- A generational shift is underway in the financial sector as millennials increasingly seek to invest assets sustainably and digitally, directly affecting asset management. Significant business opportunities have arisen with current measures to mitigate climate change and restrict biodiversity loss.
- Switzerland has a highly structured financial sector and holds extensive know-how in the fields of asset management and sustainable finance. In turn, Israel has one of the most dynamic and dense hi-tech sectors in the world, as well as a multitude of risk-taking start-ups and VCs. Swiss green fintech start-ups can learn from Israel’s experience in the VC sector, and Switzerland can shares its knowledge of green digital finance.
Climate change, biodiversity loss, and linked social challenges require the whole world’s attention as a community. The scale and scope of these defining crises of our time call for the attention of all sectors of the global economy, notably financial markets. Financial markets will play a critical role in moving economies onto a more sustainable path.
Combining sustainable finance and digital technology creates global opportunities to address this. Digital finance is highly transformative, and green digital finance yields a disruptive current towards a more inclusive and sustainable future. Nevertheless, the main barriers to closer alignment of financing with environmental objectives are posed by the lack of timely, low cost and reliable data and the lack of consideration of environmental risks in analytics impacting financial markets. However, accessing data more cheaply, faster, and precisely may set a new precedent for unlocking innovation and promoting inclusion. Green digital finance describes the technological solutions offered by businesses that leverage digital technologies to solve environment-related problems, support sustainability goals or reduce sustainability risks.
Green business opportunities instead of tree hugging
A generational shift is underway in the financial sector as millennials increasingly seek to invest assets sustainably and digitally, directly affecting asset management. Moreover, significant business opportunities have arisen with current measures to mitigate climate change and restrict biodiversity loss. By taking advantage of these opportunities, companies may boost their competitiveness. Thus, financial sectors could significantly limit global warming to 1.5 degrees Celsius and confine biodiversity loss by leveraging the power of technology and data for improved financial decision-making.
Opportunities in green digital finance are just as vast as in sustainable finance. Environmental insights for financial decisions may be created and accelerated by machine learning and artificial intelligence. Using remote sensors and satellite data may help assess physical risks and impacts by providing environmental information. The launch of new currencies may enhance green consumption decisions and blockchain technology allows for the creation of digital environmental assets.
Environmental projects can rely on crowdfunding, big tech credit and peer-to-peer lending. Respectively, geared insurance products may foster raising financial resilience against environmental disasters and stress. Hence, increased innovation, transparency and long-term strategising may become part of economic and financial activities through the manifold use of green digital finance.
The financial sectors in Switzerland and Israel have recently woken up to this tremendous potential and aim to position themselves as global leaders in this field. “Two years ago, if anyone talked with venture funds about making impact or purpose in their investments, they would probably be regarded as fools or as people who hug trees or who are maybe not maximising profits. But actually, if you speak today with VCs around the world, you will see that ESG and impact are actually becoming an asset”, says Cecile Billious, Head of Impact and Sustainability at the prominent Israeli Pitango Venture Capital.
Meanwhile, some voices¹ in the Swiss financial sector estimate that the impact will be inherent in every investment consideration in the future, just as risk and return is now. The founder and CEO of the Swiss-based advisory firm focused on providing ESG, impact and sustainability services Top Tier Impact (TTI), Alessandra Sollberger, stresses this aspect: “When you look at climate risk scenario planning as a large business, and you look at the effect on your industry, you understand that this has a material financial impact.”
Switzerland’s Green Ambitions
Globally, Switzerland ranks among the largest financial centres specialising in asset management, which provides a unique opportunity for impact-driven funding and sustainable finance. The financial centre in Switzerland with its USD 2.4 billion in cross-border client assets is especially favourable towards embracing the rapid expansion of the green fintech sector, which facilitates the transformation of global financial markets towards more sustainability. Moreover, Switzerland brings forth strong innovation, and repeatedly ranks first in the Global Innovation Index.
The Swiss government announced² its ambition to position the country as a global leader in sustainable green finance. Christoph Baumann, Deputy Head Insurance and Sustainable Finance at the State Secretariat for International Financial Matters (SIF), underlined: “We want the Swiss green fintech scene to turn into a global leader in enabling positive environmental and economic impact.”
Accordingly, SIF is instructed to bring the topic of green fintech onto the agenda of sustainable finance initiatives as well as international bodies and seek dialogue with the relevant international and national players. The Swiss government introduced several relevant measures in 2021, which included adopting key parameters for future mandatory climate reporting and measures to increase the transparency of financial products to combat greenwashing. Notably, SIF also formalised a previously informal network of leading representatives of the green fintech sector in Switzerland and called it the Green Fintech Network. The network released an action plan aimed at increasing activities in green fintech.
Israel’s Innovation Powerhouse
Israel is the world’s largest investor in research and development as a percentage of GDP (4.95% of GDP in 2018), ahead of Korea and Switzerland. But it is the entrepreneurial spirit and the numerous technology start-ups have earned Israel its nickname of Start-Up Nation.
However, the latest indicators of fundraising and exits, which have reached record levels, show that the country is becoming more of a scale-up nation. Capital raised in the first half of 2021 (USD 12 billion) has surpassed that raised in 2020 (USD 10.3 billion), and in 2020, Israeli IPOs reached USD 62,303 million. In 2021, Israel is home to 6,500 start-ups and has the largest number of start-ups per capita globally. Every tenth unicorn (private companies with a valuation of more than USD 1 billion) in the world was Israeli in 2021. Currently, Israel has no fewer than 50 unicorns. Three years ago, there were just 18. The COVID-19 pandemic and the resulting economic crisis have boosted many tech companies by acting as a catalyst for the shift online and remote work. On the other hand, the difficulties of international travel and the economic recession have stymied much development in this realm, especially for earlier stage companies.
Switzerland and Israel are very complementary even though their economic structures are different. This offers the possibility of creating synergies and win-win situations in green digital finances.
Switzerland has a highly structured financial sector and holds extensive know-how in the fields of asset management and sustainable finance. In turn, Israel has one of the most dynamic and dense hi-tech sectors in the world, as well as a multitude of risk-taking start-ups and VCs. Swiss green fintech start-ups can learn from Israel’s experience in the VC sector, and Switzerland can shares its knowledge of green digital finance. The Green Fintech Network in Switzerland has proposed measures to increase the supply of risk capital in Switzerland. Therein, Switzerland can directly draw lessons from the success of the development and catering of the large Israeli venture capital landscape.
The venture capital industry in Israel experienced notable growth due to a government initiatives (hebr.: Yozma) in 1993. The initiative offered attractive tax incentives and used government funds to double any investment. Following this, Israel’s annual VC outlays rose almost 60-fold, from USD 58 mio. to USD 25 bio. between 1991 and 2021. Israel currently has more than 265 Israeli VC funds, of which 70 are international VCs with Israeli offices.
Other objectives stated by the network are to encourage the establishment of green fintechs in Switzerland as the lifeline in a constant stream of new startups deemed vital for a digital economy. Switzerland can learn a thing or two from Israel, the country with the largest number of start-ups per capita globally. Meanwhile, the Green Fintech Network deems access to high-quality sustainability data as one of the most potent innovation drivers, and initiatives should include public-sector data and data sharing within the private sector. Transparency and availability of data in this area should be promoted.
Hence, sharing domestic experiences in green digital finance and sustainable finance with other countries, such as Israel, may foster the creation of different green digital finance ecosystems that create cross-border opportunities. The benefits of such symbiosis in the realm of green digital finance may create shared learnings and contribute to reaching crucial environmental goals. Simply put, green fintech has a lot of potential, and increased financial inclusion has the potential to transform people’s lives.
The Swiss State Secretariat for International Finance (SIF), the Peres Center for Peace and Innovation and the Embassy of Switzerland in Israel held a webinar with the title “Green Digital Finance – Bridging Switzerland and Israel” in December 2021. A short after-video is added below.