As successive global crises support short-term gains, is there a future in green and sustainable investments? Ms. Karin Nemec, Grünfin’s co-founder, and CEO, is confident that there is because an increasing number of people are asking a simple question: “What kind of world do I create with my money?”
Founded in 2020, Grünfin is one of the stars in the constellation of the Estonian fintech sky. Ms. Nemec is sharing her thought on the past and future of her company and is willing to also answer the tough questions about current concerns in the investment world.
Four reasons to start as an Estonian company
Money is a global commodity… or at least, this is what people used to think. The Russian invasion of Ukraine and subsequent sanctions proved otherwise. Even in fintech, location is paramount! One of the first questions during the founding of Grünfin was establishing the company’s headquarters. At that time, the three founding Estonians lived in different places on the globe so for example, Frankfurt, the financial hub of Europe, was also among the contestants. Eventually, they decided on Estonia. While this might seem like an emotional decision, according to Ms. Nemec, this was carefully considered. She listed four arguments:
First, servicing customers electronically is highly advanced in Estonia. With the help of companies such as Veriff, setting up an account and verifying it takes seconds and costs cents. Second, in Estonia, all kinds of bureaucratic paperwork are made easy through digital signing and cross-use of public digital services. Third, transferring options to employees is easier. Grünfin wanted to ensure that their employees were motivated to support their clients’ interests through personal benefits. There are no immediate tax liabilities based on options in Estonia. And fourth, risk-inclined entrepreneurial employees were easier to find at the time when the company was in its infancy. Grünfin has a crew of people involved in Skype, Transferwise (now Wise), and other bold and successful startups who have contributed to their rapid growth with their mindset.
Going with or against the trend?
When BlackRock, the world’s largest investment management company, went green some years ago, people were cheering and expected the trend to pick up in the financial world. However, we have just recently heard how American banks and reluctant to follow suit and how even ex-BlackRock employees are sharing their doubts about the power of the market to support sustainability transition. This might discourage startups like Grünfin, but according to Ms. Nemec, the situation is actually in their favour.
“When big platforms fail to show commitment to green financing, it does not mean that people will stop thinking about it. On the contrary. An increasing number of people turn down investments because of moral grounds. Hence, this is an opportunity for smaller platforms such as us. We are attracting people who see that we share their values and want to contribute to the sustainable future,” Ms. Nemec describes her convictions.
The road to a bright future, however, is bumpy. The financial world does not look as rosy as before February 24. Green investments are incredibly flaky. Instead, the terrible things — oil and weapons, are making money.
Ms. Nemec, nevertheless, sees no reasons to be alarmed. Sustainable, diversified funds performed better in downturns better than in many markets. Instead, she sees the pandemic and the war in Ukraine as accelerating the long-term trends that started earlier because they add a fundamental security concern to investment decisions. Money is increasingly not “just” money, but it is valued through its ability to produce revenues even when global trade links disintegrate and fossil fuels are morally and ecologically unusable. Not only do more people consider this in their investments, but this is also becoming a mainstream political trend.
Towards a sustainable, not only green future
More importantly, though, Ms. Nemec argues for the fundamental rule of the finance world that supports diversification. This goes against a common misconception when people confuse green investments with sustainable ones.
“While money tends to concentrate on solar power and other similar “green” areas, our strategy is based on the understanding that, in the future, we need the same services as today – such as retail or transport – but these need to be sustainable. Therefore, we diversify our funds and invest in companies leading sustainability efforts in their respective fields,” Ms. Nemec explains Grünfin’s strategy.
Transparency gives an edge over competitors
So, while it may not seems so in the short term, green and sustainable financing is trendy in the long term. In addition to big established financial players putting out green investment products, also smaller competitors are aiming at the European market. The market leader’s position is yet to be filled, and Ms. Nemec works hard that in a few years, this belongs to them. It is not only because being founded in the EU; their compliance covers the entire European Union. According to Ms. Nemec, the main competitive edge comes from their considerably higher transparency of reporting and activist commitment to sustainability. This is especially welcome considering the criticism towards rating agencies that pay little attention to environmental practices.
“The main criteria for including companies in funds where we invest is considering whether they are “Paris aligned” or not. Therefore, we only invest in funds that create a real positive impact,” Ms. Nemec says. “Our list of criteria for choosing assets is quite long, but if I were to point to perhaps the most visible item, it is our cooperation with ShareAction. This NGO is not only engaged in research and ranking but also in shareholder activism. So, we are quite convinced that our funds are sustainable, but we are also influencing the financial world in general towards better practices.”
In short, as Ms. Nemec put it, Grünfin is closely following the laws of finance and the laws of the Earth. Sounds like the right mix for the current challenging times.
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social scientist at the university of helsinki and the estonian university of life sciences