Blending green finance with technology to be a force for good

SUSTAINABILITY has been a topic of interest to many in the financial sector in recent years, and this only seems to have accelerated in the wake of Covid-19.

In a speech last December, Monetary Authority of Singapore (MAS) managing director Ravi Menon said the pandemic has sensitised the world to how vulnerable we all are to the forces of nature. 

“If we do not act decisively to limit the increase in global temperatures, we are putting at risk the future of our children and grandchildren,” he said.

However, Menon observed that technology can play a potent role in shaping the post covid world, and FinTech in particular has greater potential to be a force for good.

The growing trends of both sustainability and FinTech opens up opportunities to blend the two areas, and MAS has been looking at ways to tackle emerging challenges in green finance using technology – what it calls Green FinTech.

With this focus, MAS last year launched Project Greenprint: a technology platform aimed at promoting a green financial ecosystem. The need for such a platform has become more apparent in recent months, with increasing concerns over the risks of climate change.

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Importance of green finance

The UN Intergovernmental Panel on Climate Change sounded a dire warning in August, saying that the world is dangerously close to runaway warming, with greenhouse gas levels in the atmosphere high enough to guarantee climate disruption for decades if not centuries.

Calls have been made for an end to coal and other high-polluting fossil fuels, but for this to happen, substantial amounts of investment is needed. 

A report released by Bain & Co, Microsoft, and Temasek in Sept said that some US$2 trillion in sustainable infrastructure investment is needed over the next decade to build out South-east Asia’s infrastructure for a sustainable transition.

Meanwhile, the International Energy Agency has also said in June that investment in clean energy needs to triple from current levels by 2030 in order to meet the net-zero emission goals by 2050.

“Although the volume of assets invested in sustainable projects is rising rapidly, green finance has not been able to reach the scale required,” a MAS spokesperson said.

Gaps and opportunities

One of the reasons why green finance has not become mainstream is due to gaps in the environmental, social and governance (ESG) data value chain today, the spokesperson noted.

Trusted and high quality ESG data would allow financial institutions (FIs) to mobilise capital through incorporating ESG factors in pricing and labelling of green financial products and facilitating financing and investment decisions. 

It would also allow tracking of ESG commitments in FIs’ portfolios, while impact can also be measured by quantifying climate, environmental and transitional risks.

However, the process of acquiring sustainability data remains manual, cumbersome, and costly, and there is lack of transparency in the verification and reporting process for such data, the MAS spokesperson observed. 

Even so, many of the current data challenges faced can already be addressed with technology. 

Application Programming Interfaces (APIs), for instance, can allow direct connection to infrastructure systems and retrieve data on the environment and energy consumption. 

Other opportunities include internet of things devices and sensors to measure emissions, as well as blockchain-based platforms that can help ensure the origin of ESG certifications. 

“Many of such innovations already exist globally today; some of them are even finalists in MAS Global FinTech Hackcelerator and FinTech Awards,” the MAS spokesperson said. 

“However, most of these solutions only solve a small part of the data problem... there is a lack of cohesion and integration with other systems.”

Project Greenprint

MAS’ Project Greenprint seeks to solve some of these challenges.

The project involves a collection of initiatives to harness technology and data to enable a more transparent, trusted and efficient ESG ecosystem to support green and sustainable finance, and in the process, develop Singapore’s fintech ecosystem and enhance its role as a regional green finance hub, the MAS spokesperson said.

The project aims to promote a greener financial ecosystem via 3 pillars: mobilising capital, monitoring commitment and measuring impact.

Capital can be mobilised for small-and-mid-size enterprises and fintech firms that face difficulty accessing capital for green projects. 

Project Greenprint would provide a platform for these firms to connect with FIs and investors to access a wider pool of capital and green solutions.

It aims to deploy technology at different stages of the supply chain to help investors and FIs better monitor commitment to the relevant green standards and requirements.

To measure impact, the project will also explore the application of artificial intelligence and other technologies on third-party data sources, such as ratings services and crowd-sourcing, to quantify the ESG impact of potential investments and loan portfolios.

There are 3 strategic thrusts to Project Greenprint: ecosystem development, a greenprint marketplace, and a data platform. 

Building up the ecosystem will mean creating ESG capabilities and innovation within Singapore, as well as to develop international mindshare. 

MAS also seeks to match green technology solutions with international venture capital and green project sponsors driven from Singapore, as well as facilitate the efficient flow of verifiable data for a data-driven ESG ecosystem to support its 3 key pillars.

MAS said it will be a multi-year endeavour and with close partnerships with the industry domestically and globally.

It is working with the industry on initiatives to harness technology and data to enable the greening of the financial sector.

This includes developing data platforms to facilitate trusted ESG data flows between financial and real economy sectors. 

These data platforms aim to aggregate new and existing ESG data from ground-up across multiple sectorial platforms and systems and enable sharing of the data with different parties in a secure manner.

It will also be commissioning a series of industry-led projects to streamline green and sustainability-linked financing across multiple economic sectors. 

“The projects will showcase the value of green finance in the different sectors so as to accelerate adoption across the entire economy,” the MAS spokesperson said.

For all our coverage of the Singapore FinTech Festival 2021, go to bt.sg/sff2021.