Harnessing green fintech to bridge the sustainability gap
The crossover between Fintechs and sustainability has become a vital investment trend, one that the Asia Pacific region must embrace.
Achieving the transition to net zero is a key challenge for all countries. According to a 2022 report by McKinsey Global Institute, the world will require a massive influx of financial innovation and the most extensive reallocation of capital since World War II to transition to a decarbonised landscape1.
McKinsey Global Institute estimates that capital spending on physical assets for energy and land-use systems in the net zero transition between 2021 and 2050 will amount to roughly USD 275 trillion. That's USD 9.2 trillion per year on average, compared to our actual spend of USD 5.7 trillion today. The USD 3.5 trillion increase required is equivalent, as per 2020 figures, to half of global corporate profits, one quarter of total tax revenue, and 7% of household spending2.
Innovation is desperately needed therefore to bridge the sustainability gap, if the world is going to achieve its net zero aims. For the Asia Pacific region, we believe that green and sustainable financial technology will push the needle on that innovation.
Just as fintech has disrupted traditional financial industry models, providing greater accessibility and democratisation of consumer channels, green fintech has the potential to truly shift the landscape on sustainability. One paper that examined the impact of fintech in promoting green finance in Europe, for example, demonstrated that there was a positive relationship between investment in fintech and green lending, attributable to the search, diligence and monitoring efficiencies of new technologies3.
Findings of another study suggest that financial inclusion through fintech can help make households, individuals, and corporations more resilient to climate change, through products and access to insurance, savings credit, money transfers, and new digital distribution channels4.
We believe that green and sustainability-orientated fintech can act as a true disruptive force in APAC, helping to bridge the gap between theory and practice in the transition to net zero.
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The Rise of Green Fintech
But there is still a long way to go. One study by GoImpact, an environmental, social, and governance (ESG) and sustainability education firm, together with The Chinese University of Hong Kong's Business School, suggests that government support can play a key role in the development of green fintech, and in supporting innovation in this space5. The study, which looks at five APEC economies – Hong Kong, China, Indonesia, Korea, Singapore and Thailand – calls for policymakers to establish a green fintech friendly environment.
It defines green fintech as the 'business activities that utilise technologies in financial activities that bring better environmental outcomes'. There are three different areas of focus – the environment, finance, and technology6.
Some countries are further ahead than others in their activities in the region. In Hong Kong, for example, the green fintech ecosystem is at the 'scaling up stage', according to the same study7, with several start-ups focussed on using technology to provide verifiable ESG data for reporting. While the ecosystem is developing well, the report calls for closer collaboration between governments and key players.
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Singapore is leading the pack in the region – it is still in its scaling up stage, but closer to the maturity stage, according to the report. The Singapore FinTech Association is promoting its development, and all players are collaborating closely to achieve a supportive environment for further development and research, according to the report. Two years ago, for example, the Monetary Authority of Singapore (MAS) announced that it would partner with the industry to pilot four digital platforms under Project Greenpoint to address the financial sector's need for good sustainability data8.
Other countries are further behind on their journeys, however. Thailand is still at an early stage of development, and while associations in the country are promoting fintech, they have not yet focussed on green fintech. Similarly, Korea is in the early stages, and moving to the scaling-up stage in its development. However, fintech associations in the country have started to promote the application of a green fintech ecosystem to meet sustainability goals.
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Indonesia is also in the early stages of developing its ecosystem, with start-ups currently focussed on providing carbon footprint offsetting services, and promoting platforms for green project investment. While some associations are promoting the use of fintech in the country, green fintech is not their current focus9.
Embracing the Future
At Lombard Odier, we recognise the vital and disruptive role that fintech is playing in the financial industry. Fintech has already revolutionised many parts of financial services, and that is not likely to change. The sheer scale of the sustainability challenge is intimidating10, and is creating a vital need for innovation. Emissions must halve by 203011, and in order to reach net zero, we also need to return 20% of agricultural land to nature by 203012, even as the world's population increases.
While the Asia Pacific region beat the world in its net zero transition efforts in 202113, with a decarbonisation rate on average of 1.2% according to PwC, there is no room for complacency. We believe that the region can demonstrate true leadership in this space, as our economy moves away from a take-make-waste model to one that is circular, lean, inclusive, and clean (CLIC®).
Changes to systems and processes require new thinking however. Technology, and green fintech particularly, can be a powerful catalyst for change. At Lombard Odier we believe that all stakeholders in APAC, whether they are government institutions, fintech companies, individuals, or associations, can play a vital role in developing a durable and strong green fintech ecosystem to meet the net zero challenge.
1 How fintech trends Southeast Asia is following will help with sustainability (Techcollectivesea.com)
2 The net-zero transition (McKinsey & Company)
3 The role of fintech in promoting green finance, and profitability: Evidence from the banking sector in the euro zone (Sciencedirect.com)
4 The role of financial inclusion and FinTech in addressing climate-related challenges in the industry 4.0: Lessons for sustainable development goals (Frontiers.com)
5 Exploring the Green Fintech Ecosystem in Asia: Insights from Five Economies in APEC (Hkgreenfinance.org)
6 Exploring the Green Fintech Ecosystem in Asia: Insights from Five Economies in APEC (Hkgreenfinance.org)
7 Exploring the Green Fintech Ecosystem in Asia: Insights from Five Economies in APEC (Hkgreenfinance.org)
8 MAS press release dated 9 November 2021
9 Exploring the Green Fintech Ecosystem in Asia: Insights from Five Economies in APEC (Hkgreenfinance.org
10 Can technology be sustainability’s white knight? (Lombardodier.com)
11 Working towards a net-zero world (Lombardodier.com)
12 Food that feeds the planet: Building Bridges 2022 (Lombardodier.com)
13 PwC Net Zero Economy Index: Asia Pacific’s Transition (Pwc.com)
Important information
This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.
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