Harnessing the Digital Revolution for Sustainable Development
Task Force co-chairs Maria Ramos and Achim Steiner share their thoughts about the digitalization of finance and what that means for sustainable development. Read their op/ed in Project Syndicate.
Dec 17, 2018 | MARIA RAMOS, ACHIM STEINER
The digitalization of finance is essential to improving lives in the Global South and achieving eight of the 17 UN Sustainable Development Goals. But to capitalize on fintech’s potential, lenders and investors need a coordinated strategy; a new United Nations task force could provide one.
JOHANNESBURG/NEW YORK – Financial digitalization – the digital revolution’s system-level transformation of the entire financial ecosystem – could catalyze global efforts to finance sustainable development. According to the McKinsey Global Institute, the expanded use of financial technology could drive growth across developing countries by up to $3.7 trillion by 2025, thanks mainly to increased productivity gains and broader financial inclusion.
But if the promises of digitalization are to be fulfilled, the world will need to align financing and investment strategies more tightly to sustainable development outcomes. Last month, United Nations Secretary-General António Guterres convened a task force on digital financing to tackle this complex challenge. We are honored to serve as co-chairs for this global effort.
For obvious reasons, financing is key to achieving the Sustainable Development Goals (SDGs) and meeting the emissions targets set by the 2015 Paris climate agreement. But although global savings are more than adequate to fuel the transition to sustainable development, the global financial system has so far failed to effectively intermediate supply and demand. The modest success that some countries have achieved in financing sustainable development has not been commensurate with the need.
Many factors can influence sustainable development outcomes. For example, the global financial and economic crises that began in 2008 – and the subsequent responses by regulators and policymakers – have impacted economic growth, job creation, and income equality. Ventures like China’s Belt and Road Initiative, likewise, can unlock fresh funds for infrastructure investment. Any number of national and international policies can determine whether financing delivers, or diverts us from, sustainable development.
But it is digitalization that could make the biggest long-term difference by harnessing the power of new business models driven by technologies including mobile connectivity, artificial intelligence, big data, blockchain, and the Internet of Things. That immense potential, however, is not guaranteed. Ultimately, the impact of digitalization on sustainable development will depend on whether the advent of more and cheaper data, together with faster analytics, results in financing decisions that take greater account of today’s social and environmental costs.
Fintech can place citizens center stage in delivering good development outcomes. Kenya’s digital revolution has helped poor households gain access to everything from solar energy to government bond markets. Crowdfunding platforms like the United Kingdom’s Abundance, Germany’s EcoCrowd, and Japan’s NPO Bank are unlocking responsible, sustainable lending solutions. In China, Ant Financial’s Ant Forest platform has helped more than 300 million people reduce their ecological footprint. Bicycle-sharing services use app-based fintech payment solutions to make their low-carbon, healthier transportation option available to millions of people in cities all over the world.
In short, there are already tantalizing hints of the power of the digital revolution in advancing finance for sustainability. Changing how people bank and invest, and democratizing access to the financial system, is essential to spurring development more broadly. According to the UN Capital Development Fund, financial inclusion for the unbanked and underserved is a direct enabler for at least eight of the SDGs.
The challenge now is to think and act systemically: to extrapolate from retail-level examples to consider how digitalization can align the financial system to sustainable development; how investors identify, analyze, and mitigate risk; how capital markets move; and how policymakers and regulators approach their work.
The problem is that most solutions are fragmented and narrowly focused, while issues that pose an existential threat to humanity – like climate change – are largely external to most financing decisions. Domestic savings are not being channeled to fund sustainable infrastructure. Illicit financial flows continue to drain development resources. Sustainable financing for biodiversity remains virtually ignored by the fintech revolution. And even financial inclusion – where fintech has had the biggest development impact to date – has a long way to go in reducing poverty and inequality.
These are just a few of the challenges our task force will study. Our membership includes tech entrepreneurs, bank CEOs, civil society leaders, international standard-setters, capital markets experts, central bank governors, finance and economic ministers, and heads of UN agencies. Throughout 2019, we will work closely with established and emerging leaders to analyze the issues, identify opportunities, and make recommendations to ensure that the transformations being wrought by financial digitalization will be ones that ultimately benefit the planet and its people. We begin our work in January and aim to present our initial set of findings in September 2019.
As Secretary-General Guterres said last month when he announced the launch of the task force, digital technology “can be a game changer” in delivering progress on the SDGs. With leadership and policy guidance, the digitalization of financing can open up roles for empowered citizens to shape the future of the real economy. The focus now must be on seizing this disruptive opportunity to ensure that the finance system fulfills its potential to support inclusive, sustainable development.
Maria Ramos is CEO of Absa Group Limited.
Achim Steiner is Administrator of the United Nations Development Programme (UNDP).