Fintech for Good – Leaders weigh in on ESG, data’s role in creating sustainable business

One of the big talking points that has gripped business leaders since the COP26 and COP27 climate summits in Scotland and Egypt respectively has been the role the fintech industry can play in creating a more sustainable business environment.

The UN and other bodies lamented the lack of clear action by companies and industries, not to mention “litany of broken climate promises”, according to UN Secretary-General António Guterres.

The COVID-19 pandemic, supply chain constraints and a subsequent war in Ukraine have all been taunted as causing companies to pull back on their environmental commitments such as the goal of reaching net zero emissions by 2050 and keeping the global temperature below 1.5 degrees Celsius.

Thanks to the industry’s twin expertise in financial services and the technology sector, many influential voices spoke at the Singapore Fintech Festival (SFF) 2022 about what fintech can contribute to global sustainability efforts. According to KPMG Partner and Global Head of Fintech, Antony Ruddenklau, regulatory changes mean that KPMG expects the global fintech market to grow from USD 21 billion last year to over USD 160 billion over the next five years.

Sopnendu Mohanty

“FinTech can play an important role in breaking a legacy of inertia and bringing together the resources needed to bridge the significant gap between current funding for sustainability and environmental, social and governance (ESG) initiatives and the projected investments required to meet global ambitions,” wrote Sopnendu Mohanty, Chief FinTech Officer for the Monetary Authority of Singapore (MAS) and Chairman of Elevandi, in his foreword to the SFF 2022 Insights report ‘Enlisting FinTech to help create a sustainable future’ by McKinsey & Company, MAS and Elevandi.

Fintech can promote capital movements

On a positive note, sustainable industry and climate-conscious practices were high on the agenda of fintech decision-makers. Eric Lim, Chief Sustainability Officer for United Overseas Bank, highlighted that 100 countries and about a third of the world’s largest companies had committed to green goals, and funding for sustainability projects had grown 100-fold over the previous decade.

Erik Lim

“We are trying to bring about the greatest industrial revolution known to man, estimated to be worth US$100 trillion in investment within the next 28 years,” Eric said. “And we’re going to need all of our ecosystem partners pulling in the same direction in a coordinated way.”

A January 2022 report by the McKinsey Global Institute (MGI) estimated that capital expenditures of around $9.2 trillion per year would be required between 2026 and 2050 to move toward a carbon-neutral future. That would total $275 trillion to reach the 2050 goal.

Helping to mobilize the capital for this transition is where fintech can play a definitive role, according to the Insights report. The MGI study found that $4.7 trillion is currently being spent on a combination of spending redistributed from high- to low-emission assets, continued spending on low-emission infrastructure, and continued spending on high-emission assets. Only $3.5 trillion of new financing goes to low-emission assets and enabling infrastructure.

Encourage sustainable innovation from the fintech sector

Meanwhile, the geopolitical and economic instability of the past year or so tempted many organizations to push back or postpone greener alternatives such as renewable energy for the proven and cheaper fossil fuels they have consumed for decades.

Kattiya Indaravijaya

Innovative fintech solutions can leverage their technical advantages to drive the adoption of more sustainable alternatives – with resilient use that will ultimately see these alternatives become more affordable and less likely to impact the bottom line over time. “We have to balance the speed of execution, the cost of it and other aspects like energy stability,” said Kattiya Indaravijaya, chief executive of Thailand’s Kasikornbank.

“There will always be trade-offs between transition costs and speed or the availability of raw materials.” she proclaimed. But the opportunities are promising for companies that take advantage, with McKinsey analysis of 11 industry categories showing that green manufacturing could exceed $12 million in annual revenue by 2030.

Source: McKinsey

Encourage carbon responsibility

Jonathan Larsen

Jonathan Larsen, Chief Innovation Officer for the Chinese insurance company Ping An, spoke about carbon responsible technology. Ping An now offers its 110 million cardholders the ability to create personal carbon accounts, tracking the accumulated impact of their carbon footprint via their purchase history.

There is only one method to investigate carbon offsets, others are to receive carbon credits when you choose the greener option, and to provide assessment services to track responsible carbon costs.

Jonathan pointed out that climate change assessments create profitable opportunities for service providers who are able to collect the right data, provide the right structure. and create the right alignment with governments and supranationals.

2021 funding in fintech outfits with a sustainable agenda (those that build ESG mechanisms directly into their products and operations, often labeled “Fintechs for Good”) passed $2 billion. Funding levels have doubled on average annually since 2017, with more than half of fintech ESG funding going towards sustainable everyday banking practices, according to the McKinsey Global Retail Banking Survey 2021. The biggest area of ​​growth has been in ESG data intelligence and analytics around carbon tracking and compensation, but with average funding in this doubling annually since 2017.

Fragmented green data landscape

Indeed, data will be critical to determining whether fintech innovation can effectively support sustainable outcomes, but actionable information is in short supply. KPMG’s Antony dismissed the lack of actionable data, insisting that “[w]e needs system change, and it must be data- and behavior-driven.”

Ravi Menon

“Good data is fundamental to driving the green agenda and the transition finance agenda,” said Ravi Menon, CEO of MAS. “Quality data is key in the fight against greenwashing and enables stakeholders to make well-informed ESG investment decisions.”

One of the stumbling blocks for good ESG data is the long lead time needed to record and compile usable data, spot trends and study anomalies. Efforts to record this information must begin now, as it will be immeasurable to quantify how useful it will be in more ways than one, as pointed out by Helge Muenkel, Chief Sustainability Officer for DBS Bank.

Helge believes organizations need better data to make informed decisions about how to allocate capital, which is when they engage data and new analytical tools over decarbonisation.

Manjula Lee

Having the data is one thing, having the data identify, collect, store and present the right information can be another challenge. “We all need to look to the same golden source of reliable and comparable, verified data,” said Manjula Lee, founder and CEO of World Wide Generation, creator of G17Eco’s sustainability tracking platform.

“We need greater comparability. We need to create a greater mechanism and standard, says CEO Mark Fitzpatrick at Prudential.

Fintech innovation can accelerate sustainable business growth

Liu Feng Yuan

Standardized data is an advantage, and its accuracy and reliability can be further increased with other innovative technologies such as AI, blockchain and automation. “You can only commit to what you can measure, and that’s where big data and AI can play a big role,” commented Liu Feng Yuan, business development director at AI solutions provider Aicadium Singapore.

Blockchain technology is great for preserving immutable records, and now distributed ledger technology embraces traceable data that can be paired with green bonds to verify how climate-friendly the records indicate. With this, the visibility and transparency of the information has already increased radically, and by definition the costs will be reduced according to John Lee, CEO and Global Lead of Digital Assets for Accenture.

Wu Shiwei

Wu Shiwei, Chief Technology Officer for Huawei Cloud APAC, addressed how fintech can help cut costs for small and medium-sized enterprises (SMEs) to become more sustainable by automating reporting. SMEs account for around 70% of employment and economic output internationally, but with significantly fewer resources than their corporate counterparts to make informed sustainability decisions, automation processes can help fill this information gap while using less human capital.

“If SMEs run their business processes on a [standard] platform,” said Shiwei. “You can actually analyze each step of the business process and set up benchmarks to compare their standards with best practices. That way, the need for resources will be much less compared to manual verification by people.”

Nor are such technological breakthroughs beneficial only to other industries; The fintech space must also explore sustainable consumption practices. Blockchain, for example, has generated significant backlash for how much electricity it uses, particularly within the cryptocurrency mining industry.

Vitalik Buterin, the superstar co-founder of mainstay crypto Ethereum, was happy to announce that by switching from the industry-standard ‘Proof of Work’ algorithm to the less power-intensive Proof of Stake algorithm in September 2022, Ethereum had managed to deflate drastically. energy consumption to almost 100%.

“Now, Ethereum uses less energy than most common, even centralized, online services that everyone uses today,” Vitalik said.