Sustainable Finance

Fintech in Responsible Financing

Admin | Feb 25, 2021


Photo by Nathan Dumlao on Unsplash

This is an original article written by Estella Zhong and Racia Yoong.

In the current era of technology, driven by the advent of unassuming yet immensely powerful innovations like the smartphone, everything is either becoming or have already been digitized. Finance is no exception. 

Fintech is a fast-growing industry; of which impact is only increasing as sustainability and green finance have shifted to become key focuses worldwide. 

In the last decade, finance has become one of the fastest-growing industries to date, impacting millions of lives and it is the anchor of many major economies in the world today. And why is this important? The power and influence of the finance industry will shape the future of our world. With building blocks of conversation about building a sustainable future, finance has taken the limelight in the dialogue of climate change and sustainable development.

What is Fintech?

A portmanteau of “finance” and “technology”, Fintech is e linkage of financial services with innovative technologies. While mainly employed by financial institutions on the back end in the traditional sense, Fintech has evolved in its applications to include novel technologies that are revising and revitalizing the system.  

Sustainable finance, which is the channeling of investments into sustainable projects, initiatives, products, and policies in pursuit of a more sustainable economy, has been growing in importance to essential stakeholders like policymakers and investors. This is especially as one of the commitments under the Paris Agreement is the making of “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development”. Given this, Fintech, which has a close alignment to sustainable financing, has experienced an unprecedented rate of development, growing in leaps and bounds to produce novel concepts like BigData and Blockchain. 

 Linking Sustainability and Finance

You may be asking; how does the financial sector relate to sustainability? The United Nations Sustainable Development Goals (UN SDGs) formed the basis for the vast majority of sustainable initiatives requiring copious financing to be realized, estimated at $3-4 trillion annually. Funding and investments, hence, play an active role in realising the SDGs, both new and incremental investments critical for long-term development. 

In 2014, the United Nations Conference on Trade and Development (UNCTAD) reported that total investment needs worldwide was a whopping $5-7 trillion per annum, of which more than half stemmed from developing countries in key SDG sectors such as food security and health and education. The current investment of around 35% is unfortunately, nowhere close to what is required. Considering the above, private capital hence has a huge role in the investing of our endeavor towards the SDGs, constituting a large proportion of overall investments.

Fintech and Sustainability

Well, in recent years, concepts like Big Data and Blockchain have taken the spotlight to leverage its potential in facilitating sustainable, inclusive financing. 

It is vital for financial systems to align with sustainability objectives – and Fintech is one such means. 

Fintech (and especially blockchain) has critical implications for sustainable development implementation, due to its intrinsic capability to influence the economy. As Fintech continues to develop within the same timeframe and parallel to the SDGs and global collaborations such as the Paris Agreement, the role that Fintech holds becomes only ever more essential.  

Fintech plays three core roles in the pursuit of the SDGs.

  1. Firstly, given the immense improvement in dissemination and accessibility that technology provides, allotment of existing financial resources that are already being channeled into sustainable growth can be expedited. Such includes ESG-financing, as well as other models and frameworks in place to allocate investments worldwide. 
  2. Secondly, through the prioritization and implementation of policies targeting the development of the finance sector via an emphasis on factors like financial inclusion, the overall volume of financial resources can be expanded. New money can be generated and made available, particularly in developing countries, by instigating rapid financial transformation and digitalization. 
  3. Lastly, the SDGs themselves can be targeted. With the utilization of Fintech, new innovations regarding financial and regulatory systems can be formulated to attain the Goals. With adequate markets in place, financial actions have the potential to contribute to every single one of the SDGs (refer to the table below). 

Innovations in technologies such as blockchain and financial instruments like green bonds will therefore all help precipitate the meeting of global sustainable policy objectives, be it through the quickening of capital flows towards a more sustainable financial system, or by allowing investors to meet risk-return requirements of sustainable investments. 

Technological innovations in the finance field and the emergence of new financial instruments will be increasingly paramount in the future as means to reduce costs and maximise capital at suitable scales and speeds. 

Responsible financing and Fintech thus are extremely relevant not just to investors, but policymakers as well; they are part and parcel of the implementation and enactment process of the SDGs. Innovations in green finance will offer not only the ability to contribute towards the global goals, but also a revamping of the current economy to increase accessibility to essential services and to minimise investment and operating costs. Such improvements will go a long way in amplifying the global capacity in attaining the aforementioned sustainability outcomes. 

While FinTech provides an unlimited wealth of possibilities and opportunities for a positive transformation of finance as we know it, this potential is balanced out by the presence of new risks with the capabilities to impact regulatory objectives. 

Developments in Fintech and financial inclusion should not be mutually exclusive. 

Financial inclusion is key for a ubiquitous success of Fintech – in 2017, around 31% of the world’s overall population lacked access to digital financial implements. For FinTech to have a more galvanizing impact through greater reach, general access and availability are obstacles that must be overcome. 

Having financial services at affordable rates for all will be essential for sustainability by first allowing for management of financial obligations, reduction of poverty, and encouragement of wider economic growth. 

China is the prime example of a successful case. In just a few years, they have progressed rapidly from a traditional financial system to what is now arguably the world’s most technologically advanced digital finance system. 

While perhaps more pertinent for the developing countries, this is an important factor worldwide, where financial literacy rates are still far from ideal – only a third of all adults globally are competent at managing their finances.

Financial Literacy Rates Worldwide (Source: S&P Global FinLit Survey)

Financial risks often push people towards unsustainable short-term choices out of necessity, which is where financial inclusion becomes integral. It engenders the ability for people to think about the long-term, allowing for space to think, plan, and manage to enact more sustainable decisions. 

A Bright Future
Fintech has the immense innate ability to galvanize an entirely novel financial infrastructure, facilitating the creation of a new and improved digital financial ecosystem that is catered appropriately for future sustainability development, one that emphasizes financial development, inclusion, and stability. 



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