must
not be forgotten.These are some of the most widespread business practices in the cur-
rent era and are being increasingly used in the financial field, in general, and financial
management, in particular.
Within the digitaland technologicalcontext,the specialimportance of so-called
“Fintech” must be highlighted. Fintech refers to the latest technologies used in innovative
financial products and services. This is one of the most important new markets in recent
times, and this cutting-edge business model has great potential for the collaboration of
different types of institutions, both public and private.
Fintech [12] comprises digital innovation and modern technology to improve,de-
velop, and automate financial services and is used to assist and support firms, investors,
and customers in managing their financial activities using specialized applications and
software [13]. Fintech generally attracts customers with more user-friendly, efficient, trans-
parent, and automated products and services [14].
More specifically, Fintech includes new applications, processes, products, and business
models in the area of financial services, consisting of one or more financial services, mostly
or entirely provided over the internet, “simultaneously by various independent service
providers,typically including at least one licensed bank or insurance company” [15].
Some of the financial services provided may include investment advice (robo-advising),
credit decisions, asset trading, digital currencies, automatic transactions, payment settling,
crowdfunding, person-to-person transactions (P2P), and smartphone wallets [15].
The current era in the evolution of Fintech is called “Fintech 3.0”, which began in
2008,and whose first years were dominated by the global crisis and financial turmoil,
when there was a loss in trust in the banking system.Then, technological firms began
to operate using peer-to-peer networks outside the regulatory framework (in fact, 2000
of these platforms were developed in China) [16] and to apply new technologies in the
financial markets, changing the way of doing business in all financial sectors [17]. This
development is ongoing [17], and banks today are being displaced by technological firms
and start-ups at a rapid pace [16]. According to Moro-Visconti, Cruz Rambaud, and López
Pascual, some of the reasons for this rapid evolution of Fintech are the sharing and circular
economy, favorable regulation, and information technology [14].
Initially, the largest Fintech market was developed in the US, followed by the UK
(the most important Fintech market in Europe) [18]. The European and American Fintech
properties and background differ from the Asian Fintech, which specifically offers solutions
for a lack of existing banking infrastructure [19].
Establishing Fintech is easier in well-developed economies, because the infrastructure
and market regulations are there already. This infrastructure and affordable technology are
critical to creating sustainable, unique financial innovation, although Fintech development

Sustainability 2021, 13, 7012 4 of 19
often occurs in economies where access to loans is more difficult [18]. In fact, “scalability
plays a key role in new financial start-ups, and Fintech’s profits remain quite small until
a scalable number of customers has been convinced. This scalability of processes can be
achieved by platform creation,which leads to economies of scale and,hence,reduced
costs, and user networks being built” [17]. Additionally, “financial inclusion can positively
affect the economy in terms of poverty reduction and economic growth, and innovations
in digital finance can positively influence banks’ performance and profitability” [17,20].
“Fintech’s key advantages are greater control of customers’ personal finance, rapid financial
decision-making, and the ability to make and receive payments within seconds, although
this results in a trade-off between efficiency and (data) security” [17,20]. Therefore, “from
a regulatory perspective, the greatest challenges are then to ensure both consumer and
investor protection and to guarantee financial stability” [17].
Fintech “allows performing business transactions from anywhere at any time, which
gives flexibility to all actors” [13]. Companies that have developed Fintech have more
innovative methods of extending banking services to customers and investors through
cellphone apps, with increased flexibility and efficiency of financial services, and with the
promise of saving time and costs through the use of digital technologies [13]. Furthermore,
Fintech is a key driver “for financial development, inclusion, social stability, and integrity,
and consequential sustainable development through building an infrastructure for an
innovative digital financial ecosystem” [12]. It makes financial services more accessible,
efficient,and affordable for customers and changes the ways of providing traditional
services, representing the digitization of the financial industry [17].
“Fintech is also regarded as an engine for sustainable economic growth as a new
industry having different characteristics from the traditional financial industry”. With high
expectations for growth, global Fintech investments have greatly increased. In fact, KPMG
reported that “global investment in Fintech has doubled more than six times, from $18.9
billion to $111.8 billion between 2013 and 2018” [21].
Moro-Visconti, Cruz Rambaud, and López Pascual state that, “despite the young age
of Fintech,many of these firms are experiencing significantly faster growth than their
traditional financial services peers” [14]. In addition,since they belong to a growing
industry and not a mature one, they are slightly more volatile than IT firms and much
more volatile than traditional, established banks.This higher volatility was reflected in
March 2020 in a much steeper fall than banks,followed by a more sustained recovery,
“incorporating the digital resilience typical of most technological firms”. “Whereas Fintech
and technology stocks have fully recovered from the negative peak of 23 March 2020, banks
(as of 30 June 2020) were still some 25% below their pre-COVID-19 prices” [14].
Experts claim that “Fintech has the potential to disrupt and transform the financial
sector by making it more transparent, secure, and less expensive” [15], as financial products
traditionally offered by licensed credit institutions (payment services and loans, among
others) are now also offered by Fintech.It supports a greater diversity of products and
providers, and offers improved risk management, with its ability to obtain instant customer
feedback and use it to power real-time adjustments in the services offered [14].
However, for the last decade, large financial institutions have increased their interest,
along with investments, in Fintech innovations, to the point that, in 2019, most competitive
financial institutions considered Fintech to be their major investment [15].Both operate
in the same (financial) market and sometimes share customers [14]. In fact, it is expected
that financial institutions will be able to reduce their costs and increase customer inclusion
with the help of Fintech,leading to an increase in profits.Thus,Moro-Visconti,Cruz
Rambaud,and López Pascual also believe that Fintech will “disrupt and reshape the
financial industry by cutting costs, improving the quality of financial services, and creating
a more diverse and more stable financial landscape” [14]. It will also lead to greater access
to finance and investment, which offers great potential to transform not only finance but
economies and societies, in general, through financial inclusion and sustainable, balanced
development [14].