There was a time when there were cars with seat belts and without. It was optional. In 1955 when Ford offered seat belts as an option, just 2% of buyers were even interested in it. But today, 66 years later, we don’t talk about cars with or without seat belts; there are just “cars,” and they all have seatbelts.
In fact, many other things were once only an option, even an unpopular one, which are now revolutionizing their relevant industry (or have already done so): e-commerce, remote working, shared working spaces, organic products, to name only a few. And perhaps one of the most important revolutions we expect to see unfold over the next decade? Green finance.
About a decade ago, social impact, or Environmental, Social and Governance (ESG) investing became an option — investors (of all types of financial assets) began to take the effects of their investment on the planet into account. In terms of specifically investing in our sustainability, this has meant investing in clean energy, or only in projects or financial assets that committed to reducing or eliminating their adverse impact on the environment. Over time, this option that once was an outlier, like seat belts in 1955, has become much more common. These days it’s less a question of why or whether investments like these should exist and more about how sustainably they can be scaled. In fact, the scaling has already started. In just one year, the value of assets committed to ESG increased from $86.3 trillion to $103.4 trillion at the end of March 2020. According to Refinitive, “The third quarter of 2020 saw a record $155bn of sustainable finance raised.” And according to a survey conducted by Blackrock, “Investors representing US$25 trillion in assets plan to double ESG assets in five years.”
As a fintech startup innovating in an area that is not yet a well-established part of the economy, we’ve uncovered a key insight to helping move things into the mainstream market: collaboration.
We’re not alone in trying to innovate in emerging parts of the green economy. In fact, one of the most challenging aspects of green finance is that it’s a new field to us all. We are all learning together and inventing as we go. Yet this most challenging aspect of green finance is also what is most exciting about it. It provides boundless opportunities for creativity, innovation, and above all the opportunity for collaborations. While there are already myriad startups in this field, tackling the issue from various angles, we need more collaborations and partnerships that exploit the benefit of such innovations in order to maximize their impact.
Let’s use our own recent collaboration, called CRA Verde.Tech as an example of why these partnerships are necessary. CRA Verde.Tech is a green financing available to a portfolio of farmers in Brazil which my company, Traive, announced at the end of March 2021. It required the cooperation of three separate entities to complete because each of us handles a different sector necessary for building this new financial instrument. Traive assesses farmers on credit and puts the documentation together; we also bring the lenders to the table. Gaia Agro worked closely with processing officials and acted as the intermediate of securities trading in the financial sector. And Produzindo Certo certifies the farmers for good social environment practices.
This collaboration is necessary because it still takes a tremendous amount of effort and knowledge for financial companies (startups or established) to integrate ESG requirements into their traditional practices. Data collection and analysis is still a major issue, and in fact, according to Blackrock, “concerns about quality of sustainable data are the biggest barrier to adoption.” This is further exacerbated in specific industries, such as agriculture, by scarcity of lenders that are specialized to that sector with a fair understanding of its complexities.
Our partnerships helped us get around these complexities and help us establish a precedent for future partnerships in green finance. In addition to Traive, Gaia Agro, and Produzindo Certo, seven different producers spread across two states in Brazil were necessary to complete this first green collective to finance agricultural production in Brazil. If 10 parties, each of them coming from different expertise or potentially competing positions could join together to establish the first green collective to finance agricultural production in Brazil, then it should be doable again! And the results speak for themselves. Via our Green Certificate for Agricultural Products, an $11 million financing that directly seeks resources in the market to fund environmentally-conscious operations, more than 193,859 acres will be committed to sustainable practices, and 60,953 acres of protected areas of intact native vegetation will be preserved.
This is only the beginning. In this one project, we still have tens of millions of dollars in the pipeline of interest on both sides, lenders and growers, to replicate this same structure again and again. Even more similar potential exists in other markets and regions, which is desperately waiting to be unlocked. There was a time when lack of interest in green finance was the problem. It’s not anymore. The problem is how we can cater to this huge demand that is only incrementally increasing, and how we can live up to the expectations and to the challenges that come with it. How can we scale? I think we’ve found the answer and that is to work with each other: “The secret is to gang up on the problem, rather than each other” (Thomas Stalkkamp). We have a long way to win this, but it’s worth every single effort each of us puts into it, and it’s going to need every single effort that each of us puts into it, together.
Marjan is Chief Impact & Compliance Officer at Traive, and a cofounder. She has worked as a lawyer, In-house counsel, and startup advisor for over a decade, and is specially interested in the social impact sector.