Green and Sustainable FinTech

What are the uses and benefits of FinTech tools?

Uses: FinTech tools enable the tracking and direct transfer of digital assets without the need for trusted intermediaries, and can automate services without the need for human intervention.

Benefits: FinTech techniques can enhance efficiency, distribution and transparency, reduce costs and increase access to finance for individuals and small businesses, particularly in the developing world. This, in turn, can greatly accelerate the growth and development of green and sustainable finance.

What are some examples of the impact FinTech has made in the real-world?

1. Improving access to, and lowering costs of delivering financial services
   • This is clearly demonstrated by the availability of financial services via smartphones. This ensures that a greater number of individuals and smaller businesses can access microfinance and insurance to invest in climate mitigation/adaptation activities. In the case of lowering costs, OKO, for example, combines digital and mobile distribution with new technologies in satellite imagery to create low-cost crop insurance for smallholder farms in Africa.
2. Improving risk management
   • Access to, and the ability to analyse, large and complex climate data and emissions tracking makes it easier for financial institutions to identify, assess, manage, disclose and price climate-related financial risk. For example, Carbon Delta helps investors assess and price ‘climate value at risk’.
3. Enhancing transparency and market integrity
   • Monitoring and verifying environmental investments. The availability of this from satellites and drones makes the verification and publication of this impact data more robust, cheaper and more widely accessible. For example, the Green Assets Wallet, developed by Stockholm Green Digital Finance, provides a system for the validation of green investments from automated data feeds and emissions sensors.
4. Promoting more sustainable consumer and investor behaviour
   • Payment services that track customer spending behaviour can “nudge” consumers towards more sustainable consumption. For example, Ant Forest, combines behavioural nudges with gamification to reduce carbon emissions and increase reforestation. Users gain carbon points for i.e. using public transport which is converted into ‘green energy’, and in turn used to grow trees.
5. Improving access to financial markets
   • FinTech tools and techniques (digital platforms) can reduce the cost of issuing bonds and other securities, making it easier for smaller businesses and projects to receive funding. For example, in 2019, BBVA issued a 6-year, 35 million Euro green bond using an in-house private blockchain platform. The platform allows clients to choose between product configuration options in an entirely digital process, reducing costs and time.

What are Cryptocurrencies, and how can they be used to promote Green & Sustainable Finance?

Cryptocurrencies - These are digital assets, generally using blockchain as a means of exchange for financial transactions without a central issuing authority.

Proponents of cryptocurrencies suggest that decentralised blockchain and smart contract technologies, linked to the availability of environmental performance and sustainability data, can incentivise more sustainable consumer behaviour. For example, Solar Coin, which rewards producers of solar energy.

What are the challenges and costs of adopting FinTech tools?

• The risks of digital exclusion, especially in relation to vulnerable customers
• Granularity - the individual pricing of risk enabled by AI and advanced data analysis, which may exclude individuals from products such as insurance
• Unconscious bias in AI and machine learning
• The loss of data control and privacy
• In the case of cryptocurrencies, bitcoin relies on “mining”, which in turn requires huge computing power and energy consumption to function. This power is often generated via fossil fuels

What are the FinTech challenges in Green & Sustainable Finance specifically?

• Increased automation can lead to significant increases in job insecurity. At the extreme, the replacement of large numbers of customer-facing and back-office jobs
• Greenwashing: The benefits of a new product are overstated in order to secure investment or grow market share