ESG investment is moving into mainstream of financial market with the evolution of global investors’ demand. According to the Global Sustainable Investment Alliance (GSIA) data, by the end of 2018, the total amount of global sustainable investment assets has reached 17.5 trillion US dollars, 69% increase from last year. The outbreak of the COVID-19 in early 2020 has unexpectedly boosted the ESG investment. According to statistics, in the first quarter of 2020, global ESG funds received a net inflow of US$45.6 billion while the overall fund market incurred an outflow of US$384.7 billion globally. Facing huge ESG data, it has become vital concern for ESG development that whether FinTech can enhance the efficiency of searching and processing relevant information more.
At the 8th China SIF Annual Conference held on December 1st, 2020, the guests had a lively discussion on how FinTech can provide solutions for the development of ESG. Tracy Cai, Member of China SIF Board of Directors and Co-founder of SynTao Green Finance, moderated the discussion. Representatives of all parties shared their insights and practical experiences in their respective fields on the opportunities and challenges faced by the application of FinTech in ESG investment.
Zhang Bohui, Director of the Center for FinTech and Social Finance in Shenzhen Finance Institute shared the biggest “pain point” currently within practicing ESG investment: the issue of ESG data, in three aspects: inconsistency of ESG data across assets; disparity in ESG ratings and the ineffectiveness of ESG rating indicators. Professor Zhang shared the "2020 Status Report - ESG Investing in China Asset Management Industry", jointly issued by Huaxia Wealth Management and Shenzhen Finance Institute. The report showed that 66% of asset management institutions regard data issues as the major barrier in ESG applications. Although regulators expect more listed companies to proactively disclose ESG info, the consistency and completeness of the data remains to be a problem yet to resolve. In addition, Professor Zhang focused on several aspects of the application of financial technology, especially satellite remote sensing data in the ESG field: 1. The company's impact on natural resources can be observed and directly recorded. For example, we can measure the changes in the Amazon rainforest, the environmental pollution of coastal countries and its impact on fisheries; 2. Climate change impact, especially the physical climate risk can be measured and recorded as well. For instance, we can calculate the effect of floods or tornadoes on a certain region and the effect can be tracked dynamically; 3. Air quality become more measurable; 4. more high-resolution instruments can be applied to understand the cultivation of farmland and urban planning. Satellite remote sensing data can even be applied to non-ESG fields, such as understanding the overall operation of a company through parking data. Fintech brings new opportunities for the development of ESG.
Zhang Bohui, Director of the Center for FinTech and Social Finance, Shenzhen Finance Institute
Dong Shanning, Assistant General Manager of Corporate Finance and Head of Green Finance Operation in Bank of Jiangsu, shared the exploration of small and medium-sized commercial banks in the FinTech field from a product perspective. Mr. Dong believes that financial technology is an inevitable route for small and medium-sized banks under the increasingly more competitive differentiation backdrop. FinTech can sort out business transition problems, for example, to meet the diverse needs of customers through digitization. It can also help commercial bank to enhance risk management capability and standardize risk management process. In addition, the Bank of Jiangsu also used big data to solve the information asymmetry problems. In June 2015, it launched a complete online loan product, that is, a loan product supported by big data established with the tax records of small and micro enterprises. Bank of Jiangsu also adopts mature technology of blockchain encryption and cooperates with the Shanghai Commercial Paper Exchange Corporation Ltd to provide enterprises with bill financing services and reduce the financing costs of SMEs. In addition, Bank of Jiangsu has developed an internal rating system and embedded a module of ESG, combining traditional financial ratings and ESG ratings to obtain a more comprehensive rating result, and is the leading domestic leader of commercial banks in incorporating ESG ratings into the business process.
Dong Shanning, Assistant General Manager of Corporate Finance and Head of Green Finance Operation, Bank of Jiangsu
During the panel discussion, Plato K. T. Yip, CEO of the Treelion Foundation and Vice Chairman of Elion International Investment, shared an innovation to improve the liquidity of ecological assets by using blockchain technology, and the application of distributed ledger technology to improve the credibility and efficiency of ESG data. Kelly Yu, Senior Advisor, Green Digital Finance Alliance, shared how the United Nations Environment Programme and Ant Group, jointly united the stakeholders involved in sustainable financial development to explore and study the support of financial technology for sustainable finance. Ma Jun, Founding Director of the Institute of Public & Environmental Affairs (IPE), shared their “Blue Map” and the “Blue Eco Chain” data platforms, on which they develop tools for assessing enterprises’ environmental credit rating based on big data and achieve real-time monitoring of millions of enterprises. Zhang Xiangjun, Assistant General Manager of Beijing Financial Big Data LLC, shared the application of financial technology in mapping enterprise credit and ESG "portrait", saying that such application would help improve the transparency of enterprise information and the accuracy of financial services, and support the development of inclusive finance and green finance.
Parallel Forum A2: Fintech Solutions to ESG
On the topic of ESG data problems and corresponding solutions, Ma Jun first introduced the progress made in ESG information disclosure domestically. With the improvement of regulations and standards, a combined system of mandatory disclosure and voluntary disclosure is expected to be established. Currently, IPE uses data crowd-sourcing and AI technology to increase the range of data source channels and data reliability. Plato K. T. Yip introduced the changes brought by blockchain for its data immutability and fairness, which greatly increased the transparency and credibility of data. Kelly Yu considers that data itself is not a panacea. Due to increasing requirements for data quality, the source of data has become an increasingly important issue. She takes the biodiversity solution as an example. It is possible to chain the gene encoding of plants and establish an encrypted currency. When a pharmaceutical company extracts some ingredients from the plant for the production of medicines, it purchases information about the tree. Some information generates a flow of funds. These funds can be used to protect local trees and local aboriginal people, so that responsibilities and obligations can be traced more clearly. In addition, Kelly also shared the issue of global governance of environmental data. People are increasingly aware that environmental data has the attributes of a public goods, and at the same time it is a strategic resource that requires more effective scientific and technological means to manage. Zhang Xiangjun also pointed out that in the process of data aggregation, although the amount of data business entities provide in a certain area is large, the expansion of data dimensions and the connection of regional data remain to be further issues to be sorted out.
COVID-19 has unexpectedly brought new opportunities for the development of financial technology. Under the wave of the new technological revolution, the innovative application of financial technology is irresistible. It is expected that financial technology will bring more development opportunities to the application of ESG.