Why fintech is a key driver in sustainability—and how Switzerland can make an impact
“Sustainable Digital Finance” is the title of a white paper co-written by Thomas Puschmann of the University of Zurich in collaboration with Stanford University. It identifies the fintech revolution as a major factor in the drive to reach sustainable development goals. Tanya König of finance.swiss recently sat down with Puschmann to find out where we are in sustainable fintech and how Switzerland can play a leading role.
finance.swiss: What is the role of fintech, insurtech, and blockchain in the context of sustainability? And what is the major burden of accomplishing SDGs?
Thomas Puschmann: So over the past few years, we saw that sustainability as well as the fintech revolution were two drivers of the financial sector—transformation drivers that really shape the future of the financial system. Until now, they were very much in parallel, and what we observed in the past two or three years is that there was an intersection between the two. We could see that there were a couple hundred start-ups that were really focusing especially on that topic—providing solutions for environmental, social, and governance topics—by using technology for the financial sector, which was new at the time. And that brought us to the idea to write this paper and to look deeper into theory as well as the start-up sector to identify major trends.
And how can fintech, insurtech, blockchain, and sustainability innovation drive the economy toward a more sustainable and a more human concept of development?
As I said, it touches all three areas of the ESG spectrum, and you could think of various examples there. One from the financial sector itself is the area of impact investing, which gained attention over the past years but was very much focused on client advisory relationships. And what we could also observe from the fintech world was the rise of the robo-advisor. So why not develop robo-advisors that focus on or integrate these sustainability factors in their core so that a client is able to decide whether he wants and can also invest in a sustainable firm. But for that he needs to know if that firm is really sustainable or not. That requires reliable data, which often is not there.
Another example is the lending sector. Banks, of course, also lend money to firms, but for that they need to know what firms are investing in sustainable solutions for the future. Take, for example, the value chain of a company. Today, we know the greenhouse gas emissions that a firm emits, these so-called scope 1 emissions and scope 2 emissions. Scope 1 are the ones that come out of your house; scope 2 are the ones that you purchase in the form of energy from your energy provider; but the scope 3, which very often make up to 75 percent of all greenhouse gas emissions, come from anywhere in the supply chain that you can’t control and don’t even know it. So you need data for that to decide if you want to lend money to such a firm. That’s another example. But that can also go into other sectors. For example, the energy sector that we touched on now is one that is currently also developing new payment infrastructures on blockchain-based solutions with which you are able to sell and even purchase energy from peer-to-peer. So if you have solar energy on your rooftop, then you can sell it to me and I can pay you any kind of currency that is based on the blockchain. It also has touchpoints to other industries as well, which is maybe not so obvious.
You also mentioned the start-ups that you looked at, so I’d like to hear more about the situation of those start-ups in Switzerland that combine sustainability and technology. What’s the status there?
We made an analysis on a global base. We identified a couple of hundred and saw that the leading countries in the world are the U.S. of course—because fintech is very common there and was one of the first countries where this emerged—but in second place we saw that Switzerland plays a major role, which was very surprising for us, and in the end also brought us to the idea that we could collaborate in this field. We found many start-ups touching all different areas from data-management solutions to impact investing. So there’s a broad set around. And just recently, Switzerland founded the Green Fintech Network, which is one of the first in the world that really wants to foster innovation in that area. That’s a really great achievement already, and I think it will grow in the coming years.
One of the critiques that we hear about academic research papers is that they don’t gather enough traction to materialize, but you propose a new approach. Can you elaborate on that?
One of the major challenges that we had, especially in Europe over the past decades or even centuries was that—compared to the U.S., for example, or to Asian countries—invention very often remains an invention and doesn’t get into the market, doesn’t get commercialized into products and services. And this is one of the major challenges we have because if you look at past then of course many inventions were made here but the start-ups went to the States, where they introduced and launched their products. So we think that with an innovation platform like this—which more tightly integrates these different faces of innovation, from academic research to where you put it into practice and spin-of start-ups and even incubate them—is something that hasn’t happened that much, especially in Europe. And with this kind of platform, where you have put together all the stakeholders and share the knowledge and expertise, I think it’s a more powerful tool.
So you’re working on that platform right now?
And is there any connection to the SIF Green Fintech Network?
Yes, we work together. Our Swiss FinTech Innovation Lab is part of the Green Fintech Network, so that’s why we are closely involved in that. And of course there are many touchpoints there as well.
In your white paper, you wrote that at least $5¬–7 trillion is needed in sustainable investments. How can the Swiss financial sector contribute to innovation and steer private capital to overcome these global challenges?
I think Switzerland has at least three layers of getting involved in that global challenge. The first one is that it is the biggest offshore capital market in the world. From a private banking view, there is a huge opportunity for people to invest their money in sustainable firms. Secondly, Switzerland is also a big investor in other countries, so if we have data of what the most sustainable companies and organizations are in these countries, we can make our investments more green, more social, more governance-compliant. And a third one is that Switzerland is very much an export-oriented country. We talked about these supply chains and most of our greenhouse gas emissions, for example, come from outside the country, 75 percent. It’s not within Switzerland. If we care about that—supply chains and value chains—more and more in the future, I think this is the third great opportunity for Switzerland to really make an impact.
Thomas Puschmann is the founder and director of the Swiss FinTech Innovation Lab at the University of Zurich. He is also a member of the Swiss Innovation Council at Innosuisse and advises governmental and private organizations on strategic digitization initiatives.