China is using digital sustainable finance to develop the world’s largest informal carbon market through the Ant Forest App. Photo: Ant Forest App.

Time to use digital finance to unlock and scale sustainable change

Blog: The financial sector is at the forefront of adopting digital technology, but only to a limited extent to innovate the financial system to deliver sustainable finance.

A new report by the Sustainable Digital Finance Alliance reveals that a landscape of sustainable fintech solutions already exists. Solutions across the G20 countries that leverage AI, blockchain, Big Data and IoT to create sustainable outcomes.

The Nordics are in pretty good shape on a number of the sustainable development goals and it seems like a natural next step to start leveraging the power of sustainable digital finance to further accelerate that process.

Here are a few key insights from the new G20 digital sustainable finance report viewed in a Nordic perspective to further that discussion.

Artificial Intelligence incentivizes low-carbon lifestyles

The report reveals that digital finance build on artificial intelligence can play a key role in SDG 12.

An example is China using digital sustainable finance to develop the world’s largest informal carbon market. Anyone can download the Ant Forest App and participate. By doing that you allow algorithms to look through the consumption data on your payment card and calculate an individualized carbon footprint.

Now your impacts on SDG 12 and 13 are transparent to you. If your consumption data shows a reduction in carbon footprint over time, you earn carbon points.

Informal carbon market reducing thousands tons of carbon

You can also commit more low carbon acts to gain point such using the bicycle as opposed to the car. Carbon points can be used to plant trees to off-set carbon. You plant a virtual tree on using the app on your devise. It is translated into a real tree by the Ant Forest team. Images from drones and satellites enable you to follow the growth of your seedlings.

In less than 2 years it has become the world’s largest informal carbon market with 300 million participants with a daily carbon emission reduction of 8 thousand tons. The solution addresses the problem that most people are ready to try out new green habits, but few are able to stick to them to transition into a low carbon lifestyle. Solutions like Ant Forest offers the incentive structures to guide that personal journey.

Nordics need technology to change behaviors

Such new ways of using digital technology in finance is what the Nordics desperately needs to improve performance on SDG 12, as it is the region with one of the highest material foot print per capita in the world. Denmark and Sweden consume on average about two times as many resources as the world average, the population of Iceland about two-and-a-half times, and the populations of Finland and Norway three-and-a-half times as many. Nordic lifestyle leaves the world a dirtier place.

Nordic lifestyle leaves the world a dirtier place.

Understandable when environmentally friendly products tend to cost more than the polluting ones. Politics can change this by pricing externalities to make ‘dirty’ or ‘high carbon’ products more expensive and make sustainable products the preferred option.

But waiting for politics to happen requires time we don’t have. The Chinese informal carbon market proves that people are ready to take on responsibly for bringing about change if tools are made available.

Blockchain, Big Data and IoT can lower cost on green bonds

We need to move from a world where green bonds are an exotic novelty to one where the entire bond market begins to reflect the transition towards a low carbon economy. Financial markets are crucial to enable us to solve the climate challenge by meeting the growing demand from low-carbon projects all around the world for financing.

Today green bonds constitute a tiny percentage of the trillion-dollar bond market.

Today green bonds constitute a tiny percentage of the trillion-dollar bond market. To deliver the 1.5 trillion USD in annual financing needed to implement the Paris Agreement this market needs to scale many fold more. For that purpose, we need policy-makers collaborating with technology to move to a green bond version 2.0 that can scale rapidly.

Designing green bonds entails a number of steps and intermediaries to validate the greenness of the assets and to verify outcomes. Technology can step into this process to work as a new type of intermediary.

Digitalization reduces costs

Green outcomes can be validated via blockchain enabled chips embedded into the green assets. Thereby harvested data on the asset can automatically be uploaded onto a blockchain for all participants to view in their node on the decentralized database that powers the green bond. Digitalization which can help address parts of the problem with high costs associated with validating and labelling green assets without increasing the risk of green washing.

Another avenue to explore is whether we can use blockchain to help address another significant barrier to scaling of green bonds, which is the lack of liquidity. Green outcomes could be tokenized and traded on impact exchanges. Or other ways to apply technology to enable purposeful bonds to scale faster.

Nordics – small but significant

The Nordics embraced green bonds when the market was still in its infancy. The first corporate green bond and the first City bond were both issued in Sweden in 2013. The region account for 6.7% of global issuance. Sweden is the sixth largest source of labelled green bond issuance; Norway, Denmark and Finland are in the Top 20. By and large, the story of the Nordic green bond market is about many small and many repeat issuers creating a big impact.

Many small bonds make the region a good place for experimentation with how to design a digital green bond version 2.0

A first step has been taken in the Nordics with the development of the green asset wallet in Sweden to deliver efficiency and transparency to the green debt market. The Green Assets Wallet puts impact reporting on the blockchain to support issuers and investors.

It sets out to validate green investment claims to deliver efficiency and transparency to the green debt market by immutable verification of green impacts.

From G20 to the Nordics

It was just two areas from the G20 digital sustainable finance landscape with relevance to the Nordics. But it does not stop here. Many other avenues are open for exploration. How about circular economy? Here the report “Insight Report – Impact start-ups” show that Nordic start-ups most frequently innovate to address SDG number 12.

Just think about what is needed if we are serious about going waste free.

Out of 306 Impact Startups, 33% address SDG12. Impact Startups typically address SDG12 by focusing their business on the sharing economy and/or sustainable solutions for fashion, private homes and food.

Just think about what is needed if we are serious about going waste free. It would require that we develop entirely new libraries – material libraries – that has structured data on for instance all the materials in a building.

The day it is torn down, all the valuable assets in the form of materials are put back into the market. Public policy measures could offer incentives to the buildings with clear plans on how to re-cycle or upcycle all of the materials.

Artificial intelligence, blockchain, Big Data and other digital technology can help build material libraries and digital financial incentive structures can make them work.