Sustainable finance is the essential tissue connecting the environment with the world’s capital and financial services and helping accelerate our transition to a net zero carbon world.
It can be defined as any form of financial services integrating environmentally-friendly models and services while serving the community and offering greater transparency around governance.
If applied correctly, then sustainable finance will play a critical role in helping us meet the environmental ambitions agreed by the Paris Agreement of 2015.
The agreement aims to keep any global temperature rise this century well below 2 degrees celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees celsius.
This is a huge challenge when certain industries and countries have failed to address their environmental responsibilities. The construction industry is one of the biggest emitters in the world, responsible for 39 percent of all carbon emissions.
Addressing this industry is crucial to fighting the climate crisis, as new construction is expected to double the world’s building stock by 2060, putting huge pressure on our ecosystems. This sector will need considerable support in becoming more sustainable and making this transition in a safe and environmentally-friendly way.
Before 2020, many of the world’s heaviest emitters had previously ignored their responsibilities in rising to the challenge of climate change.
Covid-19 has brought home the stark reality
We are now faced with a situation where the pandemic has brought everything to life and accelerated our exposure and sensitivity to environmental issues and concerns. It has also illustrated how our financial stability is closely aligned to the wider world and environment.
The pandemic has raised plenty of economic concerns among consumers. One in five people in full-time work are concerned about losing their job. One fifth of those who identify as unemployed have said they have experienced suicidal thoughts and feelings since losing their job. A third of all adults are worried about their finances, demonstrating the tremendous stress brought by the pandemic.
In the UK, half of the jobs classified as at risk pay less than £10 per hour. It is the micro-entrepreneurs and workers within the gig economy who are the most exposed to risk.
Digital finance and fintech
Low income households and small firms can benefit greatly from advances in mobile money, fintech services and online banking. The pandemic has demonstrated how the digitization of financial services is here to stay. It can play an important role in building inclusive societies and address rising inequalities.
Fintech can address issues such as:
- Insufficient consumer protection
- Lack of digital finance literacy and inequalities in digital infrastructure access
- Addressing money laundering and cybersecurity risks
According to the International Monetary Fund (IMF), digital finance can make our economies more inclusive. This in turn has a positive impact on GDP.
Now more than ever, there is a huge benefit and motivation for all economies to digitise. This is one of the biggest lessons of the last six or seven months of the pandemic.
Fintech in Covid-19
Innovators and entrepreneurs often fare well during times of crisis and disruption and fintechs will continue to play a critical role as we emerge on the other side of Covid-19. Both consumers and businesses will continue to look for financing and affordable credit traditional banks may not be able to provide. Fintech is also an essential pillar in this renewed digital finance drive towards a more sustainable economy.
Fintech for good
PayPal announced a set of relief measures to help more than 24 million merchants around the world impacted by the coronavirus. The company waived certain fees and deferred repayments on business loans for some of its most affected small business customers.
OpenLending allows Iwoca partners such as digital banks, accounting software platforms and payment service providers to offer fully customised loans to their customers within their own platforms, bringing the entire finance ecosystem together.
It unified fintechs and banks to extend Iwoca’s lending capabilities to over two million UK businesses.
Codat used its platform to enhance the speed of support loans distributed by the government at the start of the pandemic. The Coronavirus Business Interruption Loan Scheme offered loans of up to £5 million for SMEs through the British Business Bank. The scheme was delivered through 41 commercial lenders, many of whom were Codat clients.
Crowdcube launched the Save Our Startups campaign, a three-point plan to lobby the government to do more to help finance SMEs and enhance their liquidity during the pandemic.
Funding Options has agreed an open banking data partnership with 20 alternative lenders including the likes of Iwoca and Liberis.
Fronted and Credit Kudos
Fronted, a rental services fintech, along with fellow UK-based consultancy 11:FS and credit decisioning platform Credit Kudos, have created a platform called ‘Covid Credit’ to help the self-employed get access to further income relief amid the coronavirus.
As so many commentators have claimed, 2020 has been a year like no other. But if there are any positives to be gleaned from the onset of the Covid-19 pandemic, then it is how sustainable finance has acted as a direct link between businesses and the most financially vulnerable. The ability of fintech and innovative business models make finance tangible and offers concrete examples of resilience. This is essential for us to accelerate our journey to a sustainable and greener future.
This content is taken from Redsand Ventures’ Nicole Anderson’s webinar on sustainable finance with the Mauritius Africa Fintech Hub. Watch the full session below: