DigFin Green is our series profiling leaders in fintech companies addressing environment, social, and governance (ESG) solutions, using technology to power financial services towards sustainable outcomes. Contact us if you would like to be included.
Mark Ho is co-founder and CEO at ProMEX, a Hong Kong-based startup seeking to develop a digital marketplace for physical commodities.
Prior to setting up ProMEX in 2021, Jue has served as chief operating officer at Oriental Patron Securities, chief compliance officer at Hong Kong Mercantile Exchange, and vice president for corporate strategy at Hong Kong Exchanges and Clearing.
He spoke at the Asian Financial Forum this week in Hong Kong as one of several startups operating in the government’s Cyberport program.
What problem are you addressing?
There are three problems for ESG in the physical commodities space. One is the lack of ESG data. Second, the market is fragmented. There is no central marketplace to source green products. Third, the traditional model for trading commodities is bilateral and inefficient. If we digitize the process, it can create a lot of efficiencies.
What does ProMEX do?
ProMEX is a fintech startup that operates a digital marketplace for physical commodities. We are also licensed in Hong Kong as a money-services operator. Buyers and sellers use our platform to interact electronically. ProMEX provides a price discovery process. We use our technology to match those orders and settle transactions instantly. We bring transparency and efficiency to the trading of commodities.
What does this look like in practice?
Sourcing “green” metals can help mitigate the impact [of mining] on the environment. But there are three major impediments.
First, the metals market is diverse, including aluminum, copper, zinc, and a number of alloys. Each of these markets has its own ESG-related actions, across different jurisdictions. There’s no definition of what is a green product.
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This lack of standardization is a problem for many industries. For example, the construction industry in Hong Kong now has to certify “green” building materials, such as green steel rebar.
Second is the lack of ESG data. It can be hard for a manufacturer to get ESG data from its upstream suppliers. It might have its own ESG data, but if suppliers can’t supply adequate information, it’s hard to provide a complete data profile for your downstream customers. Take the shipping of commodities: the shipping itself leaves a carbon footprint.
Third is the price premium of green products. It’s always a question of whether a company can raise its prices because it’s producing green products, which is necessary to account for the increased compliance and other costs. But this depends on the industry: steel, for example, can’t raise prices just because the product is green. Therefore, industries lack the financial incentives to specify their products as green. They only see ESG as a cost.
What else do we need to know?
Risk management is a key part of a corporate management team’s responsibilities. In the commodities space, some institutions can hedge risk in the futures market. But futures are complex for SMEs. Asian SMEs don’t trade in these markets because they involve leverage, and SMEs aren’t able to manage intraday margin calls, rollover positions, or the impact on their cashflow.
What they do instead is enter into forward contracts with one another; they find their own counterparties. But this can give rise to risk or, if a company lacks inventory or isn’t able to meet delivery, will keep companies from hedging at all.
We think that these companies would be prepared to go to a spot market for commodities if it’s liquid. They could keep their products in a warehouse until there’s a need to transact or ship them. This would allow some buyers to satisfy their needs without entering forward contracts. An efficient, smart marketplace will reduce risk. Someday we want to serve that need.
ProMEX is also working in other commodities industries that have similar problems to metals. The platform is generic. We’re working now with a tannery in Asia to launch a green leather product. But even within leather, there are three industry associations, each with its own guidelines and standards about what’s green. We have to work out logistics and other issues.
But we want to meet people in any commodities trading business. If you have standardized products and multiple buyers and sellers, we’d like to collaborate and develop the market together.