Sabine Mauderer: The role of fintechs in green finance
Keynote speech by Dr Sabine Mauderer, Member of the Executive Board of the Deutsche
Bundesbank, at the 4th German-Singaporean Financial Forum "Grün-Tech: How can fintechs
and banks work hand in hand for sustainable finance", virtual event, 25 November 2020.
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1 Introduction
Ladies and gentlemen,
I'm delighted to speak to you at the German-Singaporean Financial Forum.
Singapore provides a wonderful example of how technology can facilitate a country's sustainable
economic transformation to create a liveable and prosperous metropolis.
Yet such a transformation requires capital. Investors need to allocate their money accordingly -
and transparent, comprehensive data combined with innovative technologies can lead the way by
helping financial institutions identify green and sustainable projects and companies.
Admittedly, it is all very well to say that, but in practice still not quite as easy to do. That is why my
focus today will be on how FinTech companies can act as enablers of a greener financial
system.
2 FinTechs can be enablers ...
2.1 ... by collecting climate-related data
First, FinTechs can facilitate the collection of data. Currently, climate-related data is often not
readily available. This typically leads to high search costs as investors and banks have to do their
due diligence. In fact, the relevant data may not even be identified at all. As a result,
climaterelated risk is not priced adequately.
Innovative solutions could help to identify and collect the necessary and relevant climate-related
data. Digital technologies such as artificial intelligence (AI), big data and blockchain offer
opportunities to gather comprehensive data in a cost-efficient way.
Let me give you one example: Thanks to automation and AI, the climate impact of a company's
activities can be captured from numerous sources at once - such as news feeds, sustainability
reports or NGO's activities. Specialised FinTechs can collect and assess more data points in
less time compared to traditional data gathering approaches.
2.2 ... by analysing climate-related data
Secondly, FinTechs can be enablers by analysing climate-related data.
Investors and banks can use such data in their analysis, modelling and evaluation of
climaterelated risk and opportunity - or they can team up with FinTechs offering specialized services in
this field. Often enough start-ups are faster in developing the necessary technological
innovations than long-established institutions.
Advances in data science allow analyses of extensive publicly available climate data sets. There
is a lot of information from news agencies and public bodies, weather reports, geo data etc. Big
data analytics helps to evaluate and condense such data sets into so-called "heat maps". They
allow gauging the overall economic impact of climate-related risk on a local basis. They help, for
example, to visualize and quantify the physical risk of climate change, which is typically driven by
extreme weather events such as typhoons. Heat maps can be a useful instrument for investors
and lenders to identify climatic high-risk areas before making decisions on the capital allocation.
2.3 ... by pushing green financial products using digital technology
Thirdly, the application of digital technology is not limited to analysis. It can also help to further
develop and push green financial products themselves.
Issuing green bonds is a vivid example.
The EU Green Bond Standard is still in the making, but it shows how green bonds come -
compared to conventional bonds - with higher requirements: quite a few boxes are to be ticked
before a bond may carry the green label.
I see two immediate benefits of using digital technology here: more efficiency and more credibility
- and these relate to both the issuance as well as the verification process of green bonds. With
regard to efficiency, using "blockchain-based smart contracts" could smooth the complex
issuance process of green bonds, saving costs and time for issuers. This could open up the
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green bond market to a wider investor base, including retail investors. A study shows that using
blockchain can greatly reduce the typical denomination of green bonds. In terms of costs, there
would be no difference between a USD 10 and a USD 10 million green bond on the blockchain.
In turn, this would also make the issuance of green bonds a viable option for a new and much
broader range of companies and project developers and could give a much-needed boost to the
supply side. Besides, the built-in features of blockchain technology ensure that the transfer of
value is tamper-proof and secure, thus ensuring credibility.
Furthermore, by leveraging blockchain, internet of things (IoT) and AI, readings from sensors in
solar panels, for example, could be uploaded directly to the distributed ledger. This allows
investors to monitor the environmental impact of their investment in real time.
In a nutshell, green bonds could benefit from efficiency and credibility of using digital
technologies. This increases the potential for green bonds to lead the ecological transformation.
3 Concluding remarks
Ladies and gentlemen,
I would like to close my speech with a saying of Singapore's notable founder Lee Kuan Yew:
"Was it planned from the beginning? No! It was a process of learning, adjusting, refining and
passing it on to the next generation so that they don't have to relearn the process."
This is still true in essence, but with a small but significant distinction: Climate change does not
wait for the next generation. And thanks to digital technology the process of learning, adjusting
and refining can be done much faster.
FinTechs and credit institutions should collaborate and explore synergies to boost the green
finance market. There is a large potential for cooperation. We will see one possible area in the
following panel discussion.