Green Finance and FinTech: Addressing Climate Change and COP28
This latest edition of our student blog series comes from Dharini Mohan, who is currently pursuing an MSc in Financial Technology (FinTech) at UWE Bristol. She is also a part-time Service Associate at Hargreaves Lansdown.
The synergy between green finance and financial technology emerges as a potent force in combating climate change and fostering sustainable solutions. Given the recognition of COP28 as the largest and most significant Conference of the Parties to date, the call for urgent climate action resonates louder than ever. This monumental gathering unfolded amidst record-breaking temperatures, emphasising the imperative for coordinated initiatives to mitigate environmental degradation and transition to a low-carbon economy.
COP28 marked a pivotal moment in the global response to climate change, representing the world's first "global stocktake." This comprehensive assessment reflected on the progress made since the adoption of the Paris Agreement in 2015, revealing commendable strides alongside glaring gaps in climate mitigation and adaptation efforts. Despite ambitious targets outlined in the Paris Agreement, the trajectory towards achieving net-zero carbon emissions by 2050 remains uncertain.
The event held at UCL, focusing on COP28 and climate finance, shed light on inherent challenges within the COP framework, particularly concerning financing and structural limitations. While COPs serve as vital political forums for climate discourse, the absence of a clear concept and adequate financial resources poses a significant hindrance to progress. Urgent mobilisation of private capital and leveraging of innovative financial mechanisms are needed to bridge this funding gap and catalyse meaningful change.
The Role of Technology in Advancing Climate Finance
Technology is revolutionising sustainable finance, offering solutions to accelerate climate action.
For instance, artificial intelligence (AI) empowers sustainability disclosures by extracting valuable insights from extensive datasets, aiding in more informed decision-making processes. Companies can utilise AI-driven predictive modelling techniques to develop risk models that incorporate sustainability factors, enhancing their ability to assess and manage environmental risks effectively.
Additionally, blockchain technology ensures data integrity and transparency within sustainable finance ecosystems. By leveraging blockchain digital identities and smart contracts, stakeholders can streamline consensus-building processes and verify the authenticity of environmental, social, and governance (ESG) metrics.
Furthermore, Internet-of-Things (IoT) and sensor technologies enable real-time data collection for monitoring sustainability metrics. These technologies facilitate proactive risk management and compliance with sustainability requirements, accelerating the transition towards a carbon-neutral economy and enhancing resilience to climate change impacts.
Inclusive Green Finance Strategies
On the other hand, inclusive green finance strategies encompass the integration of two interconnected priorities in central banking agendas – financial inclusion and green finance. These strategies encompass various instruments, including both market-shaping policies and direct interventions. Market-shaping policies aim to reduce barriers to market entry for microinsurance, while direct interventions involve targeted refinancing initiatives aimed at fostering inclusive access to green finance opportunities.
Policy and Regulatory Implications of Climate Objectives
One key takeaway from the event at UCL was the misalignment between climate policy objectives and practical implementation. Despite the third objective of the Paris Agreement aimed at achieving green targets by 2030, current efforts fall short of this ambitious goal. Rising interest rates imposed by central banks further exacerbate the policy and regulatory gaps, necessitating a reassessment of existing frameworks to incentivize climate-friendly investments.
Japan's green transformation (known as ‘GX’), led by the Japanese government, emerged as a desirable strategy, emphasising the crucial role of technology in addressing climate challenges. Active regulations and corporate mandates compel businesses to integrate sustainable practices into their operations, shifting the paradigm from a box-ticking exercise to an opportunity for innovation and transformative change.
Challenges and Conclusion
The panellists at UCL also discussed the challenges that persist in quantifying the value of nature and non-economic data. The intrinsic value of natural assets, such as trees, remains elusive, complicating efforts to quantify their contributions to ecosystem services. Moreover, data gaps and inconsistencies undermine climate finance efforts, with limited information on climate-related phenomena such as droughts and heatwaves restraining effective decision-making. For example, Africa may experience higher temperatures than some regions of the EU, but insufficient data may hinder the verification of these facts. Similarly, there is a lack of standardisation in metrics and databases across industries' operations. For instance, Factory A may select production level as its determinant for measurement and reporting, while Factory B may use the number of days instead. This discrepancy causes incompatibility and complexities in streamlining data collection and analysis.
In conclusion, COP28 serves as a wake-up call. Though there is much work to be done globally, the intersection of green finance and fintech offers a promising pathway to accelerate climate action and drive sustainable development. By utilising innovative financial instruments, mobilising private capital, and overcoming operational challenges, we can unlock the full potential of climate finance to build a more resilient and prosperous future for generations to come.
Watch the insightful session held at UCL by clicking here.
Photo by Markus Spiske: https://www.pexels.com/photo/climate-road-landscape-people-2990650/