THEME 2017-2018: AI AND BIG DATA TO THE BENEFIT OF RESPONSIBLE INVESTING

The financial system in recent years has been characterized by the post-financial crisis world of ultra low interest rates and unconventional monetary policy. The financial crisis itself highlighted the failure of corporate governance structures and led to an extended period of low growth and instability, which exacerbated already rising inequality around the world. Thus the G and the S in ESG grabbed investors’ attention. Along with increased awareness of and concerns about climate change, the three aspects of sustainable investing, ESG, are becoming increasingly important to investors.

Now financial technology (fintech) is emerging as a core disruptor of every aspect of today’s financial system. Fintech covers everything from mobile payment platforms to high-frequency trading (HFT), and from crowdfunding and virtual currencies to blockchain. In addition, satellite data is increasingly being harnessed to identify areas more vulnerable to climate change. Big data in the ESG sphere has taken on a prominent role in the last year, as seen via the introduction of big data products by MSCI (MSCI ESG Metrics) and Sustainalytics (ESG Signals).

In combination, such forceful innovations could threaten the viability of today’s financial sector business models, and possibly the effectiveness of current policies, regulations and norms that have shaped modern finance. Specifically, three areas are likely to play an important role: blockchain technology, the ‘Internet of things’ (IoT) and artificial intelligence (AI).

The question is how can fintech innovations help and/or obstruct the process of harnessing the financial system to align financing with sustainable development outcomes?

Some specific questions raised by the UNEP Inquiry on this topic:

  1. How blockchain can help reduce transaction costs to unlock much higher financial inclusion (to service the unbanked and underbanked)?
  2. How can fintech mobilize domestic savings at scale to enable long-term investment directed at long-term sustainability of the real economy through investment in sustainable development innovations and in resilient and sustainable infrastructures?
  3. How can fintech disrupt the provision of financial protection, risk management, risk transfer and risk diversification for vulnerable and exposed communities, real economy assets and infrastructures, and nature’s ecosystems?
  4. How can we best collect, analyse and distribute financial system and real economy information for better economic decision-making, better regulation and better risk management to address climate change risks and mitigate the impact of climate change?