The library aims to highlight the current views from academic, market, and official sector studies on the potential of FinTech to further sustainable debt capital markets. Recent literature on this topic tends to focus on the underlying requirement of data, the opportunities presented by digital innovation, and the use of DLT to grow the market. The list will be updated on an ongoing basis as the discussions on the role of FinTech in sustainable bond markets evolve and the impacts become clearer.
George, Schillebeeckx, 2021. Digital Sustainability and its Implications for Finance and Climate Change. MAS Special Feature A, April 2021 Macroeconomic Review
Two seemingly disparate trends have dominated in the latest decade. On the one hand, digital transformation has become a key aspect of every business. With mobile internet penetration, information availability has created a better-informed civil society. Cloud computing has eased scalability constraints by eliminating complexity and by linearising the costs of scaling digital infrastructure. Novel technologies such as blockchain, artificial intelligence and machine learning (AI/ML), the internet of things (IOT), big data, and 5G are becoming pervasive in business…On the other hand, sustainability, especially Sustainable Development Goal 13 (climate action), has become recognised as an existential challenge for humanity. The Canadian, EU, and UK parliaments have declared a climate emergency while many countries, including China and Singapore, have sharpened their sustainability targets with long-term plans. The thesis is that digitalisation and sustainability are converging and that new digital technologies will empower novel sustainability solutions that may help avoid the worst of climate change.
Puschmann et al., 2021. How Green FinTech Can Alleviate the Impact of Climate Change—The Case of Switzerland
The financial services industry is currently undergoing a major transformation, with digitization and sustainability being the core drivers. While both concepts have been researched in recent years, their intersection, often conceived as “green FinTech,” remains under-determined. Therefore, this paper contributes to this important discussion about green FinTech by, first, synthesizing the relevant literature systematically. Second, it shows the results of an empirical, in-depth analysis of the Swiss FinTech landscape both in terms of green FinTech startups as well as the services offered by the incumbents. The research results show that literature in this new domain has only emerged recently, is mostly characterized by a specific focus on isolated aspects of green FinTech and does not provide a comprehensive perspective on the topic yet. In addition, the results from the literature and the market analysis indicate that green FinTech has an impact along the whole value chain of financial services covering customer-to-customer (c2c), business-to-customer (b2c), and business-to-business (b2b) services. Today the field is predominantly captured by startup companies in contrast to the incumbents whose solutions are still rare.
Rose, 2020. Debt for Climate: Green Bonds and Other Instruments
This chapter, prepared for the Edward Elgar Research Handbook on Climate Finance and Investment Law (2020, Michael Mehling and Harro van Asselt (eds.)), examines the rise of green bonds, climate bonds, and other green financial instruments. Although climate finance has enjoyed positive momentum in recent years, this momentum is at risk—with the possibility of reversal—if climate markets fail to provide competitive risk-adjusted returns. For climate finance to compete effectively, governments, issuers, and investors must resolve a set of interrelated problems. First, green investments must compete with traditional “brown” investments, some of which enjoy significant subsidies. Even when not competing against subsidized industries and investments, green investments may still lack an advantageous risk-return profile and may suffer lower demand compared to standard investments. Second, green investments must create sufficient trust in their “greenness” so as to avoid accusations of greenwashing that would not only jeopardize a given issuer’s offerings, but would also erode trust in green markets generally. This chapter describes public and private efforts to develop a robust deal infrastructure for climate finance, including mechanisms like distributed ledgers and other financial technologies that are designed to make green investments more competitive with brown investments, while also increasing trust and reducing transaction costs.
Boitreaud et al., 2020. Riding the Wave: Navigating the ESG Landscape for Sovereign Debt Managers
As an important public institution and the main financing arm of the state, a country’s debt management office (DMO) can play an important role in supporting the country’s transition to a low-carbon, socially resilient, and sustainable economy, while also working within its core public debt management mandate. This paper considers (a) the different ESG areas in which the DMO can engage and (b) the key factors that may ensure successful implementation. It also formalizes a practical framework to help the DMO make these decisions.
Malamas et al., 2020. A Block-Chain Framework for Increased Trust in Green Bonds Issuance
Bonds issuance is a highly technical and complicated process, entailing mutually untrusted stakeholders with sometimes conflicting objectives. Currently, the global bond market is faced with several pain points when it comes to bond issuance, like disparate regulatory frameworks, limited traceability and auditability, settlement failures, and inefficient issuance processes. Block-chain technology is capable of addressing some of the issues mentioned above. The paper proposes a block-chain-enabled green bond issuance architecture. The system would utilise tokens (ERC-20) and smart contracts. The overall system also considers various regulatory compliance instruments and enhances access of regulatory bodies to issuance records.
Chen et al., 2020. Scaling Up Sustainable Investment through Blockchain-based Project Bonds
This paper explores options for mobilising domestic savings through fintech solutions to scale up sustainable investment. The paper discusses how fintech can help to complement conventional capital markets and help to mobilise financial resources for sustainable infrastructure investments. It puts forward a proposal for blockchain-based project bonds to raise finance through a digital crowdfunding platform, which is also able to transparently record and certify the use of proceeds, sustainability impact and revenue streams of the project by combining timestamp, public and private key mechanism, and smart contract technologies. This approach would not only provide investors of different sizes the opportunity to purchase local-currency assets and issuers such as municipalities to raise funds for sustainable infrastructure investment. It would also facilitate project management once the project is operational, e.g. through metering and billing, and create full transparency across the life cycle of the investment, reducing problems with mis-use of funds.
Antoncic et al., 2020. Sustainable Investment - Exploring the Linkage between Alpha, ESG, and SDG's
Environmental, Social and Governance (ESG) investing has been one of the most important topics in asset management this past decade. Yet, for all the attention, only a fraction of asset managers truly consider ESG issues when making investment decisions. This is partly due to the perceived conflict of ESG investing with an asset manager’s fiduciary duty and partly due to low-quality ESG data despite the near ubiquity of sustainability reports. The report analyses the relationship between alpha generation and ESG metrics, and measure the impact companies have on the U.N.’s Sustainable Development Goals (SDG´s). First, the study constructs a sector-neutral portfolio using MSCI ESG momentum scores from 2013 to 2018, and determine that it is feasible to generate positive alpha vis a vis the MSCI US index. Second, the study utilises structured and unstructured data to determine a company’s net influence on the SDGs, what is called a SDG ‘footprint.’ The study shows that an ESG momentum portfolio both outperforms the MSCI US index and has a relatively better SDG footprint than that of the index. Third, the study establishes a positive contemporaneous connection between the portfolio’s ESG ratings momentum and its SDG footprint. Thus, a positive linkage exists between ESG, alpha, and the SDG’s.
Deschryver, Mariz, 2020. What Future for the Green Bond Market? How Can Policymakers, Companies, and Investors Unlock the Potential of the Green Bond Market?
The green bond market is attracting new issuers and a more diversified base of investors. However, the size of the green bond market remains small compared to the challenges it is meant to address and to the overall traditional bond market. This paper is based on a unique methodology combining an extensive literature review, market data analysis, and interviews with a large spectrum of green bond market participants. The paper identifies the current barriers explaining the lack of scalability of the green bond market: a deficit of harmonized global standards; risks of greenwashing; the perception of higher costs for issuers; the lack of supply of green bonds for investors; and the overall infancy of the market. The paper also makes several recommendations to overcome these obstacles and unlock the full potential of green bonds to finance sustainability goals.
Schletz et al., 2020. Blockchain and Tokenized Securities: The Potential for Green Finance. ADBI Working Paper 1079
Green investment vehicles are limited by multiple market failures, such as high transaction costs for certification and monitoring, and high minimum investment sizes. In this exploratory study, we apply an inductive approach based on qualitative evidence from expert feedback to assess the potential of blockchain-based security tokens to address these market failures. The tokenization of real assets or debt/equity instruments reduces transaction costs through disintermediation and automation, enhances transparency, and reduces size and liquidity requirements due to lower transaction costs. The main constraints to the adoption of tokenized securities are software risk, regulatory uncertainty, and immature investment infrastructure. These constraints can be addressed by decision- and policy makers in Asia. Through developing pilot use cases and establishing regulatory sandboxes for tokenized securities, valuable experiences and stakeholder feedback can be merged into coherent regulatory and investment frameworks. Even though tokenized securities are a nascent technology and currently limited by immaturities, it is important to consider and develop this financing mechanism in a proactive manner, given its high potential to democratize green finance.
Xin Yang, 2020. FinTech in Promoting the Development of Green Finance in China against the Background of Big Data and Artificial Intelligence
Green finance as a financial strategy can guarantee the sustainable development of the economy and ecological environment, it has been widely implemented within China and worldwide. Meanwhile, FinTech based on big data and artificial intelligence technology has been largely utilized in various fields since its emergence. In light of various issues in the development of green finance, the advantages of FinTech can be employed to offer solutions to deal with. The author concludes that FinTech can facilitate the development of green finance in the perspectives of decreasing bank credit risk, enhancing the regulation level, stimulating product innovation and the perfection of the information-sharing mechanism.
Cen et al, 2018. Fintech, Green Finance and Sustainable Development
Implementing sustainable development face serious challenges. Bond issuance is insufficient for developing environmentally friendly industry. Fintech promotes both green finance and sustainable development and has redefined financial service and the ways of pricing. Fintech itself is green and supports sustainable development at least in the following aspects: ensuring green finance, reducing cost and information asymmetric, promoting efficiency, valuing nature’s assets, and providing practical sustainable lifestyles. Fintech provide a solution for sustainable finance. Ant Forest presents how fintech acting on sustainable development. Fintech and green finance should develop simultaneously to code with climate change. The paper discusses (i) FinTech as a means to reduce transaction costs and improve capital efficiency, (ii) FinTech’s ability to expand green finance, (iii) FinTech to be able to lower information asymmetries and enhance risk management, (iv) the role of blockchain, and finally (v) FinTech’s ability to make green finance more inclusive.
Nikolaou, 2018. The transition to a green global economy: The case of green finance and green bonds
A wide consensus exists in the global community regarding the need for a transition to "greener", carbon-neutral, and energy efficient communities. Through the Conference of the Parties (COP) commitments have been made for the mobilization of finance for investment in mitigation, adaptation and other environmental investments. In practice, there is rather large investment gap between the allocated funds and the actual needs for a reaching the set targets. In this study, we will explore the current landscape of "Green Finance", which is finance directed to environmentally friendly projects, how the latest developments in the field like Financial Technology (fintech) could stimulate and drive demand, the available tools for investors, as well as barriers and relevant proposals for unlocking the true potential of green finance. In addition, we will explore in depth one of the most prominent green finance tools available, namely the green bonds. The green bond market's growth has been constant during the last years, but there are still various considerations and barriers that need to be addressed in order to achieve a clear, robust, global green bond market.
Legal Disclaimer:
This information is provided by ICMA for information purposes only and should not be relied upon as legal, financial or other professional advice. While the information contained herein is taken from sources believed to be reliable, ICMA does not represent or warrant that it is accurate or complete and neither ICMA nor its employees shall have any liability arising from or relating to the use of this publication or its contents.
Contacts:
Georgina Jarratt
Managing Director, Head of Fintech and Digitalisation
Direct line: +44 20 7213 0348
Gabriel Callsen
Director, Fintech and Digitalisation; Secretary to the ICMA Fintech Advisory Committee (FinAC)
Direct line: +44 20 7213 0334
Rowan Varrall
Associate, Fintech and Digitalisation
Direct line: +44 20 7213 0317
ICMA, 2021. FinTech and sustainable bond markets. ICMA Quarterly report, First Quarter 2021.
ESG-based investing is a key trend which is expected to accelerate further and transform bond markets fundamentally in the coming years. FinTech cuts across the entire value chain of bond markets. However, most existing solutions are generally agnostic to the use of proceeds of a bond or issuers’ commitments to sustainability. A key consideration for ICMA and its members is therefore how to leverage FinTech to further sustainability in the international debt capital markets. As a result of discussions with ICMA members comprising issuers, investors, banks and data providers across Europe, Asia and North America, this article seeks to outline the opportunities and challenges encountered by market stakeholders and reflect on potential solutions to harness the potential of FinTech in sustainable bond market. The article is divided into the following sections: (i) literature review of selected publications on FinTech and sustainable finance; (ii) a high-level overview of the Green, Social and Sustainability-Linked Bond Principles; (iii) selected key regulatory developments; and (iv) perspectives from market participants and data providers.
ASIFMA, FoSDA, 2020. Data Challenges and Opportunities for ESG and Sustainable Finance in Asia Pacific
The Asia Securities Industry and Financial Markets Association (ASIFMA), in partnership with the Future of Sustainable Data Alliance (FOSDA), published a report discussing data challenges for environmental, social, and governance (ESG) and Sustainable Finance in the Asia Pacific region. The paper draws from two virtual panel discussions ‘Navigating ESG and Sustainable Finance in Asia’ and ‘ESG and Sustainable Finance in Asia: the Fintech and Data Challenge’ on 14 July and 28 October 2020 respectively, plus research referenced during the sessions. The paper also includes a section identifying several use cases of technologies and innovation in the field of ESG integration and sustainability practices.
The Economist, 2020. Sustainable and actionable: An ESG study of climate and social challenge for Asia
Sustainable and actionable: An ESG study of climate and social challenge for Asia is an Economist Intelligence Unit report, commissioned by Amundi. It explores environmental, social and governance (ESG) investing in fixed-income markets and examines the evolution of “green” debt from an issuer, investor and regulatory perspective. Central to the study is a question about market progress and if it has been enough, in Paris Agreement terms. The research is based on in-depth interviews conducted with 14 executives at asset-owner firms, regulatory bodies and finance professionals at academic or advisory organisations alongside extensive desk research and historical analysis. While the study concentrates on stakeholders and market players in Asia, the conclusions and implications are globally minded.
Environmental Finance, 2020. Green Bond Funds: Impact Reporting Practices 2020
This report is based on a survey conducted by Environmental Finance to examine how green bond funds are reporting their environmental impact and to what extent their reports meet the needs of their investors. Responses were received from fund managers responsible for 38 funds. A complementary questionnaire was sent to asset managers and asset owners and responses were received from 21 major green bond investors. Among the key findings, (1) more than two-thirds of investors regard impact reports as ‘crucial’, (2) 60% of investors say current impact reporting practices are ‘inadequate’, (3) Most investors prefer standalone impact reports rather than integrated reporting, and (4) Key areas for improvement are transparency and standardisation of the reports.
The Economist, 2019. Green Intelligence: Asia’s ESG investing, data integrity and technology
The report analyses results from a survey of 300 senior and C-suite managers at institutional-investor organisations (including sovereign or pension funds, investment banks and insurance funds). Respondents were all located in Asia, specifically mainland China, Japan, Hong Kong, Singapore, South Korea and other ASEAN member nations. (Although Singapore is a member state of ASEAN, it was surveyed separately in this report. This research analyses the degree to which artificial intelligence (AI) is being deployed, how it is being used and what more it might do in the future for ESG investment decisions. Integral to that question is an investigation into the state, availability and integrity of ESG data in Asia.
CBI, 2019. Green Bond European Investor Survey
Climate Bonds Initiative (CBI) surveyed 48 of the largest Europe-based fixed income asset managers to gain a comprehensive understanding of how the fixed income investment community is addressing or intending to address climate change through investment decisions. The total assets under management (AuM) of respondents is EUR13.7tn, and their total fixed income AuM is EUR4.3tn, with an average of EUR90bn and median of EUR34bn. Survey results indicate a lack of adequate supply of green bonds, with 67% of respondents overweight against the market. Investors regard transparency very highly and green bonds are well positioned to play an increasingly important role. The report also includes a responses section covering market tools and mechanisms which could help to scale up the green bond market, highlighting respondent challenges of providing green bond data in a standardised way.
SFDA and HSBC, 2019. Blockchain Gateway for Sustainability Linked Bonds: Widening access to finance block by block
This report is the result of a collaboration between the HSBC Centre of Sustainable Finance and the Sustainable Digital Finance Alliance with the aim to inspire the deployment of technology to unlock more capital for the Sustainable Development Goals and the Paris agreement. The report describes how this is increasingly possible. It particularly looks at how blockchain technology has been used in bonds, including one Green Bond, through a study of blockchain based bonds issued by banks up to Q3 2019, demonstrating efficiency and cost savings opportunities applicable to all bonds. The report further covers opportunities especially relevant to Green Bonds, in establishing credibility for Use of Proceeds and Proof of Impact, and innovation potential for new markets, by ap-plying blockchain and adjacent technologies already in use elsewhere, to Green Bonds. Finally, it provides key recommendations which are presented in the Executive Summary.
IADB, 2019. Transforming Green Bond Markets: Using Financial Innovation and Technology to Expand Green Bond Issuance in Latin America and the Caribbean
The Inter-American Development Bank (IADB) paper provides an overview of the green bond market. It analyses some of the issues inhibiting its development and suggests ways to expand it. Specifically, it explores two key dimensions: (I) the risk profile of the green bond instrument and (II) the transaction costs associated with issuance of and reporting on green bonds. The IADB presents aa roadmap to improve the green bonds market and discusses DLT as a potential technology to improve the way in which green bond tracking and reporting commitments are fulfilled, making the process more efficient and reliable. Under DLT, stored information and registered transactions become fundamentally unchangeable, incorruptible, and irreversible, which would ensure tracking integrity to investors. All relevant information would be available to all concerned on a timely basis. while improving overall security to the system relative to a centralised alternative.
Merrill and Schillebeeckx, 2019. Sustainable Digital Finance in Asia: Creating Environmental Impact through Bank Transformation Commissioned by DBS, the Sustainable Digital Finance Alliance, and UN Environment.
Data is arguably the most valuable resource in the digital economy. Used effectively and responsibly it has the potential to serve as a driving force in creating a more sustainable world. The potential is especially potent in the financial sector given its central place in the financial system, and its access to and use of data. This report shows how digital technology offers new ways to address sustainability problems and in doing so can fundamentally redirect financing towards more environmentally efficient users of capital. The ability to obtain and analyse environmental data (including externalities) at scale and speed vastly enhances opportunities (and requirements) to incorporate such data into risk analysis and thus pricing. This in turn changes the cost of capital for companies in the real economy. It also enables predictive analytics (scenario analysis) that can change banks’ portfolios and offer insight into their alignment with science-based planetary environmental limits. This report work was commissioned by DBS, the Sustainable Digital Finance Alliance, and UN Environment.
Nassiry, 2018. The Role of FinTech In Unlocking Green Finance: Policy Insights for Developing Countries. Asian Development Bank Institute Working Paper 883
The achievement of the Sustainable Development Goals (SDGs) and implementation of the Paris Agreement will require significant new investment. New financial technologies (“fintech”) offer the potential to unlock green finance technologies, such as blockchain, the Internet of Things and big data, developed over the same timeframe as the Paris Agreement and the SDGs. This paper outlines three broad areas for the possible application of fintech to green finance: blockchain applications for sustainable development; blockchain use-cases for renewable energy, decentralized electricity market, carbon credits and climate finance; and innovation in financial instruments, including green bonds. The paper focuses on blockchain use-cases pertaining to sustainable development and renewable energy and highlights examples from Europe, which has been a leader in blockchain technology. The paper explores the implications for developing economies in Asia and draws preliminary recommendations for policy makers interested in harnessing fintech and blockchain for low-carbon, climate-resilient investment and the achievement of the SDGs.
White & Case, 2018. FinTech solutions in Green Finance
In order to deliver on the UN Sustainable Development Goals and the Paris Agreement on Climate Change, it is estimated that around USD5-7 trillion of sustainable investment is required on an annual basis. The FinTech industry, with its technological agility and emphasis on innovation, has the potential to mobilise both public and private financing to help scale up green investment to meet this goal. FinTech solutions can assist with this in a number of ways, from providing the computing power for big data analysis of datasets and methodologies to standardise green reporting, making it easier for investors to monitor their green investments, to creating digital platforms to facilitate green capital markets issuances, even on a smaller scale, allowing a greater number of Issuers to access the capital markets for their green financing needs.
World Economic Forum, PwC and Stanford Woods Institute for the Environment, 2018. Building Block(chain)s for a Better Planet
This research and analysis identified more than 65 existing and emerging blockchain use-cases for the environment through desk-based research and interviews with a range of stakeholders at the forefront of applying blockchain across industry, big tech, entrepreneurs, research and government. Blockchain use-case solutions that are particularly relevant across environmental applications tend to cluster around the following cross-cutting themes: enabling the transition to cleaner and more efficient decentralized systems; peer-to-peer trading of resources or permits; supply-chain transparency and management; new financing models for environmental outcomes; and the realization of non-financial value and natural capital. The report also identifies enormous potential to create blockchain-enabled “game changers” that have the ability to deliver transformative solutions to environmental challenges. These game changers have the potential to disrupt, or substantially optimize, the systems that are critical to addressing many environmental challenges.
Legal Disclaimer:
This information is provided by ICMA for information purposes only and should not be relied upon as legal, financial or other professional advice. While the information contained herein is taken from sources believed to be reliable, ICMA does not represent or warrant that it is accurate or complete and neither ICMA nor its employees shall have any liability arising from or relating to the use of this publication or its contents.
Contacts:
Georgina Jarratt
Managing Director, Head of Fintech and Digitalisation
Direct line: +44 20 7213 0348
Gabriel Callsen
Director, Fintech and Digitalisation; Secretary to the ICMA Fintech Advisory Committee (FinAC)
Direct line: +44 20 7213 0334
Rowan Varrall
Associate, Fintech and Digitalisation
Direct line: +44 20 7213 0317
OECD, 2021. Financial Markets and Climate Transition: Opportunities, Challenges and Policy Implications
This report explores the key elements that could factor into market pricing of climate transition risks and opportunities, from stranded assets and production processes to decarbonisation strategies. It offers frameworks and case studies to understand how facets of the transition can affect market pricing. In addition, the note reviews a growing range of market products and practices that have emerged to more efficiently channel capital to price in and manage opportunities and risks from climate transition.
OECD, 2021. ESG Investing and Climate Transition: Market Practices, Issues and Policy Considerations
This report highlights the main findings from recent OECD research on ESG rating and investing and offer policy considerations to strengthen ESG practices to foster global consistency and comparability, as well encourage greater alignment of environmental metrics with a low-carbon transition. The report is divided into 4 sections: section 1 outlines ESG rating approaches and provides analysis on the performance of ESG-related products; section 2 explores the environmental ‘E’ pillar of ESG rating and investing to assess the extent to which practices align with a low-carbon transition; section 3 outlines a framework to understand how facets of a low-carbon transition can affect market pricing and support an orderly transition to low-carbon economies, and; section 4 offers policy considerations to strengthen practices, foster global interoperability and comparability, and improve the tools and methodologies that underpin disclosure, and valuations in financial markets to support a low-carbon transition.
FSB, 2021. The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability
This report examines the availability of data with which to monitor and assess climate-related risks to financial stability. It is the latest in a series of FSB reports concerning climate change. These include the FSB’s stocktake of financial authorities’ experience in including climate risks as part of their financial stability monitoring, which was published in July 2020; and The Implications of Climate Change for Financial Stability, which was published in November 2020. Section 2 discusses how climate-related risks differ from many other risks to the financial system, and what this implies for the data needed to monitor and assess them. Section 3 examines the availability of data with which to monitor the drivers of climate-related risks, as well as non-financial entities’ exposures to them. Such entities include non-financial corporates, which account for the majority of financial firms’ exposures to climate-related risks, as well as households and sovereigns. Section 4 focusses on the availability of data with which to assess the financial system’s exposures to climate-related risks, including via financial firms’ exposures to the non-financial entities discussed in Section 3. It also discusses the availability of data to assess the mitigation and transfer of climate-related risks to and across financial firms, including via the provision of insurance and via securities. Section 5 examines the availability of data with which to assess the resilience of the financial system to climate-related risks. This includes data needed to assess the resilience of financial markets and institutions to climate-related risks, including via scenario analysis. A final section concludes and discusses the implications of this report for policymakers. This includes discussion of priority areas of work – some of which are already in progress – that should be undertaken to address the data gaps discussed earlier in the report.
Boffo, 2020. ESG Investing: Environmental Pillar Scoring and Reporting, OECD Paris
This report assesses the landscape of criteria and measurement within the E pillar of ESG investing to better understand the extent to which E scores reflect outputs such as carbon emissions and core metrics that capture the negative effects of business activities on the environment, and to understand the impact of climate change to businesses. In doing this, the report aims to examine whether E scoring and reporting effectively serve markets and investors that are using ESG investing in part as a tool to make portfolios more resilient to physical and climate transition risks.
Boffo, 2020. ESG Investing: Practices, Progress and Challenges, OECD Paris
This report provides an overview of concepts, assessments, and conducts quantitative analysis to shed light on both the progress and challenges with respect to the current state of ESG investing. It highlights the wide variety of metrics, methodologies, and approaches that, while valid, contribute to disparate outcomes, adding to a range of ESG investment practices that, in aggregate, arrive at an industry consensus on the performance of high-ESG portfolios, which may remain open to interpretation. The key findings of the analysis illustrate that ESG ratings vary strongly depending on the provider chosen, which can occur for a number of reasons, such as different frameworks, measures, key indicators and metrics, data use, qualitative judgement, and weighting of subcategories. Moreover, returns have shown mixed results over the past decade, raising questions as to the true extent to which ESG drives performance. This lack of comparability of ESG metrics, ratings, and investing approaches makes it difficult for investors to draw the line between managing material ESG risks within their investment mandates, and pursuing ESG outcomes that might require a trade-off in financial performance.
IPSF, 2020. International Platform on Sustainable Finance (IPSF) annual report
The 2020 Annual Report of the International Platform on Sustainable Finance (IPSF) outlines the crucial role of sustainable finance in the context of the impact of the COVID-19 pandemic and how sustainable finance landscape is increasingly shaped by digital innovation in the financial sector. FinTech and digital innovation can play a key role in addressing challenges impeding the growth of sustainable finance. Technologies such as blockchain, artificial intelligence (AI), big data and the internet of things (IoT), can be applied to inject greater integrity, transparency and efficiency in sustainable finance decision-making and transactions.
Singh (Reserve Bank of India), Ismail (Asian Development Bank, Jakarta) 2020. Discussion Paper on Collaborative Business Models between Banks and FinTech for Green & Sustainable Growth
The discussion paper aims to solicit response from different stakeholders, including supervisory agencies, for understanding the risks and likely benefits of collaborative business models between banks and FinTech with an added emphasis on bringing coherence in multiple supervisory priorities like promoting FinTech, addressing climate-risks and sustainable development (SDGs).Though business models for collaboration vary in different jurisdictions, few important examples can be taken to identify common elements that can be replicated in other jurisdictions. The risks inherent in such business models especially in the context of immaturity of such business models, incompatible governance framework, moral-hazard and opaque incentive structures, among others, need to be carefully weighed in terms of benefits relating to market efficiency through better product design and wider distribution.
UN Taskforce on Digital Financing of SDGs, 2020. Peoples Money. Harnessing Digitalization to Finance a Sustainable Future
The UN Secretary General established the Task Force on Digital Financing of the Sustainable Development Goals (SDGs) as part of his broader Roadmap for Financing the 2030 Agenda for Sustainable Development: 2019-2021. The Task Force’s mandate is to recommend and catalyse ways to harness digitalization in accelerating financing of the SDGs. ‘People’s Money: Harnessing Digitalization to Finance a Sustainable Future’ is the Task Force’s final report. It summarizes the findings and recommendations developed and agreed by the Task Force since its inception in November 2018. It is based on an extensive engagement with stakeholders and research.
Macchiavello et al., 2020. Sustainable Finance and Fintech: Can Technology Contribute to Achieving Environmental Goals? A Preliminary Assessment of ‘Green FinTech'. European Banking Institute Working Paper Series 2020 – no. 71
The Fintech Action Plan (see now also Digital Finance Strategy) and the Sustainable Finance Strategy both represent important pillars of the current EU policy agenda. Nonetheless, the two areas have been treated as separate for a long time, while they present certain common features and great potential when combined. In particular, Fintech appears able to respond to some shortcomings in the current sustainable finance framework (e.g. access to retail financing, ESG disclosure, verification and ratings, etc.). The relevance of the link between sustainability, finance and technology has also been evidenced by the COVID-19 pandemic crisis, which has urged all countries to re-think the models traditionally deployed and rely more on technology and sustainability. However, Fintech still raises per se relevant legal issues that need to be addressed to fulfil its promises and potential in the sustainable finance sector. The present paper aims at starting a debate about “Green Fintech” in order to effectively connect the two worlds and spur the research in such a new and promising area.
European Commission Expert Group on Regulatory Obstacles to Financial Innovation (ROFIEG), 2019. 30 Recommendations on Regulation, Innovation and Finance
This report considers potential improvements to the regulatory framework for the EU financial sector from four different perspectives: (1) significant changes to existing regulation or new regulations may be required where the use of novel digital technologies presents additional risks, (2) there may be a need to adapt regulation in order to ensure a level playing field between incumbents and new market entrants and between different types of market participant, (3) the need to reconcile the possibility to have access to data and the rules on data protection suggests careful reform, and (4) technology-driven financial services may have a societal impact, as have other significant market developments. FinTech has the potential to contribute to sustainable finance (for instance, the use of Blockchain in the context of green bond issuance, and as a means to create significant operational efficiencies (e.g. in the context of regulatory reporting).
UN Taskforce on Digital Financing of the SDGs and World Economic Forum, 2019. Unlocking Capital Markets to Finance the SDGs
This report summarises insights generated by a diverse group of influential institutional investors and their advisers – all specialists in sustainability – in order to explore how the global capital markets can better accelerate progress on the SDGs. The key takeaway is a startlingly simple framework: harnessing the digitalisation of finance requires the right Data that drives Decisions to deploy Dollars. This paper is organized into several sections that summarize the Taskforce’s findings to date and tease out areas for further exploration. The paper includes a discussion of (i) the powerful, catalysing role capital markets can play in digital financing of the SDGs, (ii) the impediments to harnessing capital markets to finance the SDGs, (iii) the multi-stakeholder commitments required to realise the SDGs, (iv) the IEX / World Economic Forum DFTF stakeholder convening on 1 August 2019, and (v) the recommendations that crystalized during the convening.
OECD, 2019. Blockchain Technologies as a Digital Enabler for Sustainable Infrastructure
Embracing new technologies that could enable drastic reductions in GHG emissions will be key to delivering low-emissions pathways for growth, but it is not always obvious what the big breakthroughs will look like. This report looks at how blockchain technology can be applied to support sustainable infrastructure investment that is aligned with climate change objectives. It focuses on three key points: the financing of infrastructure initiatives, the creation of visibility and alignment of climate action, and the provisioning of awareness and access for institutions and consumers.
UN Environment Inquiry, 2019. Digital Finance and Citizen Action in Financing the Future of Climate-smart Infrastructure
This report looks at how digital finance technologies, or fintech, can engage citizensas consumers, pension holding investors, co-producers and voters. The impact of fintech in engaging citizens in climate-smart infrastructure development can be observed at four levels: business model innovation, new sources of finance, consumer choice and behaviour and improved systems and data.This study presents many case examples of innovations that are already changing consumer-citizen behaviour at each level, increasing finance for climate-smart infrastructure and reducing emissions, while also issuing key finding and recommendations to increase the scale and impact of fintech. The report highlights how FinTech enables citizens and investors to access more relevant data on climate-smart infrastructure, and how regulatory and professional bodies need to address barriers to relevant data through the development of improved standards and relevant labels that signpost recognized climate standards, as well as use of digital financial technologies for improved transparency and accountability.
OECD, 2018. Financing Climate Futures. Rethinking Infrastructure Chapter 3: Unleash innovation to accelerate the transition
Innovation is critical for the economic transformation required to address climate change. The rate and direction of innovation will, to a large extent, determine the economic cost and therefore the likelihood of achieving the Paris Agreement’s mitigation and adaptation goals. This chapter examines current trends in innovation. It highlights the barriers and opportunities for accelerating the deployment of technologies, business models and services that support the transition to a low-emission, resilient future. The chapter outlines four priority actions for scaling up climate solutions: deploy targeted innovation policies to create and shape markets for climate innovations, scale up public investment in research and development (R&D), overcome financial barriers to demonstration and early-stage commercialisation to bring existing technologies to scale, and promote international technology diffusion to ensure that innovation benefits all.
G20 Sustainable Finance Study Group, 2018. Sustainable Finance Synthesis Report
Under Argentina’s Presidency, Finance Ministers and Central Bank Governors have mandated the SFSG to develop and assess options for voluntary adoption by members to help deploy financing, including by creating sustainable assets for capital markets; developing sustainable Private Equity and Venture Capital (PE/VC); exploring applications of digital technologies to sustainable finance, taking into account countries’ circumstances, priorities and needs. The SFSG stocktaking, analysis and layout of voluntary options intended to address specific sustainability-related challenges in these three areas. The report looks at (i) creating sustainable assets for capital markets, (ii) developing sustainable Private Equity and Venture Capital, and (iii) exploring potential applications of digital technologies to sustainable finance
Green Finance Taskforce, 2018. Accelerating Green Finance
The Green Finance Taskforce was established by the UK Government s and tasked with providing recommendations for delivery of the public and private investment we need to meet the UK’s carbon budgets and related environmental and resilience goals, and maximise the UK’s share of the global green finance market. The Taskforce has worked with over 140 organisations to deliver a series of recommendations on how the Government and the private sector can work together to maximise the UK’s role in mobilising the green finance the UK and global economy. Among the recommendations is the creation of a Green FinTech Hub to coordinate and collaborate to develop commercially viable green fintech solutions.
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This information is provided by ICMA for information purposes only and should not be relied upon as legal, financial or other professional advice. While the information contained herein is taken from sources believed to be reliable, ICMA does not represent or warrant that it is accurate or complete and neither ICMA nor its employees shall have any liability arising from or relating to the use of this publication or its contents.
Contacts:
Georgina Jarratt
Managing Director, Head of Fintech and Digitalisation
Direct line: +44 20 7213 0348
Gabriel Callsen
Director, Fintech and Digitalisation; Secretary to the ICMA Fintech Advisory Committee (FinAC)
Direct line: +44 20 7213 0334
Rowan Varrall
Associate, Fintech and Digitalisation
Direct line: +44 20 7213 0317
