Digital Sustainable Finance Opportunities

by
Marta Zadravec

In the age of COVID-19 digital transformation is demanded, but so is the commitment to face climate change. Technology lies at the core of attempts to prevent global warming. Therefore, the combination of both sustainable and digital finance can lead to new business models that will reduce energy consumption.

According to PWC recent research, over 1200 tech startups have arisen to the market. Investment in climate tech has grown at almost five times the rate of the overall global venture capital market, with similar growth seen in numbers of deals.

Consumer demand for sustainable business practices has rocketed. The first generation of ‘climate tech unicorns’ have emerged, with companies including Tesla, Nest, and Beyond Meat showcasing the importance of disruptive consumer brands that also deliver substantial sustainability impact.

Channelling sustainable investments is a critical challenge for the global financial system. Sustainable finance has, therefore, become an integral part of how many financial services firms operate.

What is sustainable digital finance?

According to The World Economic Forum, the definition for digital finance refers to the integration of big data, artificial intelligence (AI), mobile platforms, blockchain and the Internet of things (IoT) in the provision of financial services.

Sustainable finance, on the other hand, refers to financial services integrating environmental, social and governance (ESG) criteria into the business or investment decisions for the lasting benefit of both clients and society at large.

WEF believes that blockchain represents a core element of sustainable digital finance — a new paradigm that combines emerging technology with environmentally conscious business models.

Moreover, blockchain technology along, with artificial intelligence, mobile platforms and the Internet of Things combined with ESG objectives, could help governments and organizations reach sustainable goals.

In addition to that, technology can also help raise consumer awareness about the environmental and social implications of consumption and allude them to more conscious sustainable choices.

Consumers behaviour affects sustainability

Consumer behaviour can affect investors decision to incorporate sustainability into investment decisions. A clear ESG commitment can also attract Millenials, as sustainable consciousness consumers. A 2019 Morgan Stanley Institute for Sustainable Investing survey of high net worth investors found that 95% of millennials were interested in sustainable investing.

In Switzerland, Deloitte research suggests that 42% of millennials started or deepened a business relationship because of a company’s positive impact on society or the environment.

Sustainable products are starting to demonstrate higher growth rates than their non-sustainable rivals. In the US, sustainability-marketed products make up just 16% of the consumer packaged goods market but are responsible for 55% of the growth.

The shift to digital persists across countries and categories as consumers in most parts of the world keep low out-of-home engagement. Food and household categories have seen an average of over 30 per cent growth in online customer base across countries.

Lastly, WEF believes that sustainable digital finance will play an essential role in efficiently channelling this capital to fuel innovation, growth and job creation, at the same time supporting the transition to a sustainable, low-carbon economy. The future is now, with the wake of COVID-19, digital sustainable finance could focus investors on more sustainable economic opportunities.