In recent years, the fintech startups in Southeast Asia is home to have been leading the charge in transforming the region’s financial landscape. Due to the changing fintech trends that Southeast Asia is witnessing, companies are now leveraging technology to provide innovative solutions that cater to the diverse financial needs of consumers and businesses.
However, as the world continues to prioritise sustainability, the impact of fintech on the environment and society is increasingly under scrutiny. The intersection of fintech and sustainability has thus emerged as a crucial trend shaping the industry’s future in Southeast Asia as it faces challenges moving towards a greener world.
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Challenges creating a net zero world
According to a January 2022 report by McKinsey Global Institute, the world will require a massive influx of financial innovation and the most extensive reallocation of capital since World War II to transition to decarbonisation or net zero by 2050. Estimates indicate that between 2026 and 2050, USD 275 trillion will be required for the transition, equivalent to about USD 9.2 trillion annually, an average increase of USD 3.5 trillion annually. This amount is half of the global corporate profits, so there is a long way to go for companies and investors to catch up to meet the set goals.
Geopolitical shocks, such as those witnessed in 2022 and ongoing, may cause investors to become more cautious about investing in sustainability. This prudent approach could temporarily delay or stop investment in renewable energy sources, especially in the manufacturing, transportation, and energy sectors, where conversely, they are much needed.
Despite the challenges and recent global crises, investors are encouraged not to opt for a “false trade-off,” where they temporarily set aside their sustainability goals in favour of traditional fossil fuel-based operations. Companies can continue to pursue long-term sustainability while remaining resilient against shocks by exploring material transitions and green business approaches early to secure access to the most promising innovations. Although significant risks may still be involved in being a first-mover in this field, the potential rewards are proportionally higher, including policy incentives, the ability to attract skilled talent to cutting-edge employers, like-minded partners, and a place in emerging value chains since it is critical to maintaining a focus on sustainability to build energy independence and resilience.
Achieving sustainable goals through Blockchain technology
According to the same McKinsey & Company report and Elevandi and the Monetary Authority of Singapore (MAS), fintech companies play a significant role in helping to mobilise the capital required to create global sustainability, particularly in the effort towards decarbonisation (net zero). The report lists six identifiable themes for sustainability in the fintech industry, which include sustainable everyday banking, impact fundraising, ESG intelligence and analytics, impact investing and retirement, green and accessible financing, and carbon tracking and offsetting.
Fintech companies can contribute to these themes by providing innovative products and services that match customers’ environmental values, financing sustainability projects, tracking individual and corporate carbon footprints based on financial transactions and identifying ways to offset them.
In Southeast Asia, where many countries are still grappling with environmental and social issues, blockchain technology has emerged as a promising solution. This technology has several potential applications in the region, including reducing corruption, increasing transparency in supply chains, and promoting sustainable practices. Given that ESG data is fundamental to sustainability investment and lending decisions, blockchain technology could address the problem of deconstructing and securing data. Using blockchain technology to create transparent, tamper-proof transaction records makes it much more difficult for corrupt actors to engage in fraudulent activities.
However, some critics argue that using cryptocurrencies to implement blockchain technology could negatively impact the environment. Efforts are ongoing in a bid to reduce their environmental impact, such as through “The Merge” for Ethereum. This project reduced power consumption and carbon footprint by almost 100 per cent.
While there are undoubtedly challenges to implementing blockchain technology in Southeast Asia, including a need for more infrastructure and technical expertise, there are also significant opportunities. With the proper investment and support, blockchain could help drive progress towards a more sustainable future in the region.
The pandemic has not slowed down the impact of the fintech trends Southeast Asia is currently seeing, as innovation and adaptation remain at the forefront of industry developments. Many cutting-edge fintech startups in Southeast Asia are developing strongly emphasise sustainability in their offerings. The integration of fintech and sustainability is a growing and significant trend, reflecting the ever-increasing awareness of the importance of responsible business practices.
As digitalisation speeds up and new Web3-based industries continue to grow, promoting sustainable and ethical fintech practices that benefit businesses and consumers in the long term is crucial. For all sectors, not just fintech, to flourish, consideration of the environmental impact is essential, or soon there may not be a livable planet on which to live and do business.