Three key takeaways from 2019: the rise of sustainable investing, green bonds and FinTech

Global warming is likely to reach 1.5°C between 2030 and 2052 if it continues to increase at the current rate. Coming from the UN’s Intergovernmental Panel on Climate Change (IPCC), the special report also notes that climate-related risks to health, livelihoods, food security, water supply, human security, and economic growth are projected to increase with global warming of 1.5°C. 

In view of these dire predictions on climate change and global warming, many related questions arise about the sustainability of our existing economic development models. The IPCC special report also notes that “limiting the risks from global warming of 1.5°C” call for an “increase in adaptation and mitigation investments, policy instruments, the acceleration of technological innovation and behaviour changes.”

Having entered 2019 with the report fresh in my mind, I have been looking out for signs throughout the past year that we are learning our lessons and are not stuck in a vicious cycle of climate change, food insecurity, water wastage, technophobia and inability to adapt to the change in mindset that must inevitably accompany the drastic evolution of our lifestyle needed to reduce our carbon footprint to the level where it does not endanger our very existence.

Now, reaching the end of the year, I can safely say that the world is sitting up and taking notice of the hell that we are creating for ourselves on this earth, and taking tangible steps to find a way out of this mess of our own making. Is it enough? Only time will tell. 

Looking at the brighter side, here are the three key takeaways from 2019 that give us hope for a better, greener and cleaner future as we knock on the doors of 2020:

Sustainable Investing shines bright

Caption: Tea planters in Nairobi show a greener view of the world (Credit: www.mondomacchina.it)

The Harvard Business Review has spoken. In an article published just last month, the definitive publication on all things business related noted that sustainable investing has moved from ‘the shadows to the mainstream.’ With the holy trinity of the Paris Agreement on Climate Change, the UN Sustainable Development Goals (SDGs), and the aims of the EU High-Level Expert Group on Sustainable Finance raising their hands in a benign blessing to sustainable investing projects, it seems that global challenges are finding solutions at a scale that has finally reached a critical mass.

Laying out the most commonly accepted definition of sustainable investing, the Global Sustainable Investment Alliance (GSIA) notes that sustainable investment is an investment approach that “considers environmental, social and governance factors in portfolio selection and management.” 

While the focus on socially responsible investing once left investment managers scratching their heads at the thought of sacrificing tangible returns for intangible principles (of the environmental, social and governance, or ESG, variety), it is becoming increasingly clear that sustainable investing based on ESG has had a Eureka moment.

The focus is rapidly shifting from ‘Why?’ to ‘Why not?’ with the number of signatories to the UN-backed Principles for Responsible Investment (PRI) having increased to 2450 investment companies (asset owners, asset managers, and service providers) representing US$82 trillion in assets under management (AUM) in June 2019 from 63 with US$6.5 trillion in AUM. It may be noted that each such signatory has pledged to uphold a commitment to incorporate ESG issues into their investment decisions. 

Green Bonds energising the investment landscape

Caption: African and Chinese delegates visit a nursery to learn about reforestation projects in Pemba, Mozambique (Credit: Duncan Macqueen/IIED)

Since 2008 when the World Bank issued the first green bond, the market has exploded, mainly thanks to development banks and subsequently local authorities. In 2013, the market leapfrogged to another stage with the emergence of private players such as commercial banks and other corporate entities. In 2016, sovereign issuances appeared, a trend which is expected to grow steadily going forward. Therefore, virtually all types of issuers – sovereign, supranational and agency (SSAs), financials, corporate and sovereigns - have now entered the market. 

To provide a brief background, green bonds enable investors to purchase securities debt earmarked for projects which support a low carbon economy. They help finance a myriad of different initiatives, including among many others, renewable energy, pollution prevention, energy efficiency and biodiversity preservation.

In 2019, a little over a decade since their inception, green bonds and loan issuance has hit a record figure of US$ 200bn with Climate Bonds analysis calculating the global figure at US$ 202.2bn as at 22 October 2019. And the portfolio is becoming widely diversified at a global level, with the five largest green bonds/loans issued in 2019 so far being from the Dutch State Treasury Agency EUR 5.99bn (US$ 6.66bn), KfW EUR 3bn (US$3.36bn), Industrial Bank Co., Ltd. CNY 20.0bn (US$ 2.91bn), Republic of France EUR 2.47bn (US$ 2.77bn) and the Noor Energy 1 (ACWA Power, Silk Road Fund) US$ 2.69bn green loan, funding the single largest Concentrated Solar Power (CSP) site in the world.

Most hearteningly, nine nations have issued sovereign green bonds in 2019 at US$25.8bn – well over 10% –of the total issuance for the year to date. Taking pride in going green, France, Belgium, Poland, Ireland, Indonesia, Chile and Nigeria are now repeat sovereign issuers.

FinTech powering a greener way of doing business

Caption: Africa moves to a greener future with FinTech (Credit: NanoBNK)

In going green as well as ensuring sustainable development, nothing will be as important in our daily lives as FinTech. Be it promoting paperless transactions at a consumer level or helping corporate transactions to move to the blockchain, FinTech holds the power to eliminate the worrying paper trail that we have all come to associate with financial transactions. 

Moreover, financial inclusion – the cornerstone of sustainable development – is heavily predicated on FinTech with all the possibility of mobile money transfers and financially empowering the unbanked that it holds. Indeed, developing economies especially benefit from the power of mobile money transfers, with African nations showing the way with innovations such as MPesa, while developed economies in Europe, and even the US itself, lag behind.

Against this backdrop, it comes as a breath of fresh air when EY notes in a June-end report that FinTech adoption has nearly doubled over the past 18 months, with global figures showing 64% use by consumers across 27 markets. Defining Financial Technology firms as “organisations that join innovative business models and technology to enhance and disrupt financial services”, EY highlights that the adoption rate of FinTech is growing faster than anticipated, with one-quarter of organisations surveyed having used at least one FinTech innovation in the first six months of 2019. 

Most excitingly, this is just the tip of the iceberg for FinTech. With the Financial Stability Board dividing FinTech into five broad categories: payments, clearing and settlement; deposit, lending and capital raising; insurance; investment management; and market support – it is clear that FinTech has made most inroads in the area of payments and less in the others. We can all look forward to more applications of FinTech, especially in the areas of lending and capital raising, with crowdfunding and P2P lending set to take financial inclusion to new heights in 2020. 

Looking at its implications on financial inclusion, in emerging economies in Africa, crowdfunding’s potential market size is estimated at US$2.5bn in 2025 by none other than the World Bank. Indeed, it is easy to see crowdfunding growing exponentially in Africa, where community-based financial solidarity and fundraising are an integral part of the very culture and tradition of the people. Across Africa, communities are accustomed to pooling funds to support various charity-focused, social and economic local projects such as in Kenya where the tradition of “harambee” sees communities club together to hold events such as weddings and funerals.

Forging into a better, greener and cleaner future

Will the holy trinity of Sustainable Investing, Green Bonds and FinTech, with their myriad implications on sustainable development, help to restore ecological balance and reduce the divide between the haves and have-nots? Or, is it too late to reverse the tide of destruction that we have unleashed in the form of climate change and wealth disparity?

These are weighty questions, and no one can truly foresee what the coming years hold, but all we can state with certainty is that we have sown the seeds for a better, greener and cleaner future in 2019. Let us now look forward to a 2020 that nourishes and grows these seeds of hope into strong saplings that can survive potential storms of political tempestuousness and corporate greed.