Big data applications, artificial intelligence, and the Internet of things are potential sources of increased revenue for any business. To review sustainability in fintech, here’s a quick outline of Sustainable Digital Finance’s endless possibilities.
A varied use of financial technology can actually boost environmental measures. This is the case not only within its own sector, but also while integrated into other industries and areas. Let’s see why and how.
Sustainability in fintech: How can it work most optimally?
Fintech can be the perfect medium to integrate new and greener efforts.
Fintech has a broad range of action to truly evolve where we stand on sustainability worldwide. In fact, there’s a need in fintech for the industry to think outside the box and within our realms of operation. That’s so to truly innovate and integrate this tech’s possibilities into greener measures.
The main goal is for fintech to truly foster sustainable growth as targeted by the United Nations’ Sustainable Development Goals (SDGs).
Sustainable digital finance (SDF)
Fintech offers newly-found abilities to address sustainability concerns.
The most obvious approach on this topic is to think about sustainability integration as it being directly linked to products and services. But fintech’s reach has long been termed broader than that. Sustainable Digital Finance (SDF) relates to entire ecosystems in which we group everything from mobile payments to lending as much as artificial intelligence (AI) and machine learning.
At first, SDFs were mainly regarded as tools for social progress. Of course, all that evolved quite quickly.
A report on sustainable digital finance in Asia commissioned by DBS, the Sustainable Digital Finance Alliance, and UN Environment states that digital tech has newly-found abilities to address sustainability concerns. The analysis sets forth that our most complex environmental issues can indeed be a part of financial products’ reach.
Controlling where financing goes
According to the above-mentioned study, aiming financing at more environmentally efficient capitalists is one way fintech can have a direct impact on a greener planet.
DZ Bank in Germany, for example, is already backing environmentally and socially sustainable development with more favorable interest rates. They focus on granting development loans for environmental protection and sustainability.
Similar to green bonds, financial institutions such as BBVA are already working on different kinds of green loans. Those specifically support projects that primarily promote environmental sustainability.
This is a clear-cut measure. In the end, financing can hold a strong bearing in several markets at a time and for extended periods.
Fintech: an ideal tool for evaluation
The tools fintech brings on board can legitimately help with solid evaluation.
Companies can also start to cut back on their corporate impact on our environment by means of pure evaluation. As with any goal we set, our path to achieving new objectives needs to be consistently measured. Fintech can easily generate the required infrastructure as a solid foundation on which to base consistency indicators.
Its robust tech capabilities can provide standardized indicators and measurement methods. It can also design new solutions to fit this need. These can all be a concise first step towards long-term, environmentally-focused measures.
Sustainable big data
Big data can help measure environmental impact.
A strong component of digital everything, data also brings about enormous potential to meet sustainable goals. Top that with advanced data analytics and we can get meaningful insight into patterns.
A simple step for a company to be more sustainable is to simply redirect spending of on-site hardware to a financial organization’s cloud. Doing so bears the side advantage of a more focused and specialized approach in agile cloud computing, for instance.
Yet, big data can help measure environmental impact by working on carbon emissions, too. Adyen, a Dutch payments provider, has been able to incorporate CO2 emission offsets for its merchants. In turn, these 10K+ sellers can offer their customers the same in every purchase. Quite a way to pay it forward, don’t you think?
MasterCard’s Carbon Calculator also allows cardholders to keep track of their estimated carbon footprint on a monthly basis now. Geared towards mindful user spending, the tool also gives tips for consumers to cut back on their carbon footprint with every buy.
But that’s not all. The credit card giant has integrated a user-friendly API for financial institutions and merchants to embed in their own digital products for carbon tracking.
Processing large amounts of unstructured data can also give us a better understanding of a certain group’s opinion to put to great use. BBVA Research’s 2021 report, for example, titled Understanding the sustainability framework using Big Data, is a clear example of that. AI analysis allowed an assessment of real time public opinions on sustainability. The insight accessed main concerns, the people behind these debates, and their respective interconnections.
The overall result here is that it’s possible to set new trends and make different behaviors evident. It’s all a matter of putting the most advanced tools to work.
Turning it all into revenue streams
Big companies have already made billions off sustainable approaches.
As we can see, it’s not all just about generating data, really. The true potential behind these capabilities is turning that into revenue, which is certainly possible – and effectively being done – for a while now.
According to McKinsey, companies can either cut back on costs due to sustainability measures or drastically make more money off of it. That shouldn’t be shocking. We’ve known this to be true for Standard and Poor’s (S&P) 500 companies for years!
Also back in 2014 and as a result of the CDP’s study mentioned before, this reality made headlines all over the news. The claim then being that companies that were “actively managing and planning for climate change secure an 18% higher return on investment (ROI) than companies that aren’t.” Count Nike, WholeFoods, Toyota, and Ikea as part of the most famous names for companies to have made billions off of sustainable approaches.
According to the CDP, an international non-profit organization that helps companies and cities disclose their environmental impact, “those companies investing in carbon reductions achieved a 50% lower volatility of earnings over the past decade and 21% stronger dividends than their low-ranking peers.” For this organization, being financially strong has proven to certainly go hand-in-hand with emission reduction goals and other targets.
Their 2014 report shed quite a bit of light on the “financial definition to estimate the rate of corporate growth,” which refers to sustainable growth equaling a return on equity (ROE) times its reinvestment. ROE is key here for long-term value for the CDP, as it involves “company profit margins, asset turnover, and debt to equity ratios.”
The latest tech can truly revolutionize sustainability
There’s nothing the latest tech can’t innovate. And sustainability is a big part of what AI, the IoT, and DLT can positively impact.
AI, IoT, and distributed ledger technologies (DLT) can all bring sustainability in fintech to a whole different level.
Far from just linking blockchain to cryptocurrencies, these platforms are also a tool we can use to monitor compliance with the SDGs, for example. Or we can comfortably use AI to analyze millions of unstructured data, for instance. Even peer-to-peer transactions on green energy, such as residential roofing energy shares between neighbors can transact via blockchain.
An article published in the Earth System Governance’s research journal in 2021 called “Leveraging blockchain technology for innovative climate finance under the Green Climate Fund,” already describes DLT as capable of being “leveraged to support climate action, for example by facilitating transparent and standardized transactions, or by enabling more efficient monitoring and accreditation processes.” DLT mainly brings the power of asset management, peer-to-peer networks and a transparent exchange of data that’s perfect for our current scenario.
On the other hand, we just know how flexible the IoT is by definition. So, if there’s any help from advanced tech we can transport over to sustainable measures, this is the perfect place to start looking.
Learn more about this kind of innovation here.
It’s time to start innovating with sustainability in fintech
Fintech offers a safe ground for ultimate sustainable innovation
Typically, revenue generation is tied to the innovation behind a company’s efforts. Lifting off new products, redesigning their line, or just coming up with new ways to face old challenges is all a part of it. The same can happen with more conscious environmental measures to put a few more streams in a company’s pocket.
The products and services you currently offer might not have been designed to aid with a sustainable environment. Yet, they can certainly be re-tailored to that end.
Gain competitiveness in face of the current rise in demand for sustainable products, especially spiked after the recent pandemic. It’s time to innovate and integrate as a means of figuring out how we can best engage in sustainable finance approaches.
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