Sustainable innovation in the world of digital finance
By Wang Xin Min, Research Analyst, DBS Innovation
In October 2018, the United Nations’ Intergovernmental Panel on Climate Change (IPCC) issued a special report. It stated that limiting global warming to 1.5°C would require “rapid, far-reaching and unprecedented changes in all aspects of society”.
While governments and corporations play significant roles in combating climate change, the finance and technology sectors also serve as key enablers of change in meeting such global challenges. Technologies such as blockchain, artificial intelligence (AI), mobile technology, and the internet of things (IoT) provide opportunities to drive sustainable environmental outcomes and contribute to strong, balanced, and inclusive growth. Such technologies enable the financial sector to better align financing activities to the United Nations’ Sustainable Development Goals (SDG). This is achieved by enabling data-driven green decisions, encouraging sustainable choices, and allowing new models of sustainable financing.
Data-driven Green Decisions
Digital technologies allow data to be made available more cheaply, quickly, and accurately. This facilitates more informed green decisions by enabling more efficient pricing of environmental risks and opportunities as well as providing greater transparency and traceability in supply chains.
For example, global agri-commodity trading firm Agrocorp has developed a blockchain-based trade platform that connects farmers with Agrocorp’s customers. The platform provides real-time pricing and delivery information, as well as automates trade finance approval. This allows stakeholders across the supply chain, from farmers to supermarkets, to benefit from greater supply chain transparency and traceability. In future, the platform will include information about the water, fertilizer, and pesticide usage of the commodities traded, thus incentivising more sustainable production methods.
In addition, satellite data can be used to identify geographical areas facing environmental issues and enable deeper analysis of the environmental risk of loan and investment portfolios. Tech firm Planet is using AI and machine learning on granular and satellite data to develop a new low-cost tool to measure forest carbon globally. This would allow organisations to measure carbon goals and make data-driven green decisions.
Encouraging Sustainable Choices — Be Clean, Go Green
Amid growing consumer awareness of and demand for greater eco-friendly options, digital technologies can further incentivise and “nudge” consumers towards greener consumption choices by providing information and transparency on the environmental impact of their choices.
Under Ant Financial’s Ant Forest initiative, users are provided with individualised carbon savings data tagged to an app, such as when they choose to take public transport instead of driving a car. The data is then used to contribute to carbon offset rewards through a physical tree-planting programme. 500 million Ant Financial users in China have voluntarily signed up to the app, and 122 million trees have been planted as part of the scheme as of September 2019.
With the liberalisation of Singapore’s retail electricity market, DBS introduced its Electricity Marketplace, which allows consumers to select from different electricity providers. To increase awareness of ‘greener’ options, the online platform provides the options of “Carbon Neutral Footprint” and “Clean Energy”. These enable consumers to offset monthly electricity emissions by purchasing UN certified carbon credits and go green with renewable energy.
Such initiatives thus allow individuals to make sustainable choices and play their part in the broader global sustainability movement in their day-to-day lives with greater ease and convenience.
New models of sustainable financing
Smart technology combined with mobile payments enable new models of financing such as pay-per-use models, while digital platforms and marketplaces offer new opportunities for buyers and producers to access finance.
While large segments of rural populations in developing nations remain under-banked and under-served, the high mobile phone adoption in such regions present opportunities for new models of financing such as ‘Pay-as-you-go’ energy services for off-grid customers that combine mobile technologies with IoT. For instance, Kenya’s M-Kopa provides affordable off-grid solar power to low-income households on a pay-per-use instalment plan by partnering with mobile money system M-PESA and using IoT sensors to monitor real-time usage and payment status.
Digital marketplaces also enable broader stakeholder segments to receive financing. Halcyon Agri has launched a digital marketplace called HeveaConnect that connects natural rubber stakeholders, such as farmers, rubber producers, and tyre manufacturers, as well as offers financial services to players who may not have had access to banking facilities. The platform uses GPS and mobile technology to trace production locations, and stakeholders can track pricing and supply information, as well as transact directly on the platform itself. This not only unlocks access to financial services for previously unbanked/underbanked segments, but also incentivises key stakeholders to adopt more sustainable practices.
Given the global nature of climate change, protecting the planet that we live in is a collective responsibility as no individual organisation or country can tackle climate change on their own. There are thus myriad opportunities to harness the potential of finance and technology to create innovative solutions across borders to address such global challenges. This involves the efforts of all stakeholders across all sectors — financial institutions, companies, governments, and individuals –working together to build a more sustainable and inclusive future for future generations.
