Sean Rahilly has 25+ years of law/compliance experience in financial services. He is General Counsel and Chief Compliance Officer at Enova [https://www.enova.com/]
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Regulators, investors, consumers and employees are asking for more leadership from companies about the impact of their businesses on society at large, translating to new reporting practices on environmental, social and governance (ESG) factors. While there is some resistance to this movement [https://www.jdsupra.com/legalnews/coalition-pushes-against-esg-funds-3374351/], most leaders are taking stock of their company’s performance on these items. On the surface, getting a high passing score on ESG might appear to be easy for a fintech company because people focus on the light environmental footprint. However, the reality is a bit more complicated. Scoring high on ESG trackers is real work, even for a fintech.
Establishing standards for ESG reporting has been an international undertaking. Global consulting firm Deloitte has argued [https://www2.deloitte.com/us/en/insights/topics/strategy/esg-disclosure-regulation.html] there is no going back on ESG and is working with organizations like the World Economic Forum to help shape global standards for ESG. In the U.S., risk assessment firm Moody’s [https://s28.q4cdn.com/193705676/files/doc_financials/2019/q1/1Q-2019-Investor-Presentation-vFinal-v2.pdf] began incorporating ESG considerations in their corporate debt credit ratings in January 2019.
There are currently some cross-industry standard categories regarding how to report ESG factors, but the approaches and main focus areas differ. Fintechs—particularly online lenders—are uniquely positioned because they straddle two types of businesses: lending and technology. Below are some ideas for how fintechs can assess and improve their environmental and governance policies and practices.
ENVIRONMENTAL IMPACT
Since fintechs do not operate stores or manufacture products, their carbon footprints are relatively small compared to manufacturers or brick-and-mortar retailers. However, they still have an opportunity to reduce environmental impact.
OFFICES
With many companies offering hybrid and fully remote roles, companies can reduce their overall office footprint and associated electricity and commuter gasoline usage. Companies can also work with buildings to achieve LEED and Energy Star certifications.
COMMUTER BENEFITS
Companies located in cities with reliable public transportation can incentivize employees with pre-tax commuter credit options.
CLOUD VERSUS ON-PREMISES DATA STORAGE AND COMPUTING POWER
Utilizing cloud-based storage solutions can be a viable option for businesses to achieve significant cost savings and streamline operations, and an opportunity to prioritize environmental responsibility. By eliminating the need for an on-site data center, companies can reduce associated expenses and optimize office space utilization. Additionally, businesses can contribute to sustainability efforts by choosing data center providers that actively measure and reduce their environmental impact.
CARBON OFFSETTING
Keeping the lights on, literally and figuratively, requires energy output. This impact can be offset by working with companies, for example, that offer tools that enable companies to calculate their carbon footprint along with the opportunity to partner with nonprofit venture companies to neutralize their environmental impact.
PRINTING NORMS
The vast majority of information can be shared, edited and consumed online. Consider implementing printing norms or policies that reduce the amount of printer ink and paper used.
STRATEGIC GOVERNANCE AND COMPLIANCE
Good governance is important for all companies and is a requirement for publicly traded ones. Public companies must meet Securities and Exchange Commission requirements, including standards around management structure, annual and quarterly reports, shareholder disclosures, meetings and voting. Boards of directors need to be steadfast in their oversight responsibilities—especially when it comes to risk management and compliance policies. Ensuring all relevant information is publicly available, along with reports of company performance over time (establishing management credibility and track record), is essential to influencing ESG ratings [https://ratings.moodys.com/api/rmc-documents/74785].
Disclosures of compliance with regulatory requirements for non-bank lenders—including licensing, compliance with fair lending rules and transparency regarding rates and terms—all contribute to success in reporting ESG factors to support strong ratings by organizations. Evidence of the success of these efforts can be independent customer reviews on public websites, as well as records of customer complaints and regulator reviews of a company’s compliance management system. Compliance remains essential to any company’s operations, especially for those offering lending, funding and credit products. Online lenders should have a rigorous end-to-end approach to compliance that meets the needs of tech companies’ agile development.
ESG reporting comprises a set of commonsense aspects that are easily understood, but some components may seem counterintuitive. While a common assumption is that fintechs have minimal negative environmental impact, it is not entirely absent. There is a need to establish future requirements for companies to manage their operations with a focus on ESG principles. Nonetheless, stakeholders are increasingly concerned about the performance of companies, which has led to governments, investors, customers and employees requesting more information about how they address these issues.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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