Fintech and sustainability are the two major drivers of change in the financial sector. There isn’t a financial institution that’s not involved in it. There isn’t a startup that does not derive its right to exist from it. What is striking about this, however, is that the combination is rare. Fintech is usually primarily a way of organising the existing financial practice more efficiently. But what is the role of fintech in creating a financial sector that includes green and social values?
In 2016, the UN Environmental Programme (UNEP) published a report called Fintech and Sustainable Development. The report presents sustainable development and new (financial) technology as the two ‘strains’ of DNA. They both have the same ‘basic potential as drivers of change and impact’ and are suitable for ‘creating new, sustainable business models’.
FinTech for Sustainable Development (FT4SD) in practice
The UNEP report identifies the main functions of the financial system and links them to the possibilities of FT4SD. This inventory presents a world of opportunities.
From startup OnePlanetCrowd (which provides financing for social projects through crowdfunding) to Impak Finance. Impak is a bank that uses data collection and the application of algorithms to calculate the creditworthiness of companies focused on CSR. Customers can subsequently choose what to invest in.
Or Chinese Ant Financial, which uses shared payment data to give customers, in addition to their savings account and outstanding credits, insight into their CO2 emissions. He or she can then participate in a climate compensation program, which now has 200 million active users. Sustainable Finance Lab itself is working on a Community of Practice (CoP), which includes collaboration with Bundles, a company that offers pay-per-use washing machines. The aim is to help customers reduce their energy, water and detergent consumption. Within this CoP, the possibilities of blockchain technology within the circular economy are explored together with the six partners Circle Economy, Nederland Circulair!, Rabobank, Allen & Overy, ING and De Lage Landen.
Funding gap
The UN calculated that until 2030 there will be an annual funding gap of $1.5 trillion to meet the Paris objectives. The efforts of more and more multinationals, NGOs and governments have not been sufficient to date. Fintech offers many opportunities, but most of the fintech companies are not engaged in this transition and the economic opportunities it offers. A recent analysis by the World Economic Forum and PwC also showed that most fintech start-ups do not have a clear focus on sustainability.
It is very important that when designing and implementing new financial technologies, we consider which values we stand for. A discussion about visions and prospects. A discussion between politicians, society and the sector. A holistic discussion that is not or hardly conducted. A discussion that goes much further than just FT4SD, but also touches on other unintended, negative effects of fintech. Think of privacy, energy consumption, unemployment (by AI) and scams due to absent regulation.
In this context, UNEP refers to a possible standards battle. The next few years will be crucial for the fintech revolution to benefit everyone, including the planet. In order not to lose the battle of ‘prevailing financial paradigms’ such as short-term thinking and one-sided focus on shareholder value, UNEP outlines a short window of opportunity of 3-5 years. Are you waiting too long? Then it becomes almost impossible to implement other values and interests. Because the winner determines the standard. Think of earlier technological battles, from the battle over alternating or direct current to operating systems for computers. The loser then does not have the scale benefits to reverse established values and interests.
The FT4SD practice in the Netherlands
Overall, the development of FT4SD has been initiated quite cautiously. For example, UNEP and the University of Cambridge have both issued encouraging reports. On 4 June, the first Blockchain for Impact-summit took place, where 400 startups and investors came together to work on closing the funding gap.
In the Netherlands it still is very quiet on this matter. In 2017, during the only commission meeting in parliament on fintech, no one mentioned sustainable development. Also, the research agenda of the Dutch Blockchain Coalition, financed by the Ministry of Economic Affairs, has no link with the possibilities for sustainable development.
Some action comes from the Dutch representative of fintech companies, Holland Fintech. In mid-November, this organisation, with more than 400 members, organised a round table discussion on social and sustainable finance. At the beginning of 2018, they mentioned the basic characteristics of this form of financing in a blog article. After several years of Dutch absence from this debate, the door finally seems ajar. It is now high time to open this door.
Sustainable Finance Lab wants to support this debate and development in the coming years, looking for ways to use the potential of new technologies to give substance to social and ecological values.