Making Finance Greener

The rising desperation of climatic change has cast a dark cloud over the whole world economy. All industries must rethink their practices and come into line with the goals of sustainability. Even though the financial sector, traditionally viewed in the eyes of the beholder as risk and profit, might not at first seem a likely hero of the green protection, it is full of potential to guide funds into a more sustainable future.

There is a silent revolution under way.  Pioneering companies are creating fresh green ideas. But even as these essential innovations are being achieved, an awareness gap persists among the wider public and even the business community, hindering greater take-up and reducing their broader impact.

Swishfund is a compelling example of a financial institution embracing environmental, social, and governance (ESG) principles in its operations so deeply that it has made significant strides. Its actions, however, also demonstrate the difficulty of conveying critical changes effectively.

Our green credentials are evident in becoming the first carbon-neutral lending platform in 2020. It has maintained a net-zero carbon footprint since 2020, an impressive feat for a financial institution as well as raising awareness for others to follow.

In 2021 we went one step further and offset over 3,600 tonnes of CO₂ for UK SMEs. Not only did this minimize the green footprint but also passively make borrowers more aware of their own carbon footprint, weaving sustainability into the fabric of our financial relationship.

Following on with this innovative spirit, in 2022 we partnered with Innovate UK and 4Most Risk Consultancy to launch the ambitious Green Credit Scoring Project. The aim of the project was to revolutionize traditional credit scoring with the introduction of a "Green Credit Score." Based on sophisticated machine learning and behaviour data models, the system would grade borrowers based on environmental performance as well as sustainable practices. The ultimate objective was to incentivize green firms through giving them favourable interest rates, thereby creating a direct economic incentive to good environmental stewardship.

Further, we remain an active contributor to public policy, being involved with the Bankers for Net Zero All Party Parliamentary Group in 2022 and 2023. Our engagement with UK MPs like Kevin Hollinrake to promote ESG-matched SME lending and recommend green business finance policy frameworks shows our commitment to changing the system. Our lobbying for UK government climate goals at COP26 and beyond shows a connection that extends far past their immediate business activity, and one that seeks to make an impact on the entire financial system.

Despite such initiatives of us and others, people are amazingly unaware of environmentally friendly financial plans. The reasons for this ignorance are many. The technicality involved in financial products necessarily discourages many a typical entrepreneurs from knowing the nitty-gritties of green financing. Marketing efforts in the banking sector have traditionally been centered on interest rates, loan durations, and short-term financial rewards, rather than green benefits.

Furthermore, commercial finance brokers are not necessarily skilled at conveying the environmental value or selling point differences of available green offerings. For the majority of SMEs, particularly those belonging to the everyday operating issues, perceived intricacy or a lack of simple and direct information guarantees that environmental benefits wind up being inferior to short-term cost factors.

This limits market demand for green financial products and lessens their adoption across the market. Without actual demand, financial institutions are not likely to heavily invest in their creation and promotion, and therefore an ugly cycle is formed. Filling this gap requires concerted efforts from lenders, commercial brokers, and small business entrepreneurs.

Financial institutions must simplify their message, so it becomes apparent what the environmental benefits are alongside the financial benefits. Policy guidelines can further incentivise lenders and borrowers, while public campaigns can increase general awareness of the role that finance can play in helping to combat climate change.