Fintech started with digital payment solutions and blockchain technologies enabling disintermediation from banks to companies. As the scope evolved, the spectrum of financial technology now ranges from e-commerce , crowd lending and aggregation platforms, equity crowdfunding, international money transfer, simplified internet-based services in the insurance industry, to roboadvisors and gamification in the investment space.
An opportunity that merits discussion is whether there are opportunities for FinTech to strengthen CleanTech deployment and development. This was the topic of a panel at CleanTech Venture Day, the Nordics' annual and largest venue for CleanTech in Lahti, Finland.
FINTECH STRENGTHENS CLEANTECH: NEW BUSINESS MODELS IN THE GREEN ECONOMY
Nina Harjula, CEO of the Nordic Innovation Accelerator - a corporate networking solution for growth companies, startups and investors - put together a panel I moderated last week. Comprised of senior executives at Varma (a pension fund), Nordea (the Nordics' largest investment bank), NASDAQ, and the European Investment Fund (an equity and debt investor of largely public funds), the focus of the panel was on exploring the nexus between FinTech and CleanTech.
Financial innovation is critical for cleantech companies and the development of a sustainable economy, as data-driven business models are becoming central to the green economy.
Starting early with arbitrage business models such as SolarCity, to financial metasearch engines for solar lead generation such as GeoStellar, financial technologies are becoming integrated in CleanTech solutions. In the investment space, new innovations such as solar asset-backed securities, green bonds, yieldco's, green derivatives, and the like have facilitated large scale deployment of renewable energy.
More recently, technologies such as blockchain - the decentralized ledger system and smart contracting - are being tested in the CleanTech space. For example, a project called Transactive Grid in Brooklyn is testing both the idea of a clean-energy local microgrid and the use of blockchain technology to enable its transactions. It represents a new way to trade solar energy among neighbors (15 households), consisting of two energy producers and 13 potential buyers. Similarly, a company called Grid Singularity is deploying blockchain technology to authenticate energy transactions between buyers and sellers in developing countries.
Even large corporations are experimenting with blockchain technologies. Fortum, a Finnish energy company recently stated their intent to pilot smart contracting to all of its customers, according to Bloomberg News. By acquiring Info24 AB, a Swedish software developer with a focus on the so-called Internet of Things, the company is looking at blockchain to help with transacting its energy, EV charging and smart homes business.
FINTECH IMPACTS CLEANTECH INVESTMENT STRATEGIES
Chris Haueselmann, Chair of the Global Cleantech Cluster Association (GCCA) in Zurich identified early relevant cleantech investment trends that point to fintech integration. The GCCA encompasses over 50 Cleantech clusters around the world, representing nearly 10 000 companies. As a business network, the GCCA has become a highly efficient 'hub-and-spokes' platform, driving exports.
To date, he says: "CleanTech clusters were aligned with investment managers of mainly early stage companies, or are becoming integrated with FinTech hubs to scale financing across supply chains. The future is about mainstreaming CleanTech financing to grow green economies".
Financial innovation has been the strategic focus since the launch of the Global Cleantech Cluster Association. It's mission is the development of a new, scalable financial mechanism to facilitate pension fund investments in CleanTech companies to at appropriate risk and return expectations. Such investments are now in Switzerland and abroad virtually not possible at a scale that would have economic impact.
MULTI-ASSET RENEWAL FUNDS AS A FINTECH DISRUPTER FOR CLEANTECH INVESTMENTS?
Three pillars were required to build out this vision:
A collaborative agreement with the KeyStone Compact Group, Ltd (currently: Corymbus Asset Management Inc) allowed for the design and validation of a new type of fund structure: Multi-Asset Renewal Funds (MARF). As Antti Tahvanainen, the VP for Ecosystem Network Analytics, explains: "We use big data and algorithmic risk profiling to select companies along value chains of emerging industries, and allocate them in portfolios comprised of 60-80 companies".
To date, three MARFs have been structured in Finland: smart grid, smart mobility and green chemistry.
An MOU with the P80 Foundation, representing the 80 largest pension funds, furthers access to capital and understanding of capital allocation needs in funds designated for green investment targets. According to Mark Grobmeyer, Chair of its Board, a key investment opportunity exists in the buildout of the Global Technology Deployment Initiative (GTDI) to scale low carbon technologies in developing countries.
An MOU with CrowdValley, the creator of the world's first digital back office to power online investing and lending marketplaces, enables operational capacity for the MARFs. "Environmental finance, cleantech and infrastructure investments are a core of our collective development targets and as such they should leverage the most up to date financing models," explains Crowd Valley CEO Markus Lampinen.
"Unfortunately often even within billion dollar projects, existing finance back offices are outdated for the needs of future innovations. We offer digital back office functions and tools in pioneering sectors and markets such as cleantech."
Digitalization is on the cusp not only of changing business models of startups and large corporations, but has already demonstrated an impact on how investments will be made in new sectors of the economy. Funds-in-a-box, and digital platforms for fund structures such as MARFs will lead the way for disintermediated financing models.
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