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Dear Santa: What DigFin wants for Christmas

To celebrate the holidays, DigFin wants to talk about Singapore’s vision of fintech going green.

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The Singapore Fintech Festival this year saw something like 60,000 people attend from all over the world. The scope was impressive. Singapore has done an amazing job of positioning itself as a global leader in digital finance, and its government uses the SFF to drive its agenda.

This year, the agenda was about using fintech to promote ecological sustainability. “We need to make the world greener,” said Ravi Menon, managing director of the Monetary Authority of Singapore, in his opening remarks. “We need a greener financial system.”

After these presentations, all of the attendees, speakers and exhibitors got back to their usual business.

Business as usual?

The issue of the environment is not going to go away, however. It’s going to become more urgent. The SFF 2019 is likely to be remembered in our industry as the point at which governments began to think about the inducements, regulations and nudges required to get digital finance to consider the environment.

Now that it’s Christmas time, consider this article DigFin’s wishful letter to Santa Claus. We’d like to see fintech go green.

Is this possible? Does fintech go with ecological activism?

We need to harness the power of fintech

Ong Ye Kung, MAS

Not by itself. Most pollution and emission problems are what economists describe as “externalities”: costs that producers pass on to society instead of paying for their own actions. It’s the Achilles Heel of capitalism: all too often, companies are incentivized to behave badly because they, and their shareholders, don’t pay the price.

There will be winners too

Addressing this requires government action. But while governments can influence market direction, the best results come from encouraging market forces to do the rest. Smart policies can also create new sources of growth and capital formation.

“Finance fuels business and the economy, and determines investment decisions,” said Ong Ye Kung, a member of the MAS board and Singapore’s education minister. Governments can influence how capital is mobilized and steer it toward new investments in the real economy.

This message is especially important for China, India, and the rest of the developing world. China and India are now the world’s biggest polluters, but they are going to resist measures they perceive as stifling their growth and keeping them at a disadvantage to the U.S. and Europe, which have been emitting carbon since the Industrial Revolution of the early 19th century.

We need a greener financial system

Ravi Menon, MAS

One obvious investment will continue to be alternative sources of energy. In the U.S. in particular, technology has slashed costs in renewables, making these more economical than fossil fuels. (Tech has also made it economical to frack for oil, though.)

Ong says governments and investors need to do more to develop energy-efficient transmission, eco-friendly buildings, and improve battery storage. But market forces need to do this work.

And losers will lose big

Mother Nature will force markets’ hands, of course: as global temperatures rise, the stock of fossil-fuel companies will plummet. Deforestation, land contamination, warming and acidic seas and pollution will decimate agrobusiness as we know it.

Banks hold untold risks on their balance sheets. The ESG (environment, social, governance) movement is nascent, and difficult to track, but as metrics standardize, banks will find it possible to include environmental problems as a credit risk, asset managers will better understand the risks in their portfolio companies, and insurers will be able to calculate their exposures.

The news is unlikely to be good. Firms that move quickly, however, will have at least enjoy a competitive advantage, by moving to limit such exposures. They will also be earlier to exploit new cleantech and green-finance markets, from carbon trading to green loans to catastrophe bonds.

Fintech’s green future

“We need to harness the power of fintech” to make this happen, Ong said. Singapore has invested in its tech stack, and will add green metrics and mandates on top, to scale up sustainable finance.

“We will leverage our technology to connect supply chains, develop marketplaces, and track data,” Ong said. A combination of smart contracts, A.I.-led algorithms, blockchain and Internet of Thing sensors can develop a protocol for carbon offsets, for example, while big data analytics can be applied to model financial risks in green finance.

Ong said, “Finance, innovation and technology are forces for good. Climate change is the ultimate challenge for humankind. Being green can be reconciled with growth. But we need finance to become green, because finance mobilizes the resources of the world.”

Since the Industrial Revolution, the world has enjoyed fast-paced economic growth, the likes of which humanity had never seen. But it’s been based on systematic exploitation of natural resources, and we are nearing the end of what the Earth can provide so freely. Finance, armed with digital technology to measure risk, analyze opportunity, and deploy capital, will be necessary to our surviving the 21st century. Incentives are going to change.

Make the trend your friend. With that, DigFin wishes everyone a happy holiday season. We’ll be back next week.

P.S. Are you working on green fintech initiatives? Let us know!

DigFin direct!

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Dear Santa: What DigFin wants for Christmas