A new generation of climate fintech startups
As a speechwriter for Al Gore in the late 1990s, Andrei Cherny had a front-row seat to what he recalls was the “very lonely struggle” then–Vice President Gore was waging to alert people to the threat of climate change.
A quarter-century later, Cherny is continuing the fight as a fintech entrepreneur, but he is hardly alone. In fact, Aspiration, the sustainability-focused financial services company he cofounded in 2013, faces increasing competition in consumer solutions to climate change.
As concern about climate patterns has grown over the past year, so too have the number of fintechs offering various ways for consumers to reduce and mitigate their carbon footprint. At the same time, traditional banks and credit card companies are also pivoting to retain and capture customers who want to invest their money in institutions that are helping solve rather than exacerbate climate change. Even Visa and Mastercard are rolling out ways to help consumers calculate and offset their impact.
Aspiration is also riding the wave of growing interest in climate-focused fintech companies, with its revenue growing 700% over the past year and its customer base doubling to more than 5 million, according to data provided by the company. On the consumer side, it offers pay-what-you-want savings accounts and investment vehicles with a pledge not to invest in fossil fuels. The bulk of its revenue, however, comes from helping corporations offset their carbon footprint. In August, Aspiration announced plans to go public through a special purpose acquisition company (SPAC) merger that values it at $2.3 billion and will make it the first sustainability-focused consumer financial services provider in the public markets.
Cherny said his personal pivot from politics to finance was driven by the belief that to address climate change, one must follow the money.
“Banks are the primary drivers of the climate crisis,” he said. “These banks aren’t using their money, they’re using our money. Every time we deposit money into one of these big banks, we are literally writing the death sentence of life as we know it on this planet.”
In the half-decade since the adoption of the Paris Agreement, the world’s largest banks have invested $3.8 trillion in fossil fuel projects, according to Banking on Climate Chaos, a report from a global alliance of nonprofits. Topping the list of investors are JPMorgan Chase, Citibank, Wells Fargo, Bank of America, and RBC. Barclays, despite recent commitments to disclose its greenhouse gas emissions and to invest in climate fintech solutions, ranked highest among European banks for its fossil fuel investments.
The road to an IPO
Unlike most traditional banks, Aspiration has committed to never investing consumer deposits in fossil fuels, weapons manufacturing, or private prisons. Aspiration also offsets all gas purchases for its debit card customers; rewards spending with members of its Conscience Coalition of sustainability-minded companies; rounds up purchases to invest in planting trees; and scores customers based on the climate impact of their purchases to incentivize shifts in behavior. The Certified B Corporation plans to launch a credit card that rewards customers for sustainable purchases and automatically offsets their carbon footprint.
“We’ve really created the category of sustainability-focused consumer financial products,” Cherny said.
The SPAC deal with InterPrivate III Financial Partners gives it $400 million in cash to expand its market beyond the United States as well as add services for consumers and business customers alike.
Though it is better known for its consumer offerings, Aspiration currently makes most of its revenue from its work with companies on carbon offsetting projects, such as a recent partnership with home developer Neu to offset the carbon footprint of construction for 5,000 smart, sustainable homes outside Austin. Aspiration’s varied business initiatives are united by a common focus on sustainability.
As Cherny put it in a recent town hall, the company is “pioneering sustainability as a service.”
That particular focus sets Aspiration apart from its consumer-facing rivals, and it makes sense from a business standpoint as more companies seek out partners that can help them attain ESG goals, according to James Ledbetter, editor and publisher of FIN, a newsletter about fintechs.
“They are using their customer base to leverage really good deals in the corporate ESG provision space,” Ledbetter said. “I can’t think of another company that combines those two things.”
The timing for Aspiration’s IPO is ideal given the recent surge of interest in sustainability. Companies that track and mitigate carbon are seeing record investment. And while consumers are increasingly concerned about climate issues, many don’t know what to do about it.
“From a marketing standpoint, you’ve got people where you want them: They’re both feeling anxious and a little powerless,” Ledbetter said. “These companies provide a very easily accessible way to address that concern.”
Climate fintechs remain a small niche within the world of fintechs, but they are rapidly growing and could have an outsize impact on the world of banking by prodding traditional banks to act, according to Alaina Sparks, who leads Deloitte’s U.S. fintech practice.
They fit within a broader trend among fintechs in offering hyper-personalized services to customers with a niche interest—similar to how credit card companies tailor their products and rewards for frequent fliers or Costco shoppers.
In the case of climate fintechs, the focus is on people who are concerned about their carbon impact and want to do something about it—which Sparks acknowledged can be a difficult demographic to pin down. But it’s also a customer base that has the potential to expand rapidly, particularly if climate disasters increase.
“There’s significant opportunity in the space,” Sparks said. “While they are certainly niche players at the moment, we are expecting to see them play a much more significant role going forward.”
Cherny said the average Aspiration customer is in his or her thirties, but that otherwise there is no specific trait such as geography or income level that sets these consumers apart from the public at large.
“They represent more of a psychographic than a demographic,” he noted. “A lot of people who are signing up are in their twenties and thirties and have been watching for decades as the government and business have not done what they need to do. They believe they have a personal responsibility to do what they can.”
As the number of people who fit that profile grows, many competitors have emerged. Some offer their own take on how to battle the climate crisis. Cushon offers net-zero pensions; Trine and Raise Green are crowdfunding platforms that support sustainability projects; Treecard offers a wooden Mastercard and invests 80% of profits in reforestation and climate investments; and Joro helps customers reduce their carbon emissions through tracking and community-based challenges like going vegan for a week.
More direct competitors to Aspiration are also emerging. In September, Carbon Zero Financial launched with an app that measures the carbon impact of users’ credit card spending. The company plans to launch its own credit card next year with a feature that automatically neutralizes carbon impact—just as Aspiration aims to do.
Atmos, which launched in January, offers fee-free banking accounts with a pledge to invest in clean energy assets.
“Aligning your money is the single easiest thing you can do because it’s passive, and it’s among the most impactful things you can do,” said cofounder Peter Hellwig.
Despite entering an increasingly crowded field, Hellwig sees plenty of room for Atmos. He predicts climate-related solutions will be the fastest growing segment of banking in the coming decades. He also said that many existing solutions are more marketing than substance and that the market is ripe for a data-driven alternative.
“Tree-planting programs are just sort of a marketing campaign. Our answer to greenwashing is to measure the carbon impact of your money,” he said. Some conservationists say the popularity of planting trees to offset carbon is problematic because such programs can easily fail to realize promised results if they are not planned properly or with broader ecosystems in mind.
Traditional banks are also taking notice of the rapid rise in climate-focused fintechs, with many pledging to track and disclose the emissions of their loan and investment portfolios by adopting the Partnership for Carbon Accounting Financials (PCAF) reporting standard. Morgan Stanley, Barclays, BlackRock, Deutsche Bank, and HSBC all recently joined the initiative, and members of the Global Alliance for Banking on Values (GABV), a separate coalition of banks, have also committed to the PCAF approach.
The United Nations has convened the Net-Zero Banking Alliance, a group of 53 banks that have committed to net-zero emissions for their lending and investment portfolios by 2050.
“There’s clearly shareholder pressure, as well as employee motivation” driving banks to act, said Ivan Frishberg, director of impact policy at Amalgamated Bank, a member of GABV. “Increasingly, if you’re out there trying to recruit young people for the banking industry, and you have huge exposure to fossil fuels, there’s a dissonance that is hard to handle in the recruitment process.”
Amalgamated Bank pledged to stop investing in fossil fuels in 2016, and 23% of its lending portfolio is now in climate solutions. Frishberg said the rise of climate fintechs signals that customers want a change.
“It’s a really important expression that there is demand for this alignment out there,” he said. But he also echoed Hellwig’s warnings about greenwashing, saying traditional banks are held to regulatory scrutiny and transparency standards that may not apply to some fintech solutions. “We think our customers value that kind of transparency,” he said.
Cherny said he welcomes the competition from traditional banks.
“One of the ways that I think about Aspiration’s success is, can we create enough of a gravitational pull to drive these big incumbents to act differently as we continue to get bigger ourselves,” he said. “What people value is authenticity: Slapping the color green on a Wells Fargo credit card is not going to fool anybody.”
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This story is part of The Path to Zero, a series of special reports on how business can lead the fight against climate change. This quarter’s stories explore new markets emerging in the sustainability space.