Written by Dr Darian McBain, Sustainability Advisor, Elevandi, and Chief Executive Officer, Outsourced Chief Sustainability Officer Asia
In the beginning….
In 1972, a group of influential thinkers got together to look at the sustainability of the world they saw.
This group was called the Club of Rome, and their influential report was called Limits to Growth, which called into question whether nature’s capacity was indeed endless and whether growth and consumption practices would fit within the Earth’s ability to provide resources and cope with demands. This seminal work is now over 50 years old, and the world’s population has grown significantly and with it, the demand for resources and ecosystem services.
The concept of Planetary Boundaries was developed by looking at the nine boundaries which we cannot cross if we want to be sustainable. In a scientific paper published in 2022, it was shown that we have now crossed six of the nine planetary boundaries. A study updating the data modelling used by the Club of Rome with more recent (ESG) data shows that we are now at a tipping point for climate, biodiversity and our current way of life: “What we do in the next five to 10 years will determine the welfare levels of humanity for the rest of the century”, says author Gaya Herrington. She found that we actually haven’t moved the needle at all in the past 50 years, and our trajectory remains the same. This research highlighted that even when our intentions are good, sometimes are actions are lagging far behind.
Source: (Credit: Designed by Azote for Stockholm Resilience Centre, based on analysis in Persson et al 2022 and Steffen et al 2015, see https://www.stockholmresilience.org/research/planetary-boundaries.html )
We don’t have another 50 years to solve climate change. The impact is being felt now. Floods, fires, haze, typhoons, droughts – take your pick. In most parts of the world, the impacts of climate change are evident. Even if you are in the less than 1% of scientists who don’t believe in climate change (the highest rate of scientific consensus in almost any scientific theory), governments, consumers and investors are starting to believe and take action.
Finance takes centre stage in climate discussions
In 2015, Dr Mark Carney, the then Governor of the Reserve Bank of England, gave a landmark speech. Breaking the Tragedy of the Horizon highlighted that climate change will pose risks to the stability of the financial system. From here, momentum only grew. Later that year, to address the need to have a consistent disclosure framework on climate-related risk, the Task Force for Climate-Related Financial Disclosures (TCFD) was established under the auspices of the Financial Stability Board (FSB). Two years later, eight central banks came together to launch the coalition of the willing at the Network for Greening the Financial System (NGFS), a network which has now grown to over 120 central banks and financial regulators.
The momentum continued to build. In 2021 at COP 26, the Conference of the Parties (COP) for Climate Change, the Glasgow Financial Alliance for Net Zero was announced. This showed the commitment of over 450 institutions (now over 550 organisations in June 2023) to commit to a pathway to shift the global economy towards net zero greenhouse gas emissions, aligned with the Paris Agreement and science-based trajectories. Not only that but by the end of 2022, 140 countries had announced or were committed to net zero emissions trajectories.
One of the great things about CO2 equivalent emissions is that it is comparable across countries, industries and financial institutions.
Climate Change is a global problem, and CO2 equivalent is the global language. This has helped with the development of carbon markets, carbon pricing and emissions tracking. CO2 has many similarities with money. Like different currencies, a range of greenhouse gases can be converted to CO2 equivalent and then be comparable, like converting multiple currencies to the US dollar. However, within this simplicity lies the challenge of complexity – the world is a complex place. ESG factors, covering all environmental, social and governance (ESG) criteria, are complex to both measure and compare. In reality, the positive social impact of the introduction of solar-powered electricity in one remote village cannot be balanced out by the negative social impacts of mining for transition critical minerals in another.
Biodiversity and the loss of a keystone species in one ecosystem are not the same as planting a forest in a different country. Methodologies exist to condense complex measurements into an ESG rating, but even they vary between different providers and ratings agencies. This is where we start to see a greater reliance on granular ESG data and the ability to measure and compare that data.
Where the ESG data grows
One of the things we quickly realized is that to measure and track progress, we would need to get much better at collecting comparable and verifiable data. The data sets need to be comparable so that we can compare across countries and industries, just as we can do for financial accounts. The data needs to be verifiable to ensure that what is being reported is accurate. No one will benefit if we are calculating the world’s trajectory towards net zero if it is based on incorrect data.
Greenwashing, or inaccurate reporting of data, has started to creep into communications on sustainability and ESG factors. To access better quality data, the financial sector and regulators need to dig deeper into the real economy – where things are grown, dug up, manufactured and produced. The realization is that a great deal of ESG data will come from the supply chains in the real economy. For many large listed companies, up to 90% of their emissions will come from their Scope 3 or indirect emissions. This could mean that we potentially need ESG data from every sector of the economy, from micro, to small to medium enterprises (SMEs), and all the way up to the listed companies and financial sector. Without better technology, accessing this data and ensuring it is comparable and accurate will be challenging.
Regulation and Mandatory Disclosures
Increasingly, regulators in markets across the world are requiring mandatory ESG disclosures. Many of these requirements currently apply to listed companies and may move beyond voluntary commitments to net zero to mandatory disclosure on transition pathways towards net zero. The International Sustainability Standards Board (ISSB) announced the release of IFRS Sustainability 1 (S1) and 2 (S2) for comparable financial sustainability data in June 2023. It is anticipated that these standards for financial sustainability disclosures, in addition to standards such as the Global Reporting Initiative, will help to bring consistency to ESG data that we see in financial disclosures. This information will be needed to help decision-making for transition finance, as well as to help governments and companies make the strategic decisions needed to stay within our planetary boundaries.
ESG Technology to the Rescue
In a report prepared for the Singapore FinTech Festival in November 2022, KPMG found that the sourcing, transformation and use of data will be the critical enabler for ESG FinTech to bridge the real economy and financial sectors. KPMG estimate that investment in Singapore-based ESG FinTechs alone will reach S$6.59 billion by 2025 (p18). The report also provides a useful snapshot (p52/53) of Singapore’s growing ESG FinTech ecosystem, covering regtech, insurtech, carbon services, investment management, lending, payment and transactions, data and infrastructure. We have seen in 2023 the growth in ESG platforms powered by AI decision-making, increasing the potential for ESG FinTechs even further.
At the Point Zero Forum in Zurich in June 2023, Elevandi working with Swiss Secretariat for International Finance, held a Roundtable on fostering a Green FinTech Ecosystem in Europe and supported the launch of the Green Digital Finance Alliance.
[Image: From the Fostering a Green FinTech Ecosystem - Meeting of the Green FinTech Network, Hosted by Swiss Secretariat for International Finance at Point Zero Forum 2023]
Similarly, the Inclusive FinTech Forum in Rwanda in June 2023 highlighted the important role that ESG FinTech and payment services have to play in social sustainability, particularly with respect to helping to engage the unbanked and underbanked and direct sustainable finance to the projects where it is most needed. If we are to solve global sustainability challenges, like climate change and the growing chasm caused by inequality, we need a place to create dialogues, networks, and opportunities to collaborate beyond traditional north/south divides.
[Image: Pierre Celestin Rwabukumba, Chief Executive Officer, Rwanda Stock Exchange, speaking at the Inclusive FinTech Forum 2023]
The Role of Convening Dialogues
Elevandi was established by the Monetary Authority of Singapore to foster an open dialogue between the public and private sectors to advance FinTech in the digital economy. Elevandi works closely with governments, founders, investors, and corporate leaders to drive collaboration, education, and new sources of value at the industry and national levels.
Elevandi’s forums have convened over 300,000 people to drive the growth of FinTech through events, closed-door roundtables, investor programmes, educational initiatives, and research. In 2022, Elevandi launched its leading insights platform, where we publish a comprehensive series of articles and reports which examine in detail the key trends shaping the future of financial services.
In 2023, a key theme that Elevandi will be focusing on is Sustainability and ESG Data, where we will highlight the technologies, standards and data accelerating the fair transition towards a low-carbon future. This theme will be showcased not only in Elevandi’s Forums but also in its thought-leadership platform. We have invited a series of thought leaders in the industry to publish their insights here every month, to keep you updated on the latest thinking, opportunities and challenges.
Please join us online and in person at our events to be part of the conversation.