Dr Christian Spindler is a faculty member at the Centre for Digital Banking & Finance and the founder of Sustainaccount. He explains how fintech can measure environmental, social and corporate government (ESG) data and help the world transition to a greener and more sustainable economy.
“Technology, automation and fintech can bring ESG data to a new level,” says Dr Spindler.
The main challenge banks and companies face when measuring their environmental impact is the lack of an agreed set of standards for reporting ESG.
“We have a multitude of ESG reporting standards in the world, but they’re not very much aligned. There’s also no obligation for most companies in the world to report on their ESG perfomance and risk.”
He points out that only stock-listed companies are required to report on ESG. But other organisations – including non-listed companies, infrastructure projects, charities, foundations, co-operatives and others – don’t have to report so there’s no data for their footprints.
Where data doesn’t exist, it is possible to use AI driven models and apply them to create artificial data for the assessment of companies.
“But how can you be sure that data’s any good? How sure are you about the validity of your model? In the end we need contributed data from the assets to improve such models.”
Should we be aiming for a uniform set of ESG standards across the world?
“I think it’s needed and I also believe it will come,” says Dr Spindler.
He anticipates that data management will play a key role when reporting standards become more aligned, for example, to help manage the sheer volume of data.
“We’re talking about big data settings here – not only because there’s a lot of different companies, but also because ESG can be consolidated and reported in various time scales.”
He adds that fintech has the potential to change the infrastructure of data management.
“In the world of financial data what we have is large vendors as intermediaries that currently assume the role of aggregating and providing ESG information. The question is whether such intermediaries will keep playing their role in future. Or will technology bring banks into a direct inter-relationship exchange with the companies they finance and the projects they invest in?”
The future of sustainable fintech
Dr Spindler expects the role of fintech in sustainable finance to continue expanding because we need to finance the sustainability transition.
He suggests we could use technology to measure the impact of green financial products, such as loans, investments and bonds. We could then use this data to first, verify the anticipated green impacts of the product, and second, dynamically adjust financing conditions, such as interest rates.
“This is already in the market in form of pay-per-use financial contracts and we are currently developing it for ESG-linked products as well.”
Technology could also help customers choose more investment products that are more suitable for their needs and their ESG preferences.
“Fintech can enable us to provide investment products that take investors’ wishes into account on a more granular level to help fulfil an individual’s sustainability agenda.”
Referring to COP26, Dr Spindler adds, “We have until 2030 to move the world towards a more sustainable economy. Fintech is needed and will be used to help.”
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