Sustainable finance in a world saturated with capital and data
When you put the individual into a capital market instrument, the investment starts to behave differently. Kenya’s M-Akiba bond provides a good example, as Dr. Patrick Njoroge described to a group of Danish fintech stakeholders last week. M-Akiba, launched in 2015, uses digital technology to package government securities into ticket sizes as small as USD 30, effectively making the asset class of government securities, previously within reach only to institutional investors, available to low-income Kenyans. This democratization of the capital markets has major implications: for the markets themselves, for the new citizen investors, and for the ability of the government to mobilize the newly unlocked savings towards sustainable development. Dr. Njoroge, governor of Kenya’s central bank and a member of the SDFA advisory board, delivered his remarks at an April 30 conference co-hosted by the SDFA, the Danish Ministry of Development, and the Copenhagen Fintech Lab as part of a peer learning exchange trip that will serve as input to the work of the United Nations Secretary-General’s Task Force on Digital Financing of the Sustainable Development Goals. Dr. Njoroge’s keynote described how M-Akiba effectively shifts accountability for the nation’s development downwards by allowing even very low-income citizens to become part of a community of investors.
Two weeks prior to the visit of Dr. Njoroge, the SDFA collaborated with Finance for Tomorrowon a roundtable in Paris with French “green fintech” thinkers and doers. One of the ambitions of Finance for Tomorrow is to enable the digital revolution to help deliver on the Paris Agreement. The SDFA had the pleasure to participate in the November 2018 award ceremony for Finance for Tomorrow’s green fintech challenge during the climate finance conference in Paris. It was great to be back in Paris in mid-April to work with the Finance for Tomorrow community on a French input into the work of the UN Task Force.
Whereas Dr. Njoroge’s keynote in Copenhagen sparked a thought-provoking discussion about democratizing access to investments, the discussion in Paris centered around democratizing access to data. A large number of zettabytes of data exists in our digital universe today. Initiatives such as open banking are aimed to give innovators access to parts of this data to fuel innovation, but it is far from the data sets needed for innovators to develop green fintech solutions.
Thanks to the back-to-back timing of the meetings in Paris and then Copenhagen two weeks later, it suddenly occurred to me that in the context of sustainable finance, the discussion about capital and the discussion about data are really the same discussion.
With capital the problem is not quantity—there is more than enough to deliver on the SDGs—it is allocation. Capital is locked into unsustainable deployment, and that story repeats itself when we turn to look at data. With our current data-saturated world, I would assume that there is sufficient to fuel the development of new sustainable and green fintech products and services. But all that data is currently locked into development of digital products that do little or nothing to promote sustainability.
Just like capital, data needs to be re-deployed intentionally, for the express purpose of advancing sustainability. We’ve seen the possibilities for what that kind of intentional redeployment can deliver. Ant Forest is the prime example, using analysis of behavioral data to calculate individual carbon points in a type of game for a greener future. It puts citizens at the center of a carbon market logic which usually is only accessible to large-scale players.
It is the sum of many more initiatives like M-Akiba and Ant Forest that will allow us to put the digital financial systems of tomorrow to their highest and best use: achieving the SDGs and the Paris Agreement. Opening up carbon markets, government securities markets, and data sets for innovation is the only way it can happen.
We are looking forward to the next steps in this conversation and journey.