Charlotte Hausemer, Vice President – Innovation and Product Strategy for Trade and Treasury solutions Americas, BNP Paribas, outlines how Sustainable Development goals must be embedded in Financial Services. Technology and innovation (including Open Finance) have crucial roles to play in enabling and accelerating positive outcomes.
How can FinTechs reinvent the financial sector with green and social values?
When it comes to sustainable development, the first climate finance day in Paris in May 2015, and The 2030 Agenda for Sustainable Development has provided a blueprint for shared prosperity in a sustainable world. At its heart are the 17 Sustainable Development Goals (SDGs).
At the same time, the president of Financial Stability Board FSB G20, Mark Carney, recognised climate change as a financial risk. This was a turning point for the financial sector, as climate change became a central question for the financial industry. It urged all the actors - regardless of their “beliefs “- to understand, quantify and incorporate this into their financial decisions.
What are those SDGs?
It is sometimes thought that SDGs only relate to climate change, but in reality they are much more inclusive, targeting both societal and environmental benefits. They address the following areas:
- End poverty and hunger
- Achieve gender equality and equal opportunities for education
- Ensure access to clean water and affordable, sustainable energy for all
- Reduce inequalities within and between countries
- Provide access to accountable and inclusive institutions everywhere
- Take urgent action to protect the environment
- Build resilient infrastructure and foster innovation
They are built on the principle of “leaving no one behind”. This principle is inclusive and balanced. It advocates sustainable social and economic development of all people (without any exceptions).
What challenges is the financial sector facing in the implementation of these SDGs?
The first challenge is to align global economic policies with the 2030 Agenda for sustainable development. Some examples of this would be:
- Integrating sustainability considerations into macroeconomic policies and regulations
- Promoting SDG-aligned trade and investment agreements
- Collaborating with public and private investors to scale-up renewable energy and energy efficiency investments
The second challenge is to mobilise finance for sustainable development priorities.
Estimates suggest that US$5-7 trillion per year is needed to implement the SDGs globally. Developing countries face an annual investment gap of around US$2.5 trillion in areas such as infrastructure, clean energy, water and sanitation, and agriculture.
Finally, seizing the potential of financial innovations, new technologies and digitalisation is key to transforming the financial sector in alignment with the SDGs. Technology and data are key enablers to incorporate sustainability factors in financial institutions decision-making, encouraging new business models to emerge
That is where new technologies and FinTechs can foster change in the financial sector.
What are some of the FinTech opportunities in relation to SDGs?
Technological innovations were first needed to cope with the ever-building complexity of the financial sector and new regulations. They got implemented across the five core functions of the financial system: moving value; storing value; exchanging value; funding value creation; and managing value at risk.
We now must go further – the financial sector needs to re-invent itself.
The increasing use of AI, IOT, blockchain combined with open banking regulations, resulted in higher competition, increased speed and automation, more transparency and collaboration. By themselves, these new technologies and FinTechs foster SDG Goal No 9 (industry, innovation and infrastructure) by disrupting traditional financial services.
Let’s take two examples of SDG-aligned FinTechs:
The use of Blockchain for financial inclusion
The world bank has identified financial inclusion as an enabler for 7 of the 17 SDGs. More than 1.5 billion people in the world still lack access to financial services and around 800 million people struggle to survive on less than USD $1.90 a day.
Building Blocks (BB) is a World Bank Food Programme (WFP) blockchain technology used to distribute humanitarian assistance. It helps achieve SDG Goal №1 and 2 to end poverty and hunger.
- WFP is the largest agency delivering humanitarian cash, and in 2019 distributed record of $2.1 billion, reaching over 28 million people in 64 countries.
- Direct cash transfers to those in need has been proven to be the most effective way to distribute humanitarian assistance, but it depends on local financial institutions and can be subject to corruption and fraud,
- By Using blockchain technology, Building Blocks expands refugees’ choices of how they access and spend their cash assistance. It has been used to transfer cash to Syrian refugees in Jordan and vulnerable families in Pakistan. This digitises and protects beneficiaries’ data, eliminates fraud, and lowers administration fees.
This is one of many examples of blockchain applications for sustainable development, renewable energy, carbon credits, and climate finance. In a 2018 report, Nassiry, Darius explores the implications for developing economies in Asia and draws preliminary recommendations for policy makers interested in harnessing FinTech and blockchain for low-carbon, climate-resilient investment and the achievement of the SDGs.
Financial gaming to fight deforestation in China
- Another example of disruptive green initiative is Ant Forest: the tree-planting mini-program within the Alipay mobile payments and lifestyle app, falls under SDG No15: “Sustainably manage forests, combat desertification, halt and reverse land degradation, halt bio diversity loss.”
- Ant Forest’s users are rewarded for making small, environmentally friendly decisions in their daily lives through “green energy” points, and those points can be redeemed to plant trees in areas of the country in need of vegetation.
- Since its launch in August 2016, Ant Forest and its NGO partners have attracted 500 million users to engage in low carbon emission activities on the Ant Forest platform, where users grow virtual trees in the Alipay app, planted around 122 million trees in some of China’s most arid areas covering 112,000 hectares (which represents 208,000 fields!) and became China’s largest private sector tree-planting initiative, creating 180,000 jobs and RMB 27 million in income by the end of 2018.
There are numerous examples of innovative solutions tackling one or multiple SDGs in the financial sector. This brings hope and Sustainable Development Goals Reports recognise that we had made progress towards those goals.
More recently, however, the 2020 report from the UN Department of Economic and Social Affairs noted that the COVID-19 pandemic has done great harm to the achieving SDG goals. Demonstrating the collective need to continue and accelerate the pace. As Kofi Annan said, “our biggest challenge in this new century is to take an idea that seems abstract – sustainable development – and turn it into a reality for all the world’s people.”