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Emerging financial technologies promise to redefine not just everyday banking, but the nature of money itself. They could provide banking services to the two billion adults worldwide who are currently “unbanked” and contribute to the eradication of extreme poverty by 2030. But could they also provide a solution for environmental problems?
Climate change and the alarming degradation of natural capital — soil, air, water, biodiversity — demand urgent and sustained action from the global to the local level. This will cost trillions. Available estimates suggest sustainable development will require annual investment of between $5tn and $7tn.
Today’s financial sector is not up to that challenge. At present, less than 1 per cent of global bonds are labelled “green” and less than 1 per cent of the holdings by global institutional investors are environmentally-friendly infrastructure assets. Only a small fraction of bank lending is explicitly classified as “green” according to national definitions. This has to change. Public money cannot possibly meet these financing requirements.
Against this backdrop, in 2014 UN Environment, the UN agency previously known as Unep, launched an inquiry to look at how the financial system could be better aligned with the needs of sustainable development. Its 2015 report The Financial System We Need found that a quiet revolution was already taking place, led by some developing countries.
There are already examples of ways in which fintech companies are enabling sustainability. In Kenya, solar energy company M-Kopa provides power to low-income households on a pay-per-use instalment plan. It does this using M-Pesa, the well-known peer-to-peer mobile money system created by Kenyan company Safaricom. Under the arrangement, M-Kopa overcomes a key facet of financial exclusion by avoiding the need for consumers to have credit records. With this innovation, M-Kopa aims to provide energy to one million homes in Kenya by 2018.
Fintech will become truly interesting only if solutions can be scaled up. This is one of the reasons UN Environment recently agreed a partnership with Ant Financial Services, the Chinese online and mobile financial services company, to promote green finance products. Ant, a subsidiary of Alibaba, has more than 450m small business and individual customers, and provides access to over ninety asset management companies selling green and sustainable investment products, including apps that monitor an individual’s carbon footprint and insurance that gives customers money back for they days they don’t use their cars.
Getting the fintech community on board is essential. It’s why — along with Ant — we plan to convene a global coalition of fintech leaders to align the sector’s culture and emerging regulations with the needs of sustainability. It is also possible to shape the fintech sector in this way through the introduction of challenge funds and X-Prizes.
Erik Solheim is the head of UN Environment. The Financial System We Need: from momentum to transformation, will be published by UN Environment in the autumn. To register for a copy visit: unepinquiry.org