How to value a green fintech
Green fintech is getting traction. Customers reward green financial products with high demand and premium prices. Financial institutions consider green as strategic differentiator. Investors recognise the massive growth potential. This raises the question how to value green fintech companies which play a key role in the green finance ecosystem.
Investors value companies and more specific startups based on standard valuation methods as discounted cash flow, cost to duplicate, valuation by state or market multiples. These standard methods need to be revised for green fintechs as the most important metric is not factored in as driver for the value. The current methods are based on risks and (potential) returns. What the world needs — and investors to value — is sustainable impact.
Risk and return were the two key factors of finance for over the last decades. Finance was focused to make the highest levels of returns with the lowest possible risks. This approach is no longer feasible as externalities harm our planet and society but are not included in the valuation. We all know examples of polluters as money making machines. We also know that this is not sustainable and needs to change. That is why finance needs to factor in impact next to risks and returns. The impact of the company to our environment and society.
The impact of companies to our environment and society has started to be recognised as differentiator. Not only as a result of the Sustainable Development Goals (SDGs), Paris Agreement and all sorts of 2030 and 2050 objectives but also bottom up by people globally. Especially the young generation demand and value green and sustainable practices. Developments which need to be part of the valuation of green fintech companies.
The impact metric to value green fintech companies needs to be simple and transparent. Important to show measurable results and to inspire clients, investors, personnel and other stakeholders. The bottom line contribution to the global annual CO2 reduction from 37 billion to 0 tonnes meets these requirements*. Simple, transparent and most important the metric which determines our future. The CO2 metric is critical and an essential part of each green fintech pitch deck and investors valuation.
*Our World in Data (https://ourworldindata.org/grapher/annual-co-emissions-by-region)
We love to hear from you. The GreenFintech.org Team.