Unit 11: Green and Sustainable FinTech PDF

453 |Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech INTRODUCTION LEARNING OBJECTIVES In this chapter, we explore how financial technology On completion of this chapter, you will be able to:...

453 |Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech INTRODUCTION LEARNING OBJECTIVES In this chapter, we explore how financial technology On completion of this chapter, you will be able to: (FinTech) is transforming many aspects of banking, insurance and investment, and supporting the growth explain what is meant by FinTech and associated of green and sustainable finance. The combination of terms; FinTech tools and techniques, including smartphone explain FinTech tools and techniques and how they can apps, distributed ledgers (blockchain), the Internet of support the growth of green and sustainable finance Things (IoT) and ‘big data’ analysis, can improve climate and help align finance overall with the aims of the Paris risk management; enhance verification, reporting and Agreement, the UN Sustainable Development Goals, regulation; support financial inclusion and resilience; and and other sustainability objectives; facilitate access to capital markets. explain the benefits of applying FinTech tools and As well as supporting the growth of the sustainable techniques to support green and sustainable finance; finance sector itself, FinTech can also help align finance and more generally with sustainable goals and objectives. explain challenges that may arise from using FinTech Although FinTech represents a generally positive tools and techniques to support green and sustainable development for green and sustainable finance, potential finance. negative aspects and consequences of the use of FinTech tools and techniques also need to be considered and addressed. 454 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.1 INTRODUCTION TO FINTECH FinTech and digital finance are terms used to refer to a wide collection of technologies, including, but not Throughout its history, the financial sector has been one limited to, smart phones and banking apps, the Internet of the earliest adopters and most extensive users of of Things (IoT), Application Programme Interfaces (APIs), technology. Over the past 20 years, and especially in the distributed ledgers (blockchain), artificial intelligence (AI) last decade, the adoption of digital, data and internet- and machine learning, and big data and data analytics. enabled technologies has transformed – and continues Advances in digital technology and data science, new to transform - the financial services sector. Such policies and regulations (particularly those aimed at technologies are often referred to as ‘FinTech’ (combining increasing competition in the sector, such as Open the words ‘finance’ and ‘technology’) or ‘digital finance’, Banking in the UK and PSD2 in Europe), wider economic and are major enablers and disruptors of financial and technological trends (such as a more flexible labour services, reshaping the way finance functions and relates market and the ‘digitisation’ of the economy), as well to the economy, environment and society. as evolving customer expectations and behaviours (such as rises in the use of digital payments and falling According to the United Nations Development branch footfall), have all accelerated the pace of change Programme (UNDP) Taskforce on Digital Financing of the in how the finance sector operates. In the early stages Sustainable Development Goals, to date (2020) banks of development, FinTech was associated with new have invested over $1 trillion in developing, integrating start-up firms aiming to challenge the position of large, and acquiring emerging technologies1. KPMG estimates incumbent financial services organisations in the market. that – despite the impact of COVID-19 - FinTech venture Large financial institutions (including central banks and capital investment in FinTech globally in 2020 totalled regulators) and other organisations have since adopted $105 billion, following a record $165 billion in 20192. ‘Big many of the tools and techniques of FinTech and digital Tech’ firms such as Apple, Amazon and AliPay, and mobile finance, in some cases acquiring or partnering with telecoms operators, are also major FinTech adopters and FinTech start-ups. investors. The COVID-19 pandemic further accelerated the uptake of digital finance, with the use of mobile banking and FinTech apps increasing as individuals and firms found themselves having to work (and bank) from home. 455 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech One way to try to capture the breadth of the opportunity for the use of FinTech tools and techniques in sustainable QUICK QUESTION: WHICH FINTECH PRODUCTS, SERVICES finance is by using the taxonomy developed by the Green Digital Finance Alliance (GFDA) and the Swiss Green AND TOOLS DO YOU USE AT PRESENT? WHICH, IF ANY, Fintech Network (2021). They identify and give examples CONTAIN FEATURES THAT PROMOTE ENVIRONMENTAL OR of FinTech firms working in seven areas in their “Green OTHER SUSTAINABILITY FACTORS? FinTech Taxonomy”: Write your answer here before reading on. Green digital payments and accounts Green digital investment Digital ESG data and analytics Green digital crowdfunding and syndication platforms Green digital risk analysis and insure-tech Green digital deposits and lending Green digital asset solutions3 Whilst such a classification is useful, the reality is that FinTech tools, techniques and firms are already well embedded right across finance as a whole, as well as the green and sustainable finance sub-sector. We have already seen many examples of the use of FinTech tools and techniques to support green and sustainable development in earlier chapters, such as Ant Forest in Chapter 6, Climetrics in Chapter 9, and ‘Pay as you Drive’ insurance in Chapter 10. More generally, well-known FinTech products and services include mobile payment platforms (such as AliPay, ApplePay, Square, and banking apps provided by new digital ‘challenger’ banks as well as incumbents); retail investment platforms (Nutmeg and Robinhood); price comparison sites (MoneySuperMarket and GoCompare), peer-to-peer (P2P) lending for individuals and businesses (Zopa, Funding Circle); cryptocurrencies (such as Bitcoin and Ethereum); and crowdfunding sites (such as CrowdCube and Kickstarter). 456 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech There are also a wide range of FinTech applications that increasingly made digitally. This generates a wealth of FinTech tools and techniques, especially blockchain, support the more efficient and effective delivery of transaction data; customers can download apps that can also be used to support humanitarian projects financial services, including ‘RegTech’ (which uses some offer price comparisons and switching services, and can and objectives. The UN is one of many organisations or all of the technologies outlined previously to better navigate complex financial markets with the support of leveraging blockchain in this way; it did so, for example, manage regulatory compliance; for example, customer robo-advisors. Big data and advanced data analytics as a way of disbursing funds to Syrian refugees in 20206. identification and onboarding); ‘PayTech’ (facilitating are used to tailor products and services to customers NGOs and companies also use ‘humanitarian blockchain’. cheaper and faster interbank payments, often utilising and better assess credit and insurance risks, enabling Hiveonline, for example, uses blockchain to help blockchain); improvements in risk identification, analysis new types of loans to be made and more accurate microeconomies in rural Africa access online payment and management, and high-frequency and other types pricing of insurance premiums. Trading is becoming and banking linked with other data-driven services. One of automated, algorithmic analysis and trading. Other ever more automated and algorithm-led. Central banks product developed by Hiveonline (myCoop.online) offers examples include InsurTech, a blend of insurance and are developing digital currencies (sometimes referred crop forecasting, voucher distribution and business technology, and LendTech, financial technology to to as ‘GovCoins’) and using blockchain-based systems management services for small farmers, and even support lending by financial institutions and others. to improve the accuracy, efficiency and security of works in environments where internet connections and their wholesale payments, clearing and settlement smartphone coverage are poor7. The use of satellite and other remote monitoring infrastructure. techniques (using advanced data analytics) for verifying A related term in common use in green and sustainable the environmental and, potentially, social sustainability As we will explore in this chapter, the application of finance is ‘CleanTech’ (sometimes also known as impacts of projects and investments, discussed in FinTech tools and techniques has the potential to support ‘GreenTech’), which covers a wide range of technologies Chapter 4, is another example of the application of the the continued development of green and sustainable linked to environmental management, climate change digital and data-driven technologies that are increasingly finance and help align finance overall with the aims of the mitigation and adaptation and other related areas, underpinning finance. And FinTech tools and techniques Paris Agreement, the UN Sustainable Development Goals including, but not limited, to: can be used in retail financial services to help individuals and other sustainability objectives, by: make more sustainable consumption choices. White label renewable energy (solar, wind and marine, smartgrids, FinTech provider Vacuumlabs, for example, worked with increasing the availability, quality and disclosure of energy storage); Swedish FinTech Doconomy to develop technology that sustainability-related data, which can be used to energy efficiency (passive buildings, improving power combines data on credit card purchases with carbon make improved assessments of climate and wider transmission, improving energy usage); tracking data to help customers make more sustainable sustainability risks and opportunities; resources (recycling, reducing/utilising waste products consumption choices 4. UK carbon tracking FinTech CoGo decentralising and increasing access to services and and packaging, developing substitutes for high-carbon uses the UK’s Open Banking infrastructure to make markets, helping more customers, communities and plastics); APIs and other solutions available to banks wishing institutions participate in and engage with green and to integrate carbon tracking into their banking apps, sustainable finance and finance overall; and transportation and urban infrastructure (public including one of the UK’s ‘Big 4’ banks, NatWest5. transport, electric and hydrogen-powered vehicles); lowering the costs and increasing the speed and and FinTech tools and techniques, therefore, are relevant efficiency of the provision of financial services, providing general social benefit. sustainable food production and land use (agriculture, and applied throughout much if not all of the financial aquaculture and forestry). services value chain. In many countries, payments are 457 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech Developments in the CleanTech sector are beyond the 2. Lowering the costs of delivering financial services – makes the verification and publication of impact data scope of this chapter and study guide, but are clearly an process automation, the delivery of financial services (such as factory emissions, de- or re-forestation) more area of great interest to Green and Sustainable Finance via digital channels and the use of advanced data robust, cheaper and more accessible. Professionals seeking to support the transition to a analytics to better understand and price risk, can 8. Promoting competition – FinTech start-ups can more sustainable, low-carbon world, as they encompass lower the costs of providing financial services, making experiment with innovative approaches to providing many of the infrastructure and technology investments previously unbanked/uninsured individuals and small financial services that might be difficult or impossible needed for successful climate change mitigation and businesses more attractive to providers. for large incumbents, which may lead to new services adaptation. Industry events such as the GreenTech 3. Improving access to capital markets – the promoting sustainability and/or serving previously Festival8 may also be of interest to Green and Sustainable combination of FinTech tools and techniques, including under-served or marginalised groups. Finance Professionals who wish to find out more about digital platforms and distributed ledgers, can reduce technological developments in this area. 9. Targeting investors – digital platforms and data the cost of issuing bonds and other securities, making analytics enable issuers, fund managers and others to 11.2 APPLYING FINTECH TOOLS AND TECHNIQUES IN it easier for smaller businesses and projects to receive target retail or institutional investors with an appetite GREEN AND SUSTAINABLE FINANCE funding that is currently only accessible by larger for green and sustainable finance investment. issuers (as we will go on to see, this is particularly In recent years, there has been significant global interest important in the context of green and sustainable 10. Changing consumer behaviour – apps that can in applying FinTech tools and techniques to support finance). track customer spending behaviour and link this with the growth of green and sustainable finance. This has emissions data can estimate carbon footprints and 4. Increasing efficiency – as well as providing cost ‘nudge’ consumers towards more climate-positive or included a range of policy initiatives led by bodies efficiencies, the use of FinTech tools, such as smart including the UNDP and UNEP, which we introduce in other socially desirable spending and behaviours. contracts, can automate services (for example, 11.3, and the development and deployment of innovative approving and paying out climate insurance claims) 11. Improving financial literacy – many banking apps digital finance and technology-led solutions by new start- without the need for human intervention. and the like offer budgeting tools and other financial ups and incumbents alike, some of which are presented education resources to support financial inclusion and later in this chapter. Some of the key features and 5. Decentralisation – distributed ledger (blockchain) and reduce indebtedness. benefits of FinTech for the green and sustainable finance smart contract technology enable the tracking and sector include: direct transfer of digital assets without the need for trusted intermediaries, further reducing costs. 1. Improving access to financial services – the 6. Improving risk management – access to and analysis availability of banking, insurance and other financial of data over a wide range of green and sustainable products and services via smartphones and other finance-related areas (for example, climate data, devices means greater numbers of individuals and emissions tracking) make it easier for financial small businesses – especially in the developing institutions and others to identify, assess, manage and world - can access services such as microfinance and disclose climate and other environmental risks. insurance to finance mitigation/adaptation activities and enhance climate resilience. 7. Enhancing transparency and market integrity – the availability of monitoring and verification data from satellites, drones, smartphones and other sources 458 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech According to the UNDP Taskforce on Digital Financing of the Sustainable Development Goals9, FinTech tools QUICK QUESTION: WHICH OF THE FEATURES AND BENEFITS and techniques (referred to as ‘digitalisation’) are already helping many individuals and small businesses OF FINTECH TOOLS AND TECHNIQUES LISTED PREVIOUSLY gain access to financial services and align finance with ARE, IN YOUR VIEW, MOST RELEVANT TO GREEN AND sustainability goals. The Taskforce identified five areas SUSTAINABLE FINANCE? where this is the case: Write your answer here before reading on. Digitalisation has increased financial inclusion by helping hundreds of millions of women, rural residents, people on low incomes, young people and small business owners seamlessly transact, safely save, cheaply borrow, securely invest, and more easily become insured. Digitalisation has helped incorporate SDG-related risks (sometimes termed ‘environment, social and governance’ factors, or ‘ESG’) into growing volumes of lending and investment; in recent times this has most visibly included climate-related risks, but also includes other environmental and social factors that present a material risk to financial returns. Digitalisation helps people align the use of their money with their own interests and goals, as witnessed by the rapid growth in impact and automated ‘robo-investing’, and the growth of SDG-aligned lending and investing opportunities. Digitalisation can empower citizens as taxpayers and users of public services by increasing the ease and accessibility of tax and payment systems for public services and providing greater transparency in the public allocation and use of funds. Digitalisation has enabled people to access capital- intensive services and optimise the use of their own assets through shared economy approaches such as product- as-a-service, smart metering, pay-as-you-go, and rent-to-own. 459 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech READING: GREENING DIGITAL FINANCE centrally includes the Internet of Things and of existing markets. In his best-selling book Flash Artificial Intelligence. As such, it will increasingly Boys, Michael Lewis revealed the negative impacts Digital finance has the potential to overcome ‘animate the physical world’, integrating physical of high-frequency trading on the financial returns some of the pervasive barriers to deploying and natural assets by enabling interactions that from our lumbering, 20 th-century pension funds. private finance for the greater good, and so to in turn drive them to sense and respond to each Regulation itself will be a casualty, at least for a improve environmental outcomes. On the supply other in real time. Just as blockchain technology while, as financial regulators struggle to oversee side, digital finance reduces costs and increases will create a ‘history’ to money, revealing where it and guide an ever-more complex, dynamic and speed, providing a foundation for identifying and has been and what it has done, so will the lifecycle virtual financial system. Some commentators, such creating profitable green savings and investment of a product, its interaction with the environment as the FT’s Izabella Kaminski, have argued that the opportunities. Trine, a Swedish tech start-up, and its financing also become easily traceable. The commoditisation effects of speed and big data enables savers in downtown Stockholm to profitably impact of this technological surge goes beyond itself undermine the conditions for sustainable fund distributed solar energy systems in rural enabling new decision-making opportunities development. sub-Saharan Africa. On the demand side, similarly, based on objective data and new business reduced financing costs and pay-as-you-go access models. Behavioural norms will also be reshaped It is certain that FinTech will reshape the global to clean energy open up new markets, particularly as personal and group identities are increasingly financial system and its relationship with both the for poorer consumers. Kenya’s M-KOPA is leveraging shaped through virtual experience. ANT’s carbon- societies in which we live and the ecosystems on the hugely successful domestic mobile payments saving initiative is closely tied not only to its financial which we depend. Harnessing technology for the platform, M-PESA, to open up clean energy to services proposition, but also to its social media greater good has been a challenge throughout poorer communities. strategy, in recognition of its potential for eliciting history. In that sense, aligning digital finance and even greater behavioural change. its close cousins with the imperatives laid out in The prize could be very large. ANT Financial Services, the Sustainable Development Goals (SDGs) is just with 450 million users of its mobile payments All revolutions come at a price. Incumbent financial another iteration of such efforts. Some solutions platform in China alone, has launched a ‘green institutions that cannot evolve rapidly, and the will be framed by compliance, some by standards energy’ app that rewards users for reduced carbon people dependent on them for their livelihoods, and the rule of law, and others by riding the use, revealed through a set of algorithms that will be the first to pay as they are cut out of technological wave through innovation. Here, we translate individuals’ financial transaction data into profitable parts of the financial value chain. The would emphasis three, related solution arenas. an estimate of their carbon-footprint. Extending eradication of Kodak and Nokia in the face of just this single carbon-saving rewards initiative early-stage digital upheaval comes to mind as First, the digital finance community needs to be across a number of payments platforms could minor rehearsals of what is to come. The misuse of rapidly aligned with sustainable development engage hundreds of millions of individuals in making new financial technologies is inevitable, although imperatives to prevent the emergence of a new carbon-saving lifestyle decisions on a daily basis. every effort must be made to prevent it. Loss of generation of incumbent, problematic financial privacy is the most visible penalty, and is likely, institutions. FinTech is not a solitary, technological disruptor. despite noble efforts at creating safeguards. Less Second, financial policy makers and regulators It is part of a broader technological ecology that visible are the negative effects of the disruption need to embrace sustainable development 460 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.2.1 Retail financial services utilising the increasing availability and granularity as core to their engagement with the FinTech Some of the most obvious applications of FinTech tools of data relating to climate risks and opportunities, community, most immediately in their ongoing and techniques, at least to the general public, may be and advances in data analysis techniques, to better ‘regulatory sandbox’ experiments. found in retail financial services, including services for price risk and return for individuals, businesses and micro and small businesses such as: communities, enabling financial services firms to offer Third, the sustainable development finance a wider range of green and sustainable products and community is woefully ignorant of the promoting green and sustainable finance to retail services (for example, green mortgages and loans, significance of these developments, and needs customers, and encouraging and supporting climate insurance) – although data availability and to wake up and engage now, or it risks becoming behavioural change by providing products and quality is still skewed towards the developed world; irrelevant, or worse. services, such as current accounts and payments, and Source: Zadek, S (2017) Greening Digital Finance (online). Available that ‘nudge’ and/or reinforce green and sustainable channelling retail investors’ savings to support loans via the IISD SDG Knowledge Hub at: http://sdg.iisd.org/ financial and purchasing decisions (for example, the commentary/guest-articles/greening-digital-finance/ [Accessed: or small investments in environmentally sustainable Nordea Carbon Footprint Tracker described on the 24 January 2023] companies and organisations through aggregator next page, and Ant Forest, referred to previously and and marketplace apps, peer-to-peer (P2P) lending, described in Chapter 6); or crowdfunding platforms (such as Bettervest, as As we have explored in earlier chapters, the green and providing access to banking, insurance and other described in the next few pages, and Inyova). sustainable finance sector is growing rapidly, driven by financial services, particularly in developing markets, changing consumer preferences and values, evolving where smartphones with cameras and fingerprint policy and regulatory interventions, and an increasing readers can be used to prove identity, onboard understanding of climate and broader sustainability customers, and deliver financial services, including risks and opportunities. This increases the demand for payments, credit and insurance that support financial innovative solutions, products and services supported inclusion and/or climate mitigation and resilience; by a range of FinTech tools and techniques across the financial services landscape – retail and corporate supporting lending via microfinance and other banking, investment and insurance. We will now explore institutions to climate-smart agriculture, forestry, each of these in turn. fisheries and other sectors, where traditional approaches to credit scoring, loan disbursement and repayment, and monitoring environmental outcomes would require expensive branch networks but can be delivered much more cost-effectively with technology; 461 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech CASE STUDY: INDIVIDUAL CARBON FOOTPRINTS FOR NORDEA’S DIGITAL BANKING CUSTOMERS QUICK QUESTION: HAVE YOU MEASURED YOUR OWN Three million digital banking customers at Nordea CARBON FOOTPRINT? ARE THERE TOOLS AVAILABLE Bank in Sweden can track their individual carbon WHERE YOU LIVE AND WORK TO HELP YOU DO THIS? footprint using a CO2 tracker built into their mobile Write your answer here before reading on. and digital wallets. The system works by tracking customer spending on debit and credit cards across merchant categories such as transport, groceries, clothing and entertainment. Estimated CO2 emissions are then calculated using the Åland Index, originally developed by the Bank of Åland in Finland. The resulting carbon footprint is an estimate only, as individual product-level data is not available. Nordea Bank customers can track their estimated CO2 impact on a monthly basis, via their Nordea Mobile App and Nordea Wallet, and hopefully adjust their consumption and spending decisions accordingly. Launching the new service in late 2019, Sara Mella, Acting Head of Personal Banking at Nordea, said: “The tracker is a good place to start for those of our customers who want to make a positive impact on the climate as they can use the insight they get about their daily spend to actively reduce their CO2 impact or compensate for it.” Source: Nordea Bank (2020) https://www.nordea.fi/en/personal/ our-services/online-mobile-services/co2-tracker.html 462 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech risks. Some financial regulators are considering how CASE STUDY: BETTERVEST plus interest has been paid off. Once the contract best to balance support for innovative approaches to period has ended, the savings remain in the project delivering financial services with investor protection, Bettervest describes itself as an online platform for owner’s company. The Bettervest platform itself is which raises questions about how far and how fast these impact investments. Trend researcher and futurist financed by a percentage commission (based on the approaches should be scaled up, including in the area of Patrick Mijnals came up with the idea in 2006, investment sum) and an annual handling fee during green and sustainable finance. focusing initially on energy-efficiency projects in the contract period. Germany. His vision was to use energy efficiency to 11.2.2 Corporate banking and capital markets provide impetus for a climate-friendly economy and Source: Bettervest (2022) https://www.bettervest.com/en/ In earlier chapters, we examined how financial about-bettervest/ [Accessed: 24 January 2023] institutions and others can use advanced data analytics society, and that ordinary people should be able to invest in it via the use of a crowdfunding approach. to help better identify, assess, manage, price and disclose This has now expanded to encompass a wide range climate-related and other sustainability risks, with the P2P lending and crowdfunding platforms grew emphasis very much on identification at present. In of environmental and social impact investment significantly in number and in scale following the addition, analytics can be used to monitor and verify the opportunities in Germany and around the world. Global Financial Crisis, although more recently some achievement of desired project outcomes and impacts The Bettervest platform enables individuals to of the largest P2P lenders have scaled down or exited (for example, when assessing the impact of green bonds jointly invest– via subordinate loans and bonds – in the market, because the model of disintermediating or sustainability-linked corporate loans). The increasing renewable energy, resource efficiency and other established lenders has not been successful. Specialist availability and ability to analyse both structured and projects initiated by companies, NGOs and local “green” platforms such as Bettervest (described in the unstructured data play an important role in encouraging municipalities. Using the funds raised, projects can case study above) can and do support lending to, and the further development of the green and sustainable develop and deploy technologies leading to cost, investing in, green and sustainable projects that would be finance sector by aiding transparency and disclosure, energy and CO2 reductions, and/or take advantage difficult or impossible for established lenders, however. which helps prevent greenwashing and supports investor of opportunities for environmentally-positive This approach has multiple benefits for investors and confidence and market integrity. The Green Digital products and services. The platform thus opens investees, including cheaper and more flexible funding, Finance Alliance’s “Green FinTech Taxonomy” introduced up sustainable investment opportunities to small increased engagement by potential customers and previously gives examples of some of the most widely- private investors who want to combine financial investors with green issues and solutions, and the used datasets used in this area10. Data can be – and returns with impact returns. capability of sharing risk with other investors across a are – used by environmental NGOs and others to identify potentially wide and diversified portfolio of investments. instances of greenwashing by financial institutions, too. Eligible projects are assessed by certified consultants, and are regularly monitored There have been concerns expressed, however, about A good example of how FinTech tools and techniques can throughout the investment term. Project owners the protection of investors in P2P and crowdfunding be used to support the development of capital markets commit to using revenues generated and/or annual schemes, particularly if they involve complex projects and is the Green Assets Wallet initiative, described in the cost savings to pay back investors over a fixed financial risks. Do retail investors genuinely understand following case study. contract period until the initial investment sum the risks they are taking, and that their capital may be at risk if loans or investments default? Portfolios may be highly correlated and lack diversification, concentrating 463 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech FinTech tools and techniques, such as digital platforms and blockchains (distributed ledgers), can also reduce the cost CASE STUDY: GREEN ASSETS WALLET and complexity of accessing capital markets, making it easier for smaller businesses and projects to issue, for example, green bonds or other securities. Given the challenges of identifying green and sustainable finance projects of sufficient The Green Assets Wallet (GAW) initiative describes scale to be financed by ‘traditional’ means, due in large part to the costs of issue, if technology can support smaller-scale itself as a ‘global trust platform to support capital capital market issuances, this may help to accelerate the growth of green finance. As evidenced in the following short markets to finance a credible sustainability case study, the use of blockchain technology enabled a €35m green bond to be issued – well below the more common transition.’ It enables investors to access reliable €0.5bn to €1bn benchmark issues. data on environmental performance to support investment decision-making, monitoring and reporting. GAW is independent, global, and market CASE STUDY: BBVA ISSUES BLOCKCHAIN SUPPORTED GREEN BOND neutral. In 2019, BBVA issued a 6 year, €35 million structured green bond via a private placement with MAPFRE, a Spanish GAW aims to support the growing market for debt insurer, using an in-house, private blockchain platform. The platform allows clients to choose between numerous instruments linked to environmental performance product configuration options in an entirely digital process in which the negotiation of the structure and prices, and (such as green bonds) by bridging investors with the creation of documentation for the bond, are part of the same tool. This reduces the cost, time and complexity potential investment opportunities through cost- of creating securities, and also ensures that agreements are fully traceable and immutable. efficient and immutable validation and reporting Juan Garat, BBVA’s Head of Global Sales states: “With this deal, BBVA reasserts its firm commitment to both of environmental objectives and impact. To do sustainable financing and new technologies. Using DLT – distributed ledger technology – for this transaction this, GAW uses a blockchain-based platform allowed us to simplify the processes and streamline the negotiation time frames, which is in line with our pursuit of developed by ChromaWay and supported by other excellence in customer service”. partners, including the climate research institute and data provider CICERO. It automates datafeeds According to BBVA, the use of the blockchain platform offers the following advantages: from institutions such as central banks, financial institutions, energy providers, transport operators It allows all participants to have access to the transaction’. Distributed ledger technology reduces issuing time and municipalities, and provides validated evidence and ensures that the negotiations and agreements reached are traceable and immutable. These features of of environmental impact from a wide range of traceability and immutability make it easier to demonstrate compliance with the relevant regulations. sources, including satellite images, engineering The platform allows clients to ‘choose between numerous product configuration options’. This gives clients reports, audit reports, and electricity generation considerable flexibility in terms of designing the bond that best suits their needs. data. It works for products from the simplest to the most complex. This enables a ‘self-service approach’ in which This enables investors to access (both pre- and investors who know what product they want to invest in can save time and effort by limiting the definition of the post-issuance, and at the project level) trusted and different variables. Investors looking for new investment solutions can quickly and easily explore new products. verified best-in-class metrics with relevant KPIs and It is an ‘entirely digital process’ in which the negotiation of the structure and prices, and the creation of benchmarking, bringing transparency and building documentation for the bond, are part of the same tool. trust in the integrity of the green debt market. Source: BBVA (2019) BBVA issues the first blockchain-supported structured green bond for MAPFRE (online). Available at: https://www.bbva.com/en/ Source: Green Assets Wallet (2021) https://greenassetswallet. bbva-issues-the-first-blockchain-supported-structured-green-bond-for-mapfre/ [Accessed: 24 January 2023] org [Accessed: 24 January 2023] 464 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.2.3 Investment In addition to enabling retail investors to participate QUICK QUESTION: THINKING ABOUT THE ORGANISATION directly in investment in and lending to green activities YOU WORK FOR, OR A FINANCIAL INSTITUTION YOU ARE and projects, FinTech tools and techniques may support investment in green and sustainable activities, firms and FAMILIAR WITH, CAN YOU IDENTIFY ANY EXAMPLES OF projects more generally. In particular, and as we have FINTECH TOOLS AND TECHNIQUES BEING DEPLOYED TO explored in earlier chapters, the increasing availability SUPPORT ENVIRONMENTAL OR OTHER SUSTAINABILITY and granularity of structured and unstructured data OBJECTIVES? relating to sustainability factors; improvements in data quality, standardisation and verification; and advances Write your answer here before reading on. in AI and machine learning applied to data analysis can support the continued growth of sustainable investment. The ever-increasing availability of data creates challenges as well as benefits for investors and analysts, however, as it becomes more difficult to separate truly meaningful and useful data that can provide insights into financial and sustainability performance from ‘noise’. A number of technology-driven data analytics and ratings firms have been established and have grown rapidly in recent years, including Climetrics and Sustainalytics (introduced in Chapter 9), TruValueLabs, and Arabesque. 465 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech CASE STUDY: ARABESQUE S-RAY® with future financial performance. The result is a proprietary ESG score for each company, providing Arabesque S-Ray ® is a proprietary tool that allows an assessment of long-term financial performance. investors and others to monitor the sustainability of over 8,000 of the world’s largest corporations. GC Score Using machine learning and big data, Arabesque Arabesque S-Ray ® analyses companies based S-Ray ® systematically combines over 200 on the four core principles of the United Nations environmental, social and governance (ESG) metrics Global Compact (GC): human rights, labour rights, with news signals from over 30,000 sources across the environment, and anti-corruption. With 20 languages and 170 countries. This empowers Arabesque S-Ray ®, these principles are quantified investors and other stakeholders to make better for the first time, with the potential to inspire more decisions for a more sustainable future. companies to take shared responsibility and join the Global Compact in its commitment to achieve a It is the first tool of its kind to rate companies using sustainable and inclusive global economy. the normative principles of the United Nations Global Compact (GC Score). Additionally, Arabesque Temperature Score S-Ray ® provides an industry-specific assessment The Temperature Score is a proprietary metric of companies’ performance on financially developed by Arabesque S-Ray ® that quantifies material sustainability criteria (ESG Score), and the extent to which companies contribute to global a Temperature Score that evaluates companies’ warming through their greenhouse gas emissions. It contribution to global warming. Scores are does this by translating publicly disclosed emissions combined with a preferences filter that allows users to a temperature score, based on sector-specific to better understand each company’s activities and emissions pathways. impacts, and how these align with investors’ values and preferences. Source: Arabesque (2021/22) https://www.arabesque.com/s- ray/ [Accessed: 24 January 2023] ESG Score Arabesque S-Ray ® incorporates sector-specific assessments of company performance across financially material environmental, social, and governance (ESG) issues. Each company is scored within the context of its industry environment, based on factors that have a material relationship 466 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech The advantages to investors of advances in data availability and analysis include: QUICK QUESTION: USE THE ARABESQUE S-RAY TOOL TO developing a more comprehensive view of a OBTAIN ESG, GC AND TEMPERATURE SCORES FOR THE company’s/investment’s exposure to climate risks, ORGANISATION YOU WORK FOR, OR A COMPANY YOU ARE environmental impact and sustainability more INTERESTED IN. WHAT ARE THEY, AND TO WHAT EXTENT broadly by enabling multiple – perhaps hundreds – of structured and unstructured data sources to be IS THE ORGANISATION ALIGNED WITH THE OBJECTIVES OF utilised and compared, improving investment decision- THE PARIS AGREEMENT? making; Write your answer here before reading on. the growing availability of standardised data on environmental performance and sustainability, allowing different potential investments to be more easily and effectively compared; enabling real-time monitoring and verification of investment performance in terms of desired green and sustainable outcomes; for instance, monitoring emissions data, power usage or the sustainability of supply chains, and helping investors manage investments more dynamically; using blockchain (distributed ledger) technology to validate and provide an immutable record of outcomes, as in the Green Assets Wallet initiative described in the previous section, and the World Wide Generation G17 Eco Platform described in the case study on the next page; developing new sustainable investment funds, such as ESG index-tracking funds, as discussed in Chapter 9; and reducing the costs of investment analysis via automation, which is particularly important for active investment managers who are under pressure from the growth of lower-cost index tracking and other passive investment funds. 467 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech CASE STUDY: WORLD WIDE GENERATION G17ECO PLATFORM QUICK QUESTION: WHAT DATA DOES YOUR ORGANISATION, The World Wide Generation (WWG) G17Eco Platform OR AN ORGANISATION WITH WHICH YOU ARE FAMILIAR, is a blockchain-enabled platform that provides PROVIDE THAT MIGHT HELP INVESTORS AND ANALYSTS an interoperable, transparent marketplace for sustainable investing. It uses distributed ledger ASSESS SUSTAINABILITY? THINK BEYOND REGULATORY technology to automate the mapping, monitoring, REPORTING DATA AND CONSIDER OTHER SOURCES THAT measuring, managing and marketing of an COULD BE USED. organisation’s contribution to the UN Sustainable Development Goals. Through this, it aims to ‘unlock Write your answer here before reading on. trusted, comparable and real-time data and impact measurement to empower … decision making of where to invest, divest, manage risk and create effective sustainable solutions at scale.’ The Platform enables companies, governments, financial institutions, NGOs and others to ‘map, manage, monitor, measure and market their SDG initiatives from one blockchain-powered platform’. This solves the transparency and trusted data challenge that has hindered the matching of the need for investment in sustainable activities and outcomes with investors seeking genuinely sustainable investments. To do this, WWG has developed and released two apps built on blockchain: The Company Tracker App - a digital monitoring, reporting and verification tool that streamlines and standardises sustainability reporting The Portfolio Tracker App – which enables investors to measure the alignment of their portfolios with globally recognised sustainability standards, frameworks and regulation. Source: World Wide Generation (2022) https://www. worldwidegeneration.co [Accessed: 24 January 2023] 468 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.2.4 Insurance In Chapter 10, we saw how FinTech tools and techniques CASE STUDY: OKO – BRINGING CROP INSURANCE TO EMERGING MARKETS have already been adopted in insurance in both developed and developing markets, including Pay as You OKO is an Israeli InsurTech company supported by the Luxembourg ‘Catapult: Inclusion Africa’ FinTech incubator Go (PAYG) insurance using telematics and smartphone and development programme. It combines new technologies in satellite imagery and weather forecasting to apps to price and pay for insurance based on journeys simplify and automate claims management and create low-cost crop insurance for smallholder farms, together taken and driving style, as well as blockchain/smart with mobile distribution. Through insurance, OKO supports climate resilience, financial inclusion and job creation contract-based climate index insurance for farmers and in sub-Saharan Africa. smallholders. As major institutional investors, insurers Index insurance product creation can also benefit from the application of FinTech tools and techniques more generally. As risk managers, insurers OKO partners with weather information providers, using satellite and microwave technologies to obtain hyper- can benefit from the increasing availability and granularity local data that can be used to: of data, and developments in data analytics. define risk with high precision, and therefore optimise the premium price FinTech tools and techniques can be used to support automate the claim validation process through an analysis of the historical data. impact underwriting in the developing world by providing access to insurance for communities particularly at Distribution tools risk from climate change and related extreme weather OKO creates innovative tools to distribute insurance in remote areas and to un-banked farmers: events, in order to enhance their climate resilience. In the case of products and services targeted at individuals, a USSD menu allowing policy management from any mobile device smallholders and small businesses in the developing a mobile app that provides a second-to-none customer experience, and is usable offline world (referred to as ‘microinsurance’), the combination of lower cost and wider distribution, claims management an API that lets partners (micro-finance institutions, for example) access relevant information securely. via smartphones and index insurance linked to remote Working with the Fijian government and the Fiji Sugar Corporation, OKO has also developed a micro-insurance data monitoring and providing automatic pay-outs can scheme offering farmers subsidised insurance against drought, floods and hurricanes. Ultra-localised weather support new, lower-cost models of insurance that also monitoring and automated claims management means farmers can obtain insurance at low cost. support financial inclusion. In the developing world, insurers such as Ayo and BIMA partner with mobile Source: OKO (2022) https://www.oko.finance/ [Accessed: 24 January 2023] phone providers to offer a range of insurance services to their customers, using existing distribution channels and also giving mobile providers an additional revenue stream. 469 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.2.5 Cryptocurrencies (digital currencies) In addition to the application of FinTech tools and QUICK QUESTION: HOW MIGHT FINTECH-ENABLED techniques in the retail and corporate banking, MICRO-INSURANCE PRINCIPLES BE APPLIED TO PROMOTE investment and insurance sectors, some commentators believe that cryptocurrencies can support the growth GREEN AND SUSTAINABLE FINANCE OUTCOMES IN THE of green and sustainable finance and sustainable DEVELOPED WORLD? development in general. There are many different types of cryptocurrency (sometimes also referred to Write your answer here before reading on. as ‘cryptoassets’), and it is beyond the scope of this study guide or course to look at these in detail, but in brief, a cryptocurrency uses blockchain (distributed ledger) technology to create a means of exchange for financial transactions without the need for a central issuing authority, such as a central bank. Well-known cryptocurrencies include Bitcoin, Ethereum and Ripple. As we mentioned earlier, some central banks are developing their own digital currencies, sometimes referred to as ‘GovCoins’. At the time of writing, there are more than 11,000 cryptocurrencies available worldwide, with a market value of approximately $2 trillion (April 2022), although the values of individual cryptocurrencies and the market overall fluctuate dramatically. High levels of volatility mean that many cryptocurrencies are used more for speculative investment than as a means of exchange; the value of a Bitcoin grew from approximately $9,500 in January 2020 to more than $65,000 in August 2021, before falling back to $38,000 in January 2022. Volatility is a key characteristic of cryptocurrencies; because there is no central entity, the value of the digital currency ebbs and flows with market sentiment. 470 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech Proponents of cryptocurrencies for growing green and sustainable finance suggest that decentralised blockchain CASE STUDY: SOLARCOIN and smart contract technologies, linked to the availability of environmental performance and sustainability data SolarCoin is a cryptocurrency that aims to incentivise the production of solar energy by generating SolarCoins to and supported by access to cryptocurrencies through reward solar energy generators. SolarCoins can then be traded like other cryptocurrencies (although the market is digital wallets, can incentivise more sustainable consumer much smaller than for popular cryptocurrencies such as Bitcoin or Ethereum), or spent at businesses that accept behaviour. We will look at an example of this in the them. Reading opposite on SolarCoin, which aims to incentivise solar energy production. The long-term aim is for the value of a SolarCoin to exceed the generation costs of solar energy. This event, dubbed by the SolarCoin Foundation as the “Solarity”, would effectively mean free energy for the solar energy As has been widely reported, however, many generator, provided the coins could be exchanged or spent. In November 2021, the generation cost for solar cryptocurrencies, particularly those that rely on ‘mining’ energy was $10.40 per MWh, compared with the cost of a SolarCoin at $0.05 per MWh, i.e. approximately 1/500 th of to create new cryptoassets, require huge computing the energy generation cost12. Despite the falling costs of solar energy, then, there is still a long way to go until the power and energy consumption to function. They can, Solarity is reached. therefore, have a substantial negative impact on the environment when they rely – as many do - on fossil fuels Unlike many popular cryptocurrencies, SolarCoin does not use mining to validate transactions and generate coins. for power generation. The Cambridge Bitcoin Electricity The SolarCoin Foundation estimates that the project uses less energy than a single home, keeping greenhouse gas Consumption Index tracks Bitcoin’s use of electricity; it emissions and transaction costs very low. estimates that, as of March 2022, Bitcoin mining requires How It Works some 126 terawatt hours of electricity annually – similar to the annual energy consumption of Norway11. Whilst Solar energy producers file a claim to register their solar installation via their monitoring system or platform. this does not mean that all Bitcoin mining is powered Claimants download an Ethereum-compatible wallet like Metamask to create a receiving address that acts like a by fossil fuel-produced electricity, the index also shows bank account. where in the world mining takes place, with countries such as China (accounting for some 2/3rds of bitcoin The monitoring system sends generation to the SolarCoin Foundation, which in turn sends SolarCoins to the mining until this was banned in 2021), Kazakhstan and claimant’s wallet at a rate of 1 SolarCoin per 1 MWh of verified electricity production. Claimants can save, Russia being some of the main locations for mining – exchange, or spend SolarCoins as they wish, and may receive ongoing grants over the next 20-30 years as they these are all countries with highly carbon-intensive generate energy. electricity generation sectors. It should be remembered, Source: https://solarcoin.org (2022) though, that the operations of banks and other financial institutions also require significant electrical power generation to support them; for example, to power At present, however, ‘green’ cryptocurrencies are but a small niche in green and sustainable finance, and are unlikely to offices and data centres, where that power may come grow substantially without greater regulatory and economic certainty in the cryptocurrency/cryptoasset market. They from renewable or non-renewable sources. also lack the speculative interest (and the high and volatile valuations) of the most popular cryptocurrencies such as Bitcoin. The blockchain, distributed ledger and smart contract technologies that underpin cryptocurrencies, though, have Some cryptocurrencies, however, such as SolarCoin, many wider applications in support of green and sustainable finance, as we explored earlier in this chapter. BitGreen and Impact Coin, are designed to be environmentally friendly and sustainable from the outset. 471 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 11.3 POLICY AND FINANCE SECTOR INITIATIVES TO SUPPORT FINTECH IN GREEN AND SUSTAINABLE QUICK QUESTION: LOOK UP THE CURRENT MARKET PRICE FINANCE OF SOLARCOIN, OR ANOTHER ‘GREEN’ CRYPTOCURRENCY. National and international policy makers have recognised HOW DOES IT COMPARE WITH THE CURRENT MARKET the potential of FinTech and digital finance to support a PRICE OF BITCOIN? range of international and national policy goals relating to green and sustainable finance, including promoting Write your answer here before reading on. the transition to a sustainable, low-carbon world, and increasing financial inclusion to enhance sustainable development and support the achievement of the UN Sustainable Development Goals. As we discussed earlier in this chapter, this includes using FinTech tools and techniques to develop and deploy products and services that support sustainable finance, as well as using them to better align finance overall with sustainable goals. Some of the key initiatives established by policymakers and the finance and technology sectors are introduced and outlined next. 11.3.1 International Policy and Sector Initiatives UN Environment Programme (UNEP) In 2016, the UN Environment Programme (UNEP) published a key report on the use and potential of FinTech to support green and sustainable finance. FinTech and Sustainable Development – Assessing the Implications concludes that: “FinTech offers the prospect of accelerating the integration of the financial and the real economy, enhancing opportunities for shaping greater decentralisation in the transition to sustainable development”13. The UNEP report argued that both FinTech and sustainable development have the same potential as drivers of change and impact, and can create new, sustainable business models. They may, therefore, be mutually reinforcing. Combining the Internet of Things, blockchain technology and artificial intelligence to enhance efficiency and distribution, reduce costs 472 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech and increase access to finance for individuals and small businesses, particularly in the developing world, can Sustainable Future’ in August 2020; it was shaped in services for groups that were previously difficult accelerate the green and sustainable finance agenda. part by the impacts of the COVID-19 pandemic. The and expensive to serve. For example, this can Task Force concluded and recommended that: reduce the cost of cross-border transfers, loan UN Development Programme (UNDP) origination and other financial services to Introduced at the start of this chapter, the UN 1. Mobilising sufficient financing remains a major individuals and businesses through automating Development Programme (UNDP) Taskforce on Digital challenge in implementing the 2030 Agenda for processes such as credit scoring and identity Financing of the Sustainable Development Goals was Sustainable Development: validation. formed in 2018 to consider and make recommendations The gap does not arise from a lack of financial Innovative digital business models for financing as to how FinTech tools and techniques, and digital resources. Financing is not aligned with the sustainability and responding to the growing finance overall, could be utilised to finance the UN SDGs because of a lack of data and standards, demand by citizens concerned with SDG impacts. Sustainable Development Goals. The Taskforce’s remit misaligned incentives and regulations, and gaps For example, this can underpin new business covered both public and private finance spheres. and weaknesses in institutions and markets. Much and market approaches that enhance circularity Members of the Taskforce included representatives from is being done to overcome barriers to financing the and facilitate shared and better use of capital, central banks and governments, financial institutions, SDGs, but we are still not on course. The current more distributed financing of infrastructure, the FinTech sector, and UN agencies. The Task Force crisis deepens the shortfall, despite the exceptional and wider access through innovative credit and published its final report: ‘People’s Money: Harnessing level of public spending on stimuli and bailouts. payment approaches. Digitalisation to Finance a Sustainable Future’ in August 2020, with its conclusions and recommendations shaped 2. Digitalisation will make a difference if it helps 3. Digitalisation’s transformational potential is to in part by the impacts of the COVID-19 pandemic. to overcome barriers to financing the SDGs: extend beyond financial inclusion in shaping a citizen-centric financial system: It can do this through the combined and directed READING: UNDP TASKFORCE ON DIGITAL impacts of its three, essential features. Citizens care about far more than financial returns, FINANCING OF THE SUSTAINABLE with those wider concerns collectively expressed DEVELOPMENT GOALS More and better data, which drive better in the SDGs. Digitalisation can help citizens in accounting of SDG-related risks and impacts directing the use of their money more effectively The UN Secretary General established the Task in financial product design, financial decisions to achieve their financial and non-financial goals Force on Digital Financing of the Sustainable by private and public financiers, and enhanced - by delivering the right information, improved Development Goals (SDGs) in 2018. Its mandate accountability. For example, this can improve access, greater accountability and smarter financial was to recommend and catalyse ways to harness the use of environmental data and increase the services. Citizens can become more engaged in digitalisation in accelerating the financing of the UN consideration of climate change, biodiversity loss, financial decision-making individually (as consumers, Sustainable Development Goals (SDGs), including pollution and disaster risks in financing decisions. savers and investors), collectively (as pension and both the public and private finance sectors. The Reduced transaction and intermediation insurance policy holders, members of associations Task Force published its final report: ‘People’s costs, which enable broader access to financial and communities), or as accounting agents – Money: Harnessing Digitalisation to Finance a taxpayers and voters. 473 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech 4. Digitalisation is already enabling many Digitalisation has enabled people to access regulators should encourage market innovation individuals and small businesses to gain access capital-intensive services and optimise the use to develop SME lending and investment platforms to financial services: of their own assets, through shared economy that integrate sustainability criteria and client approaches such as product-as-a-service, smart protections, and avoid algorithmic discrimination There are already early signs of broader dimensions metering, pay-as-you-go and rent-to-own. against women-owned businesses. of digitally enabled financing of the SDGs: 5. There are significant barriers to advancing c. Digitise public financing and make public Digitalisation has increased financial inclusion, digital financing, and a number of risks budgets and contracts transparent: Policy helping hundreds of millions of women, rural associated with its emergence: makers should make commitments and work with residents, people on low incomes, young people civil society and the private sector to increase the and small business owners seamlessly transact, Barriers include gaps in digital infrastructure transparency of public finances and use open safely save, cheaply borrow, securely invest, and and skills, and backward-looking or slow-moving government data to pursue SDG priorities. more easily become insured. policy and regulation. Skills gaps, social norms and d. Embed the SDGs into decision-making in Digitalisation has helped incorporate SDG- discrimination restrict women’s access to and use financial markets: Regulators should set related risks (sometimes termed ‘environment, of mobile technology and digital finance. In addition, requirements for pension and insurance social and governance’ factors, or ‘ESG’) into there are risks that, if unmitigated, could deepen companies to consult policyholders on the use of growing volumes of lending and investment; the disconnect between finance and sustainable funds and to publish stress tests of all material in recent times this has most visibly included development. Digitalisation opens new routes for SDG-related risks and impacts. climate-related risks, but also includes other breaches of identity data, embezzlement and fraud. It can intensify short-termism, undermine long-term e. Shape consumption decisions through environmental and some social factors that improved information and choice architecture: present a material risk to financial returns. value creation, and may widen inequalities. Policy makers should work with industry and Digitalisation helps people align the use of The Task Force identified 5 systemically important provide incentives to encourage and facilitate their money with their own interests and “catalytic opportunities” where, in their view, the sustainable choices by consumers and develop goals, as witnessed by the rapid growth in tools and techniques of digital finance could be digital markets for sustainable assets. impact and automated ‘robo-investing’, and the used to align finance overall with the SDGs:: commensurate growth of SDG-aligned lending To support the alignment of finance with the and investing opportunities. a. Channel domestic savings into development SDGs, the Task Force also recommended that the financing: Policy makers should form national international governance of the digital finance Digitalisation can empower citizens as taxpayers coalitions with infrastructure, finance and sector needs to be enhanced so that environmental and users of public services by increasing the payment platform businesses to build ‘low-cost- and social sustainability factors are included ease and accessibility of tax and payment high integrity’ digital financing solutions to enable as regulation, frameworks and standards are systems for public services and providing greater micro-savers (including women and young people) developed. transparency in the public allocation and use of to finance local, sustainable infrastructure. funds. Source: UNDP (2020) People’s Money: Harnessing Digitalisation to b. Enhance financing for small and medium- Finance a Sustainable Future (online). Available at: https://www. sized enterprises (SMEs): Policy makers and un.org/en/digital-financing-taskforce [Accessed: 24 January 2023] 474 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech Green Digital Finance Alliance The Green Digital Finance Alliance (GDFA)14, introduced CASE STUDY: EVERY ACTION COUNTS COALITION The coalition holds the potential to scale green earlier in this chapter in the context of its “Green FinTech action as a norm that is encouraged, recognised Taxonomy”, was established as a partnership between A new partnership to harness the power of green and rewarded, leveraging technology and the United Nations Environment Programme and Ant consumer behaviours to enhance biodiversity and innovation models. Examples of this work in Financial, the Chinese payments and financial services climate efforts has been launched - with some practice include: provider behind AliPay and Ant Forest. Launched in 2017, of the world’s leading digital platforms, financial the GDFA focuses on three areas: institutions, and consumer goods and services Philippines-based GCash Forest rewards app companies as launch members. users who reduce their carbon footprint by Content: improving the knowledge base through planting trees in partnership with groups such as research and analysis of leading sustainable digital The ‘Every Action Counts’ (EAC) coalition is the WWF. finance practice and potential. convened by the Green Digital Finance Alliance (GDFA) and funded by the Finance for Biodiversity Mastercard is uniting its global network Community: creating a network of FinTechs, financial (F4B) initiative of the MAVA Foundation. Launch of businesses and consumers in climate players, policy makers and other stakeholders that members are: Ant Group (China), BBVA (Spain), action through the Priceless Planet Coalition collaborate and promote sustainable digital finance BigPay (Malaysia), DANA (Indonesia), FNZ (UK), reforestation initiative. The company is also practices at national and international levels. GCash (Philippines), Lazada Group (Singapore), collaborating with partners to create innovative Mastercard (US), MTN Group (a pan-African digital products that provide insights about Country: supporting action at the country level to pilot company headquartered in South Africa), Paytm the carbon impact of purchases and enable innovative approaches and take successes to scale (India), Rabobank (Netherlands), SANLAM (South people to easily contribute to preserving the In addition to the Green FinTech Taxonomy, the GDFA Africa), and Telenor Microfinance Bank/Easypaisa environment. has established and catalysed three significant initiatives (Pakistan). Ant Forest, a green initiative on the Alipay to date: “Making Oceans Count” (which aims to improve platform, encourages users to adopt low- understanding of ocean risks and stimulate the design The EAC brings together a global network of digital, carbon activities in daily life, such as going to of ocean-positive financial products and services); financial, e-commerce and consumer goods and work by bus instead of by car, and paying utility “FinTech for Biodiversity Challenge (which will map FinTech services companies with experts in sustainability, bills online instead of offline. The initiative has products and services that support biodiversity) and and nature and biodiversity conservation. The new enabled the planting of over 220 million trees in the “Every Action Counts Coalition” described in the case network will share best practices in encouraging less than five years. study opposite. individuals to take positive actions in daily life to create planet-friendly outcomes. Each coalition The coalition aims to promote knowledge sharing member will endeavour to pursue locally relevant to inspire innovative green-tech solutions around approaches to driving sustainable consumer the world, helping each payment platform and behaviours by advancing people-centric, tech- consumer goods company focus on the green enabled and innovation-oriented engagement behaviours most relevant to their audience. models. 475 | Principles and Practice of Green and Sustainable Finance Unit 11: Green and Sustainable FinTech Climate Chain Coalition Marianne Haahr, spokesperson fo