The European Union has recently made several historical decisions with the potential to help shape a green digital finance ecosystem for the continent. One is the taxonomy of sustainable finance and the other is the program of the new EU Commission President, Ursula von der Leyen of Germany. Her agenda for Europe is set forth in a document called Political Guidelines for the Next European Commission: A Union that Strives for More.
My question is whether the “more” might include more green digital finance. It’s too soon to answer that question definitively, of course, but a read-through of the Political Guidelines document sheds light on the thinking of the newly elected president.
The program defines the Union’s aspirations for a green transition and identifies policy tools to deliver on those aspirations. Then, in a separate chapter from that of green finance and climate mitigation, the program identifies aspirations for a digital Europe. What seems to be missing is an explicit link between these two strategic priority areas: the idea of using green digital finance as a new tool to help make Europe the first climate-neutral continent in the world.
In collaboration with the United Nations Secretary-General’s Task Force on Digital Financing of the SDGs, we at the SDFA recently conducted a number of green digital finance roundtables and panels in cities across Europe. It took us to London, Amsterdam and Milan. And it gave a preliminary sense of where different European countries are on their green digital finance journeys.
In Italy Unipol Group is using digital to integrate climate risk into insurance of small and medium enterprises engaged in food production and agriculture. In Holland Rabobank is using Big Data to tie the cost of capital on agricultural lending to a set of sustainability metrics. By using metrics which Dutch regulations already require farmers to disclose, Rabobank avoids duplicating the administrative burden on smaller businesses, a serious concern. ING is also deploying digital tools to factor the cost of externalities into the cost of capital.
Dutch regulators are also using their toolbox to stimulate the green transition which in turn can lead to a greater deployment of fintech for green finance. To take just one example, regulators want to reduce drastically the environmental impact of office buildings, which are major contributors to the national carbon footprint. Beginning in 2023, no office building will be eligible for leasing unless it has a minimum C-rating for energy efficiency.
What these types of regulatory measures can do, intentionally or not, is to stimulate demand for fintech-enabled solutions to comply with climate regulations. To stay with the example of the Dutch office building standards, the new regulation can accelerate the integration of fintech with IoT for automated data harvesting of buildings’ energy efficiency to price capital accordingly.
The EU Commission president’s green finance strategy can be designed to stimulate the deployment of fintech to aid the continent in going climate neutral. In collaboration with Holland Fintech we at the SDFA are developing a country-level map of the state of green digital finance in Holland to help Dutch stakeholders act strategically to develop this work. Holland Fintech and SDFA will be launching the map on October 4th in Amsterdam at a conference on sustainable digital finance co-organized by APG, DNB, and the UN SGs Task Force.
We hope that many from the EU community will join us on October 4th and will support the green digital finance ecosystem Europe needs as part of a safe and sustainable future.