Green Fintech Prospects on the Horizon

The Paulson Institute is focused on how to deploy fintech for sustainability. Are there ways that the technologies used by financial institutions in their businesses could be tied to greening initiatives? Is there replicability and scale on the horizon in order to produce more impact for the planet, and what are the challenges and opportunities?

An October 2019 fintech roundtable hosted by the Paulson Institute with the Research Center for Green Finance Development at Tsinghua University highlighted the many ways that China is exploring the growing opportunities in fintech to promote sustainable development in the green finance pilot zones. The People’s Bank of China has also introduced a fintech development plan for the next three years including proposals to establish regulatory sandboxes across China. And blockchain technologies in particular are getting substantial attention in China these days as President Xi stated that its development should be accelerated in an October Politburo meeting.

While China is no doubt important and in many ways the leader, what is happening around and sometimes in tandem with Chinese fintech efforts is also worthy of a look. The combination of efforts globally suggest a trend that should be on the radar for green finance players.

The application of blockchain technologies to support the issuance of green bonds should be emphasized. In April 2019, Spanish bank BBVA issued a blockchain supported green bond. This latest issue was $40 million, and while this is the first green issue, the bank and a few of its peers have already completed other transactions utilizing underlying blockchain technologies, which allow for flexibility in designing bonds to meet specific needs, ensuring documentation is traceable and immutable, and faster processing times.

And more recently, the Green Assets Wallet was introduced to the market by Stockholm Green Digital Finance. It is a database underpinned by blockchain with transparent and reliable green bond data for issuers and investors of green bonds that in theory should drive more green bond transactions and further develop the market. These technological advantages could help to transform the future of green bonds and is further expounded upon in this report by HSBC and the Sustainable Digital Finance Alliance.

Blockchain is also being applied to make supply chains more green, a win for the environment, but also a win for industry as preferential trade finance and business loans are increasingly awarding better rates to encourage greening. Platforms like Trado and from Ant Financial are beginning to explore this concept for scale. Application of the technology in clean energy trading and carbon trading are also opportunities ripe for green finance.

Clearly, there is a larger trend in which harnessing the power of technology for doing good is beginning to make waves, and the examples here are just a few of the early standouts—in just one field of fintech. Technology will get smarter and when applied to create scale, systemic change is then just on the horizon for the global financial system. The fintech for green space will be one to watch.