So far, the conundrum of economic growth and environmental sustainability has persisted over the years, necessitating comprehensive methods, such as technological innovation, to assure sustainable development. The swift transition to a green economy, in which the proportion of carbon we produce is equal to that which we remove, will be required if the human race is to avert the direst consequences of climate change.
Nonetheless, FinTech enterprises have always centered on innovation and positively contributed to sustainability as its defining qualities. Policymakers and regulators appropriately acknowledge the role of FinTech in facilitating the transition to a low-carbon society through policy design.
Defining the Green Economy
In essence, the green economy generates, values, and transacts financial assets in a manner that generates real wealth to suit the long-term requirements of an inclusive, ecologically sustainable economy. Public and private investment in economic pursuits, infrastructure, and assets that allow for environmental improvements like decreased carbon emissions and pollution, increased energy and resource efficiency, and the prevention of biodiversity and ecosystem service loss drive economic growth and prosperity in a green economy. Sustainable energy sources are the backbone of a green economy, including photovoltaics, wind turbines on and offshore, hydrogen fuel cells, electric cars, and energy-efficient building materials.
Instead of replacing sustainable development, the concept of a green economy shifts attention to the economy, investment, capital and infrastructure, jobs and skills, and beneficial social and environmental consequences in a novel manner. It is predicted that $3–5T of financing per year worldwide over the next 30 years will be required for the decarbonization of 10 sectors representing 75% of global emissions, which is necessary for the shift to a low-carbon economy and for achieving the goals of the Paris Agreement (limit the global temperature rise to below 2C from pre-industrial thresholds and fulfill efforts to limit it to 1.5C). Since the existing climate financing industry is valued at over $600 billion, this represents a growth of anywhere from five to eight times the current level.
Source: EU Data
Uncovering the Dynamics between FinTech & the Green Economy
Since climate change is happening, we must also work to strengthen our resistance to the physical impacts it will have. In a variety of different methods, the following will drive this transformation:
• financial services, including the use of funds to facilitate and accelerate transformation;
• technology, which supplies the creativity and solutions necessary to facilitate the adoption of change on a scale and in a timeframe previously unimaginable across economies and society.
Since FinTech is at the pinnacle of both of these Net Zero enablers, it plays an essential part in facilitating the transition to Net Zero and strengthening climate risk resilience.
FinTech influences the green economy and climate technology investments in two ways. On the one hand, it provides a means to tap into new sources of private capital to fund green initiatives via innovative financial instruments.
Conversely, by deploying environmentally friendly pursuits, FinTech has become a growth engine that promotes the global green economy. The green economy is believed to have a role in achieving sustainability objectives. Consequently, any stimulation of the green economy will result in a significant increase in social justice and human welfare and a reduction in environmental dangers.
Source: Statista
FinTech Innovations Accelerating the Development of the Green Economy
As our society continues to evolve under the impact of the environmental and social problems that need answers the most urgently, technology will be the critical component in setting the groundwork for a future that is both greener and more inclusive.
- Big Data
Financial institutions and organizations use Big Data to forecast and influence customer behavior. In addition, it improves the company’s services, such as sales, marketing, and security, to maximize customer happiness. Consequently, these client behaviors may be converted into eco-friendly practices with the proper direction.
Moreover, Big Data, with all the data it collects, gives feedback and insights to optimize corporate processes and human effort for a more efficient workflow. Big Data may assist an organization’s fundamental operations, such as risk assessment, loan servicing, and even legal departments. In light of the fact that the whole financial sector generates vast quantities of data, FinTech solutions may aid various institutions in delivering sustainable and environmentally friendly consumer solutions.
- ML & AI
Artificial Intelligence (AI) and Machine Learning (ML) stand out among the FinTech solutions for the banking industry due to their ability to replace human labor. In this sense, the capacity of AI and ML to construct a financially viable system is advancing in a synchronized manner.
AI and ML technologies will optimize all operations, including the human completion of paper forms and invoices and data entry. Therefore, it may accept numerous transactions that cause long-term environmental damage in a digital format by minimizing human labor in the most sustainable manner possible.
- Blockchain
Eventually, blockchain technology can and will improve the state of the world. Since blockchain technology enables everyday transaction processing innovations, this is a certainty. Due to this, we can build and utilize decentralized cryptocurrencies that, when broadly adopted, may aid in combating the global warming catastrophe.
Ultimately, the application of blockchain technology would alter conventional financial transaction flows, provide an economic return, and promote climate action. For instance, this may be accomplished through enhancing carbon emissions trading, the issue of green bonds, and the monitoring and reporting of greenhouse gas emission reductions.
Bottom Line
To meet the long-term needs of an inclusive and green economy, a sustainable financial system would produce financial assets, assign values to those assets, and conduct financial transactions in a way that will result in the creation of real wealth. Implementing breakthrough FinTech technologies can improve the efficiency with which financial resources are distributed to businesses committed to building a green economy. In this pursuit, FinTech may be able to assist in recording and transmitting vast, accurate, and pertinent data in a quick and cost-effectively, hence lowering the expenses associated with research and enhancing the pricing of environmental hazards and investment possibilities.