The recent Earth Day celebration in late April helped to focus minds in financial services by providing business leaders with an opportunity to communicate to shareholders, and the market at large, their vision for sustainability over the coming decade.
At around the same time, I was participating as a speaker on a panel in Singapore alongside the Monetary Authority of Singapore (MAS), Tribe Accelerator, and the Singapore Fintech Association (SFA).
As we shared our thoughts on macro trends in green finance and fintech, it became apparent that one of the questions coming up time and again was the need to balance and bridge sustainability alongside profitability (after all, corporations are for-profit enterprises and not charities).
The Financial Times, in an article this week, highlighted the challenge this poses for much of the market and global economy as we chart a path to net zero.
Finance is laser focused on green
While all stakeholders in the sector have their part to play in pushing the convergence of environmental, social, and governance (ESG) principles in financial services, the approach taken varies depending on where you are sitting: as the technology provider, financial institution or bank, government/regulator, or something else entirely.
In the last few years, there’s no doubt we’ve seen a macro trend towards green fintech as a partnership between technology companies and financial institutions.
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Banks are realising they have a responsibility to be able to help in tracking the greenness of a given project, investment or transaction as climate change is recognised as fact, not fiction.
With more key players acting towards green and sustainability, a new norm is observed where sustainable companies are profitable — and to be profitable, companies have to be sustainable.
It is in this space that I think technology has a key role to play, including delivering on greater democratisation of finance and improving access for all.
But here’s a key point: the greatest impact is only possible through technology platforms partnering with the existing financial institutions, which already have millions of users.
Fintech has arguably been at the forefront of reducing costs, improving efficiencies, and enabling greater access to markets — whether that’s through trade clearing and settlement, ESG tracking, or digital bond issuance.
But regulators, too, must do their part.
Regulators are stepping up
In Singapore, banks have to report to MAS so that it can conduct overall assessments of financial stability with regards to environmental or climate risks.
I know from my conversations with them that MAS is focused on how to attract green finance to Singapore, and how to position themselves as leading green finance centres.
Encouraging the industry to collaborate or pilot technology solutions to solve some of the major challenges in finance remains an important mandate for any central bank. Bridging private sector sustainability with profitability is an area where regulators have a unique role to play.
This is because regulators are unique in their ability to provide grants and co-funding projects, whether it’s proof of concepts (POCs) or actual implementations, that help private businesses working towards ESG solutions to succeed.
Adopting new technologies such as Internet of Things (IoT) to better monitor and track the performance of a green project, bond or loan is an area many private firms will need to look at implementing to better monitor their supply chains.
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Currently, less than 0.3 per cent of all bond financing is green, with insufficient efforts leading to a US$2.6 trillion annual funding deficit towards achieving the goals of the Paris Agreement.
This gap stems from the absence of an efficient common data infrastructure as a nexus between the financial industry and ESG efforts, with often-fragmented data exacerbated by the lack of transparency in impact reporting and usage of proceeds.
Enter the nimble fintech
In the same way fintech companies contributed to addressing problems of financial inclusion for SMEs and underserved communities in the past decade, they have now set their sights on helping financial institutions transition to more sustainable operations.
Even something like the funding of solar panels on a small factory can be made more affordable and accessible through new technology that today’s fintech are building.
Whether it’s on the data side, blockchain, or IoT that measures and verifies said data, fintech is figuring out how to apply it to commercial green use cases.
Today, when we talk about sustainability, the stakeholders are very wide — it’s not just the banks, it’s also the investment companies, the sovereign wealth funds, every foundation, family office, and next generation wealth manager.
Even the most profitable companies in the world, who don’t need to do any of this in order to become more profitable, are still looking at their environmental commitments and responsibilities.
Also Read: Sustainability: the new business reality
Based on the response I’m seeing from all stakeholders today, I believe there are many reasons to be optimistic about the future of green fintech.
We’re seeing increased interest from the private sector coming in, driven by the leadership of our various sovereign wealth funds like Temasek, who just declared that they’re going to be 100 per cent green.
My hope is that regulators, investors, and institutions continue to support the next generation of financial infrastructure that is being built by risk-taking fintech entrepreneurs.
By future-proofing our financial market infrastructure for a greener decade, financial incentives or penalties can be more easily programmed towards achieving sustainable performance targets applicable to different ESG financing instruments across bonds, loans, and renewable energy certificates.
If we get it right as an industry that comes together, I’m convinced the ESG financing gap will be bridged by 2030 — and I look forward to contributing to this green fintech revolution in my own small way.
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