Har­ness­ing dig­i­tal­iza­tion for sus­tain­abil­ity

The Financial Daily - - NATIONAL -

Maria Ramos & Achim Steiner

Fi­nan­cial dig­i­tal­iza­tion - the dig­i­tal revo­lu­tion's sys­tem-level trans­for­ma­tion of the en­tire fi­nan­cial ecosys­tem - could cat­alyze global ef­forts to fi­nance sus­tain­able devel­op­ment.

Ac­cord­ing to the McKin­sey Global In­sti­tute, the ex­panded use of fi­nan­cial tech­nol­ogy could drive growth across de­vel­op­ing coun­tries by up to US$3.7 tril­lion by 2025, thanks mainly to in­creased pro­duc­tiv­ity gains and broader fi­nan­cial in­clu­sion.

But if the prom­ises of dig­i­tal­iza­tion are to be ful­filled, the world will need to align fi­nanc­ing and in­vest­ment strate­gies more tightly to sus­tain­able devel­op­ment out­comes. In No­vem­ber, United Na­tions Sec­re­tary-Gen­eral An­tónio Guter­res con­vened a task force on dig­i­tal fi­nanc­ing to tackle this com­plex chal­lenge.

For ob­vi­ous rea­sons, fi­nanc­ing is key to achiev­ing the Sus­tain­able Devel­op­ment Goals (SDGs) and meet­ing the emis­sions tar­gets set by the 2015 Paris cli­mate agree­ment. But al­though global sav­ings are more than ad­e­quate to fuel the tran­si­tion to sus­tain­able devel­op­ment, the global fi­nan­cial sys­tem has so far failed to ef­fec­tively in­ter­me­di­ate sup­ply and de­mand.

The mod­est suc­cess that some coun­tries have achieved in fi­nanc­ing sus- tain­able devel­op­ment has not been com­men­su­rate with the need.

Many fac­tors can in­flu­ence sus­tain­able devel­op­ment out­comes. For ex­am­ple, the global fi­nan­cial and eco­nomic crises that be­gan in 2008 - and the sub­se­quent re­sponses by reg­u­la­tors and pol­i­cy­mak­ers - have im­pacted eco­nomic growth, job cre­ation, and in­come equal­ity.

Any num­ber of na­tional and in­ter­na­tional poli­cies can de­ter­mine whether fi­nanc­ing de­liv­ers, or di­verts us from, sus­tain­able devel­op­ment.

But it is dig­i­tal­iza­tion that could make the big­gest long-term dif­fer­ence by har­ness­ing the power of new busi­ness mod­els driven by tech­nolo­gies in­clud­ing mo­bile con­nec­tiv­ity, ar­ti­fi­cial in­tel­li­gence, big data, blockchain, and the In­ter­net of Things.

That im­mense po­ten­tial, how­ever, is not guar­an­teed. Ul­ti­mately, the im­pact of dig­i­tal­iza­tion on sus­tain­able devel­op­ment will de­pend on whether the ad­vent of more and cheaper data, to­gether with faster analytics, re­sults in fi­nanc­ing de­ci­sions that take greater ac­count of to­day's so­cial and en­vi­ron­men­tal costs.

Fin­tech can place cit­i­zens cen­ter stage in de­liv­er­ing good devel­op­ment out­comes. Kenya's dig­i­tal revo­lu­tion has helped poor house­holds gain ac­cess to ev­ery­thing from so­lar en­ergy to gov­ern­ment bond mar­kets. Crowd­fund­ing plat­forms like the United King­dom's Abun­dance, Ger­many's EcoCrowd, and Ja­pan's NPO Bank are un­lock­ing re­spon­si­ble, sus­tain­able lend­ing so­lu­tions.

In China, Ant Fi­nan­cial's Ant For­est plat­form has helped more than 300 mil­lion peo­ple re­duce their eco­log­i­cal foot­print. Bi­cy­cle-shar­ing ser­vices use app-based fin­tech pay­ment so­lu­tions to make their low-car­bon, health­ier trans­porta­tion op­tion avail­able to mil­lions of peo­ple in cities all over the world. Many chal­lenges

In short, there are al­ready tan­ta­liz­ing hints of the power of the dig­i­tal revo­lu­tion in ad­vanc­ing fi­nance for sus­tain­abil­ity.

Chang­ing how peo­ple bank and in­vest, and de­moc­ra­tiz­ing ac­cess to the fi­nan­cial sys­tem, is es­sen­tial to spurring devel­op­ment more broadly. Ac­cord­ing to the UN Cap­i­tal Devel­op­ment Fund, fi­nan­cial in­clu­sion for the un­banked and un­der­served is a di­rect en­abler for at least eight of the SDGs.

The chal­lenge now is to think and act sys­tem­i­cally: to ex­trap­o­late from re­taillevel ex­am­ples to con­sider how dig­i­tal­iza­tion can align the fi­nan­cial sys­tem to sus­tain­able devel­op­ment; how in­vestors iden­tify, an­a­lyze, and mit­i­gate risk; how cap­i­tal mar­kets move; and how pol­i­cy­mak­ers and reg­u­la­tors ap­proach their work. The prob­lem is that most so­lu­tions are frag­mented and nar­rowly fo­cused, while is­sues that pose an ex­is­ten­tial threat to hu­man­ity - like cli­mate change - are largely ex­ter­nal to most fi­nanc­ing de­ci­sions. Do­mes­tic sav­ings are not be­ing chan­neled to fund sus­tain­able in­fras­truc­ture. Il­licit fi­nan­cial flows con­tinue to drain devel­op­ment re­sources.

Sus­tain­able fi­nanc­ing for bio­di­ver­sity re­mains vir­tu­ally ig­nored by the fin­tech revo­lu­tion. And even fi­nan­cial in­clu­sion has a long way to go in re­duc­ing poverty and in­equal­ity.

Th­ese are just a few of the chal­lenges our task force will study. Our mem­ber­ship in­cludes tech en­trepreneurs, bank CEOs, civil so­ci­ety lead­ers, in­ter­na­tional stan­dard- set­ters, cap­i­tal mar­kets ex­perts, cen­tral bank gov­er­nors, fi­nance and eco­nomic min­is­ters, and heads of UN agen­cies. Through­out 2019, we will work closely with es­tab­lished and emerg­ing lead­ers to an­a­lyze the is­sues, iden­tify op­por­tu­ni­ties, and make rec­om­men­da­tions to en­sure that the trans­for­ma­tions be­ing wrought by fi­nan­cial dig­i­tal­iza­tion will be ones that ul­ti­mately ben­e­fit the planet and its peo­ple.

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