How fintech start-ups could take impact investment to the next level | Tom Keya
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Tom Keya - fintech start-ups impact investment

Can Fintech succeed in bringing impact investment into the mainstream?

The concept of impact investment is no longer niche. According to last year’s Annual Impact Investor Survey (released in June 2020) by the Global Impact Investing Network (GIIN), 300 major impact investors ploughed more than $404 billion into relevant assets.

Major trends uncovered by the survey also show that diversity is still the watchword for impact investing. The sector is growing all the time in depth and maturity, and while management and measurement have improved, there is still a lot of opportunity for refinement.

And, despite an enormous growth in impact investment over the last decade, much more needs to be done to address its many challenges. Could fintech start-ups be the answer to bringing impact investing into the mainstream consciousness?

Fintech could be the missing link for mainstream impact investment

While sustainable investment is, as we can see, hardly niche these days, it does come with various problems. From greenwashing to a lack of transparency and trust, there are reasons why investors are holding back.

But, to bridge these gaps, it looks like new fintech start-ups are coming up with innovative solutions. These financial tech companies are managing to attract investors and clients in new ways. This rise in impact investment platforms is significant, with Dealroom registering 14 impact investing tech companies in the B2C sector. Between them they’ve raised a total of £49.6 million.

As with all tech trends, not every impact investing platform will make it through, of course. However, there is a clear opportunity for fintech start-ups to create a new sector within impact investment. Through apps dedicated to savings and investment, these fintechs will be able to attract new clients and investors by tapping into their growing interest in impact investing.

Investors at all levels increasingly expect their money to go towards a project or initiative that does some external good, as well as bringing them a return. So how will these new platforms work for customers?

Sustainable investment apps must build trust with users

Trust is one of the biggest concerns for individuals who are new to the world of sustainable investing. They need to be able to trust the app or platform with their money, and know that it will be going to fund the causes they’re interested in.

For this reason, they will be absolutely on top of evaluating the relevance and trustworthiness of the impact investment platform. Without clarity and transparency, investors will just not use them. Customers will expect to know that full accountability is underway and that the fintech platform or developer itself is also sustainable, inclusive and totally fair.

Examples of the rising trend can be seen with the likes of Clim8. This is an impact investment app that launched in March 2021 on Android and iOS. Clim8 has collectively raised £10 million in funding (including £2 million from Channel 4 Ventures). The app is designed to be easy to use and allows people to make real-life positive changes through investments with a focus on clean water, the circular economy, smart mobility, clean tech and clean energy.

Other success stores include Cooler Future, which has raised £1.2 million in funding from VC firm Lifeline Ventures and a group of angel investors. Cooler Future’s tagline is: Invest sustainably. Earn returns.

Giving new investors a way to make money and do some good for the future

Clearly there is a demand for an increased number of sustainable investment options and fintech companies are coming up with the solution for this. However, these impact investing platforms are also giving brand new investors an entry route into the market.

According to Tickr, a sustainable investment platform that has been going since 2018, around 90% of its clients are totally new to investing. This points towards the sustainability features of the platform being the main draw. People want to make a difference and want their money to go towards projects that can change the world.

This transition of impact investment into the mobile generation will only ensure it grows exponentially over the next few years. As people become aware of how easy it is to access an app to make sustainable investments that will benefit the world and themselves, it will only increase interest.

I think that it’s very likely that sometime in the not-so-distant future, impact investing will morph into simply ‘investing’. There will be a time when almost every investment opportunity will come with some kind of sustainability benefit.

Huge opportunities for more impact investment platforms and apps

Accessibility and accountability are the watchwords for this new breed of investment platforms. For example, Clim8 clients can choose to invest in three separate portfolios that are each focused on a different level of risk. Also, investors can get started with as little as £25 outlay.

The highest risk portfolio invests 77% in equity and 20% in fixed income and these are split across Clim8’s stock picks and fund investments. Of the six investment themes offered by Clim8, the platform says that clean tech and clean energy are the most popular.

Individual investors are looking for smaller, more accessible opportunities that can be proven to be specialist and workable. And it’s about absorbing this mindset into every aspect of our lives, including where we put our money. It’s about making every individual investor a climate activist. This needs transparency, measurability and proof of the difference each investment is making to climate change.

These platforms are certainly attracting a lot of attention with the likes of Tickr signing up more than 100,000 impact investors. However, there is plenty of room for this sub-sector to grow and grow, and that’s what I expect we’ll see over the next couple of years.