To gain a better understanding of the green digital finance implications of the pandemic, we asked five of the global thought leaders from the GDFA Advisory Board to share their insights and predictions. In this blog you can read what Alex Pentland Co-creator of MIT Media Lab, Rachel Kyte, Dean of the Fletcher School at Tuft University, Jesse Moore Co-Founder and CEO, M-KOPA, Deborah Lehr, Vice Chairman and Executive Director, Paulson Institute, and Mikkel Larsen Chief Sustainability Officer at DBS Group wrote back to us on how COVID-19 is affecting green finance, with a few additional reflections from the GDFA secretariat on the role of green digital finance.
Under the mantra ‘Build back Better’ several governments are highlighting that recovery measures should deliver a low carbon future. According to IMF data only few states such as Lithuania have introduced specific climate-related measures. However, recovery is up next, and several policymakers have called for green recovery including Canada and the Republic of Korea. One capability of digital technology is to integrate a resilience lens into the green recovery measures something which COVID-19 has forced us to think about.
Co-creator of MIT Media Lab, Professor Alex Pentland: It seems highly likely that the pandemic will dramatically change logistics chains, making them more localized and more diverse and thus more robust. This will have strong negative impact on the economic development of poorer nations, and encourage more localized energy production.
Similarly, "work at home" and distributed work groups will become much more common, implying that building of physical infrastructure will put less emphasis on central facilities. This will result in significant reduction in transportation use, and less energy intensive construction (e.g., fewer skyscrapers, highways).
Both of these changes will dramatically reduce projected carbon output, at the cost of stagnant economies in developing nations and less dynamic cities. It will also move priorities away from green finance, toward economic engagement of citizens and nations that are hurt by these changes.
Decentralized renewable energy systems can build more resilient energy systems and help nations deal with the pandemic through cost-efficient supply of critical power in rural health centers, facilitate the provision of clean water and support the agricultural and other productive sectors. It is enabled by deployment of the digital capabilities of fintech; however, the sector is at risk of being hit by decreasing credit quality due to COVID-19 restrictions.
In the case of M-KOPA, at the time of writing, there has been no actual deterioration in underlying credit quality. But in anticipation of customers experiencing financial difficulties due to COVID-19, it is helping more customers access more benefits from its ‘Borrow Credit’ programme. For a limited period, it is also allowing any customers who buy 5 days of M-KOPA credits to qualify for 2 extra credits free.
Jesse Moore Co-Founder and CEO, M-KOPA: We’ve already priced into our long term borrowing that our customer payment plans offer flexibility and fairness – particularly when it comes to riding out temporary cash shortages and making returns. But we see opportunities for lenders to provide short term facilities for the extraordinary measures being introduced around COVID-19.
Green digital stimulus could offer discount renewable energy days, supporting households to reschedule repayment plans or buying back solar home sets that are not in use.
Green bond issuance has dropped in a COVID-19 struck world. Social bond issuance on the other hand is growing. The African Development Bank bond pushed issuance for April to near $7bn versus a monthly average of just $1.2bn in 2018/19. According to Euromoney, it has shifted the breakdown between green and social bonds from 80/20 last year to 60/40 this year. It highlights the need to connect both a people and planet into the financial response.
Mikkel Larsen Chief Sustainability Officer DBS Group: The Covid-19 pandemic has both immediate and longer-term consequences for our sustainability agenda. Foremost it reminds us that sustainability really is about all three P’s (Profit, People and Planet) and we must not be tone deaf in engaging clients that suffer economically from Covid-19.
As part of our immediate response DBS goes above and beyond government measures to help SMEs alleviate cashflow woes and provide retail customers with suite of relief measures including deferment of mortgage repayment and lower interest on unsecured credit.
We also see an increased interest in social bonds. Nevertheless, the urgency of the climate agenda remains and we continue to engage clients on green financing opportunities focusing on opportunities that allow an economic benefit to clients, including ESG linked loans.
A blended response at public sector level is currently being rolled out in Pakistan where micro-payments are given to out-of-work laborer’s for planting tress across the country to deal with climate change. It is green stimulus with social impact as it offers income security to people who have lost their jobs to Pakistan’s coronavirus lockdown.
Governments could ask what the return to society a company is to deliver with state aid bailout funding. Green conditions for companies that receive state aid would change their business models, it would also start to introduce a new way of looking at how companies deliver return to society.
Rachel Kyte, Dean of the Fletcher School at Tuft University: COVID19 is a public health crisis that has plunged the world into an economic crisis. Our recovery path to a more resilient world will mean addressing the unsustainability and inequities of current systems. At the heart of a greener and more inclusive economy is green finance.
The crisis offers us the opportunity to address underlying system issues - can we measure progress better than with GDP - structural issues - access to financial services and alignment with net zero objectives - to issues of governance, transparency, new product innovation and risk and reward. The recovery could be a reset and the reset button is mainstreamed green finance.
Deborah Lehr, Vice Chairman and Executive Director, Paulson Institute elaborates further: “As economies seek to rebuild after the impact of the COVID19 pandemic, it is an opportunity to support a “green” recovery. Governments around the world will be making difficult but important decisions about how to restart their economies. The decisions that are made will have a lasting impact. We encourage governments to consider investing in the future by choosing policies that support a “green” recovery for our shared sustainable futures.”
The updated EU rules for firms receiving government aid during the pandemic will require companies receiving the aid to report on how they’re using the funds. In addition, the Commission says it expects companies to outline how their measures are compatible with the EU’s Green Deal goal of reaching net zero emissions by 2050. Green reporting conditions in a standardized machine-readable format could open up for new ways for automated analysis of how companies deliver on green societal aspirations.
The opinions expressed herein are solely those of the authors and do not necessarily reflect the official views of the GGKP or its Partners.