ESG x Fintech: Insights from CEE

Sustainability continues to be one of the hottest topics in many sectors, including financial services. Regulators, businesses, investors, consumers and other financial services players place ever-increasing emphasis on environmental, social and governance (ESG) issues.

Thus it didn’t come as a surprise that our last CEE Finance and Capital Markets Workshops focused on sustainability. Speakers from 13 countries across Central and Eastern Europe (CEE) provided insights into legal and economic trends affecting ESG in the CEE region – also in the context of fintech. Are technological transformation and sustainable transformation in financial services interlinked and if so, do they reinforce and/or accelerate each other? How can the potential for ESG in fintech be unlocked? What opportunities are there for fintech to help achieve ESG goals? These and further questions were discussed in various workshop sessions (a recording is available here).

Below, as part of our “ESG x Fintech” series, partners and associates from our CEE network who participated in the workshops share their perspectives on the intersection of sustainability and fintech.

Bulgaria

Nikolay Bebov, Managing Partner, Tsvetkova Bebov & Partners: ESG is paving its way in every financial market, including smaller markets such as Bulgaria. In 2021, the Green Energy and Finance Centre – a thinktank newly co-founded by the Bulgarian Stock Exchange – embarked on popularising the objective and benefits of a greener economy. Further, many financial market associations started information programmes, for example the association of asset management companies, which kicked off efforts to prepare its members for compliance with the Sustainable Finance Disclosure Regulation.

Notably, Bulgaria’s buoyant fintech sector – comprising many regulated and unregulated businesses including promising start-ups – is clearly aware of the importance of ESG-driven initiatives (for example, some fintechs promote gifts to social causes through their platforms, others emphasise environmental protection or diversity) as well as of the opportunities that sound ESG strategies may bring about for business success. Overall, it looks like ESG will become increasingly relevant in Bulgaria and the whole CEE region – and fintech will be a leading sector in this respect.

Croatia

Martina Kalamiza, Partner, Divjak Topić Bahtijarević & Krka: ESG is beginning to matter a lot in Croatia, not only to financial institutions but also to investors and (target or other) companies. All involved players will need to observe ESG criteria in the near future – for example, when raising money, allocating funds to investments or defining business strategies; especially, financial service providers will increasingly offer green products to consumers. Hence, ESG will become more and more important – and this is where the fintech sector should step in.

I see great opportunity for fintechs to find solutions for integrating challenges of complying with ESG criteria and automating financial services on all levels (borrowing, lending, investing). However, in order to create sustainability through fintech, the regulatory framework will need to be clear and straightforward in removing all obstacles for fintech and ESG to reinforce each other. Also, fintech itself will have to create easier access to finance and investments to contribute to a more sustainable environment and economy.

Czech Republic

Tomáš Sedláček, Partner, BBH: Crypto-assets – a soon-to-burst bubble or reliable form of investment? 2022 might bring answers in this regard. In any case, it seems that crypto-assets will not escape burdensome regulation, as crypto-asset service providers might soon be required to obtain a license and comply with requirements similar to those applicable to investment firms – based on existing regulation or the Regulation on Markets in Crypto-assets and Regulation on a Pilot Regime for Market Infrastructures based on DLT, once adopted. Interestingly enough, the upcoming regulations do not seem to impose any incentives (let alone requirements) upon crypto-providers to comply with any specific ESG principles – this is likely to remain a question of customer demand.

However, driven by prominent financial market participants as well as EU legislation, sustainability-oriented investments will undoubtedly continue growing in importance in the Czech Republic and will soon find their permanent place in the investment strategy of various players, including fintech start-ups. In this respect, I see particular opportunities in the regtech segment and its link to sustainable investments – not only in the areas of data collection, management and validation, but also scenario testing, stress analysis, regulatory reporting, and (especially climate) risk management.

Lithuania

Akvilė Bosaitė, Partner, COBALT: Due to its role in enabling paperless financial services, such as cashless payments and online services, “fintech” might be seen as a synonym of “sustainability”. However, in my eyes, for a fintech to be called sustainable it must have ESG embedded in its core business. There are variety of products, services and activities that might allow a fintech to do so and thereby define itself as “ESG-oriented”: P2P or crowdfunding platforms focused on providing financing for renewable energy or other ESG-driven projects, carbon offset marketplaces, lending or insurance fintechs enabling access to the financial market for marginalised groups of society, investing platforms offering sustainable investment opportunities, etc.

With the domestic market being too small to develop any of these ESG-oriented solutions for local use, I believe that as a European fintech hub, Lithuania will benefit from initiatives originating elsewhere but scaled in Europe through Lithuania by exploiting the benefits our jurisdiction offers (such as an open and reputable regulator, a transparent legal system, or a pool of talents with a financial and technical background). This belief is backed by the fact that the fintech success story of Lithuania was driven by political will and regulatory changes. Coupled with political ambition to position Lithuania as a centre of sustainable finance and legislative initiatives to prepare the Lithuanian Strategy and Action Plan on Sustainable Finance, Lithuania will have a strong competitive advantage to attract sustainable fintech companies from all over the world to establish themselves in Lithuania and use our country as a gateway to European market.

Slovenia

Gregor Pajek, Partner, Rojs, Peljhan, Prelesnik & Partners: The rapid development of technology and increased linkages – particularly as regards the inextricably linked user experience – have brought new players into the field of fintech in the past years. Also, the digital sphere allows for financial services to be provided in a more user-convenient way – for example, in personal finance (eg cashless and mobile payments, neobanking), insurance, etc.

Therefore, on the one hand, fintech provides for efficiency and convenience; on the other hand, in Slovenia it is still uncertain to what extent fintech effectively contributes to sustainability in the context of each ESG element (environmental, social and governance). While there is a growing awareness of the importance of a green economy, environmental technologies and digitalisation, these are still seen as disintegrated in the short term. Yet, in the long run, investment strategies focusing on the inclusion of ESG-oriented businesses in investors’ portfolios will likely pave the way to fintech becoming integrated in sustainability endeavours – against the background of a growing public demand in sustainability based on good governance, as well as care for the environment and society.

Serbia

Katarina Gudurić, Partner, Karanović & Partners: Serbian market players are still waiting for the PSD2 to be transposed into the local legal system, hoping that it would give an additional boost to the local fintech market. Nevertheless, the Serbian fintech scene is more dynamic and interesting than ever.

The outlook is very promising, with local fintech start-ups being increasingly regarded as a force to be reckoned with, even from the perspective of traditional financial market players. Market intelligence shows that major mobile banking platforms are looking into Serbia as the next market worth expanding to. These are good news from the perspective of the environment as well, given paperless business models applied by relevant fintechs, especially in the area of mobile banking.

Turkey

Merve Kurdak, Senior Associate, Paksoy: The future is green in Turkey. Fintechs and other companies have turned their attention towards nature and social values, especially against the background of the forest fires in Turkey last summer, resulting in increased international public awareness. ESG objectives are also key in the 11th development plan for 2019-2023 and have been supported by legislative initiatives (eg the Green Borrowing Instrument and Green Lease Certificates Guideline Draft disclosed recently).

Moreover, with the contributions of banks that are signatories of the “Principles of Responsible Banking”, the potential of financial projects for serving the environment has become recognisable – and this has also impacted the fintech area. Various fintechs in Turkey have launched projects which aim at protecting the environment or achieving social goals, such as supporting women as entrepreneurs or allowing children to encounter finance transactions, thereby increasing financial literacy. Therefore, as fintech develops, so do ESG principles and practices.

Sustainability and fintech outlook in CEE

As these examples show, ESG and fintech play an increasingly important role in CEE and are becoming more interlinked, with potential for sustainability-related transformation and technological transformation to support each other in various ways. We look forward to further interesting developments, driven by both political/regulatory and market initiatives.

We will continue to analyse legal and economic trends, their drivers and the resulting implications across jurisdictions. If you would like further information on any of the topics raised in this blogpost, please get in touch.

For further insights on sustainability in CEE, have a look into our brochure CEE Finance and Capital Markets 2021-22: Sustainable Transformation in CEE. 

This post forms part of our “ESG x Fintech” crossover series, most recently featuring our podcast Fintech in Focus: Why Governance Matters – the "G" in ESG and our blogposts ESG x Fintech: How to Buy a Green Fintech, ESG x Fintech: Investing Sustainably, ESG x Fintech: Sustainability Sandbox and ESG x Fintech: Cryptocurrency + Climate = Crisis?.

On sustainability in the financial services sector more generally, see our overviews Sustainable Finance Regulation and Sustainability Regulatory Horizon, our report A Legal Framework for Impact: Sustainability Impact in Investor Decision-Making and recent blogposts, such as on the European Central Bank's guide on climate-related and environmental risks.