In this article we provide a broad overview, together with some examples, of how fintech can help provide solutions in support of the UN’s Sustainable Development Goals. The UN and many other NGOs, together with investors, researchers and technology companies, are converging to start building solutions to some of the thorniest problems in this area.
The SDGs and the UNEP Inquiry into the financial system we need
The 2015 Paris Climate agreement between global leaders marked a change to the global sustainability agenda – agreement between all the key economies on what we need to do to reverse the damage that anthropogenic global warming is doing to our planet. In September 2015, the 17 Sustainable Development Goals (SDGs) for 2030 were identified. In support of achieving these objectives, The United Nations Environment Programme (UNEP) set up an inquiry into Sustainable Finance, and have published a number of reports, working with government groups.
In December 2016 the UNEP Inquiry published their Fintech and Sustainable Development Report, which laid out a number of recommendations for how developments in Financial Technology (fintech) can help to address a broad range of the 2030 objectives through increased financial inclusion, community empowerment and financial support for sustainable infrastructure.
Fintech sustainability opportunities
How can fintech help sustainability? There are a huge number of potential applications but some of the key ones are using distributed ledger technology (blockchain), smart contracts and cryptocurrencies to remove corruption and inefficiencies. Applications include:
- Food Trust and Supply Chain Traceability: by proving where and when crops, fish or meat come from, it’s possible to ensure sustainable supply. Corruption in supply chains is endemic, and a decentralised, incorruptible, transparent record not only reduces opportunities for fraud, but can also ensure producers get a fair price for their produce. This in turn can mean producers aren’t forced into short-term decision making by unscrupulous middle-men.
- Reputation systems to build trust: it has been proven that when communities can trust each other, they can work together to make sustainable decisions. While this works in small communities, it breaks down where people are not personally known to each other, and population growth, together with the move to cities, means that more and more people live in communities where we don’t know each other. Blockchains are designed to provide trust within trustless environments and so can help build open reputation systems, helping community members to see guarantees and audit trails, to create trust without having to know each other personally.
- Fractional ownership of assets: fintech can help communities to own resources in common, such as agricultural equipment or green energy sources, removing intermediaries and helping sustainable decision making. Community ownership of shared resources can also turn individuals into both producers and consumers, trading surplus from their own solar panels or windmill directly with other community members without having to sell to a national grid.
- Improved identity applications through traceability of use/ownership: especially in developing economies, people often lack formal documentation giving them access to resources such as water sources or land, which are critical to their survival. Fintech applications can use other information sources such as interactions, to build behavioural identities that can be used without needing a formal intermediary such as a bank or government to validate.
- Disaster prediction and management: combined with predictive sciences such as weather tech, fintech can help communities plan for and remediate natural and anthropogenic disasters, both by ensuring the right people are in place and by ensuring full provenance of supply chains.
- Traceability of investment and tracking of development funds: technologies such as blockchain and cryptocurrencies can be applied to more traditional investment activity supporting sustainable resources, and with their superior traceability, ensure full provenance of the whole investment portfolio so that investors have confidence their money is being used on sustainable investments.
Use cases for sustainable development fintechs
Some of these solutions are already in the early stages of production, with pilots and young businesses springing up as the opportunities arise. Tokenisation of renewable energy is probably the most mature, with communities able to support development of green energy facilities by transacting tokenised green energy, or carbon offset via carbon credits, while blockchain technology, combined with biometrics, has been used by the UN to track aid distribution to Syrian refugees in a large pilot. We’ve also been lucky enough to have been engaged by UNEP and various government groups to build some pilot solutions in some of these areas, So while the technology is emerging, and the use cases are not mature, NGOs and investors are already participating in these scenarios.
Below, we explain in more detail how the technology supports both top-down and bottom-up solutions.
Top-down solutions
Much of the sustainability agenda requires injections of cash from investors, donors or governments, to progress. While there has been significant investment globally and this has led to a lot of sustainability projects being built, as well as the “greening” of existing industries, the success of initiatives varies between different geographies and industries. In many cases, it is challenging to get green projects initiated because of currency volatility, lack of transparency, or lack of clarity about investments, while in many countries, the risk of corruption deters investors.
Fintech solutions such as Internet of Things (IoT), artificial intelligence (AI) and blockchain can help by reducing this risk, creating audit trails, collecting and analysing data and creating greater transparency. Our first worked example describes how blockchain can reduce the risk of corruption and volatility in a complex overseas donation scenario, and similar approaches are being taken to investment, as discussed in the International Sustainable Investment chapter. By increasing investor or donor confidence in allocating money to countries or industries where transparency and corruption have been concerns, these top-down solutions can expand the scope of overseas investment and aid significantly, while reducing corruption and administration costs.
Example: Foreign Aid pipeline management over blockchain
An example of Foreign Aid management over blockchain has been achieved, with UNDP running the first successful pilot in 2017 with 10,000 Syrian refugees. The solution we describe here is more holistic but shares many characteristics, including the use of technology.
Background
Aid for disaster relief and longer-term development programmes attracts significant investment from governments, businesses and private individuals, but faces a huge logistical and reputational challenge. Typical aid donation scenarios involve a donation in one currency, which is converted to a second currency by the global NGO distributing the aid, then another currency in-country and possibly further conversions as global distributors are used to support the emergency.
Aid is also traditionally subject to significant “leakage”, with funds and goods diverted to corrupt officials or, commonly, local people taking advantage and selling goods on the open market. Donations to aid funds typically lose around 30% to multiple FX and transaction charges and poor terms from banks, while administration is high and as it is very hard to trace funds there are corruption and fraud opportunities.
Aid payouts often take place in challenging circumstances; recipients of aid are likely to be displaced, lacking access to formal identity or traditional financial services. Recipients of aid in the form of food or other transactable goods are also known to sell these on, so there’s always room for abuse, however reducing the interim stages such as merchants responsible for distribution, and ensuring end recipients benefit directly from the aid, is critical to reducing leakage.
Blockchain technology offers an opportunity to add transparency and confidence to donation pipelines, by creating an end to end audit trail of each transaction together with non-traditional identification techniques to ensure the correct recipients are benefitting, even if they lack formal identity or bank accounts. The combination of blockchain technology with layered business logic, further ensures that confirmation, payments and other events can be tied to firm evidence that desired objectives have been achieved, as well as offering the opportunity to solicit additional evidence and assurance where required.
Self-executing contract technology also offers an opportunity to automate much of the administration underpinning administration of overseas aid donations, including distribution to multiple suppliers and individuals, and the management of financial transactions.
We are building a hybrid solution where a technology platform, enabled by blockchain and automatically executing contracts, supports traditional actors in the aid lifecycle by reducing administration and increasing transparency. We anticipate this will result in reduced challenges associated with setting up, donating to and administering aid campaigns, so that the leakages, overhead and bottlenecks presented by bureaucracy and lack of confidence typical to aid campaigns in more challenging economies can be overcome.
The Solution
The system can capture pre-determined recipients of aid, such as medicines suppliers, individuals in need of support and local workers, provide full transparency of financial interactions and the criteria validating the flow of value end to end, together with a reputation management system that evaluates the quality of performance. The measurement and reputation system is based on criteria relevant to the particular aid situation, combined with authentication such as biometrics which can be managed outside traditional KYC scenarios, while the underlying cryptocurrency provides the full traceability of transactions via blockchain technology.
Cashflow in Aid Pipeline example
The system is based on self executing contracts underpinning the aid campaign, which can be set up to execute based on the provision of evidence in the form of information such as iris recognition for individuals, or documents such as invoices for suppliers, that are measured by the system against the agreed criteria. For example, in an AIDS treatment scenario, a local NGO may set up a campaign guaranteeing funds are allocated to supporting a hospital system, suppliers of medicine, and to the individuals concerned. Once set up and agreed with the global NGO managing the campaign, this information is written to the blockchain as a transparent and immutable record.
Recipients can then “cash out” the aid by triggering the self executing contracts – for an end recipient, this may be in the form of food provided by a merchant involved in the scheme, validated by biometric identity recognition, for example, as with the pilot run by UNDP with Syrian refugees, where on submission of evidence that the goods have been provisioned to the individuals, the system pays out to the local merchant in local currency. Alternatively, a global supplier such as a pharmaceutical company provides evidence that a certain number of units of medicine have been supplied, and is paid in USD, or a local hospital pays their workers’ wallets, based on timesheets. These events trigger positive feedback and will typically execute payments, but can also trigger press releases, or other transfers of assets. This ensures that pre-agreed criteria are met, reducing ambiguity and the risk of fraud and providing confidence for donors and NGOs alike.
The system also manages the transfer of value (via a native cryptocurrency or one that is pegged to a fiat currency), which can be created based on input of USD (for example) and released as local currency, minimising exchange risk and providing full traceability for every transaction. The advantage of using cryptocurrency, in addition to reducing currency risk, is that every point of exchange for any unit of currency is recorded in a block of transactions that can be accessed by any party to the agreement, which allows full audits and confidence that funds are being used appropriately.
The reputation management system evaluates the quality of any completed campaigns, assessing how well conditions have been met and the quality of assets received in evidence. Donors and NGOs can then see how well their campaigns are performing based on factual, like for like evaluations.
Benefits
This platform addresses the major risks associated with aid pipelines today, i.e. reduced exchange and transaction costs, and “leakage” or diversion of funds by corrupt entities and individuals, because the money is fully traceable and can only be cashed out by pre-determined people or classes of people. This in turn gives increased transparency and confidence for donors and clarity of purpose for local and global NGOs. The administration traditionally associated with managing aid pipelines is also significantly reduced compared to standard approaches.
Bottom-up solutions
While top-down investment and donations are critical to supporting sustainable development, long term growth is best achieved by solutions enabling communities to support themselves. We cover some of the opportunities in SME and Community Finance, and Money going back into the system. Here we present an example of how such a bottom-up solution can work to support community growth without the need for top-down intervention.
As above, this is one example of a solution, and similar applications of technology can be applied to achieve the outcomes described above and in other chapters.
Circular Economy platform
Just like international investments, circular economies also face challenges of provenance, benchmarking, measurement and managing interactions, which can be addressed through applications of blockchain and self executing contract technology.
Background
A successful circular economy can function very well in a small, close-knit community, however when running at scale they require technology to support the management of peer to peer transactions, or to support interaction with central or distributed intermediaries. Obvious examples of this are platforms like AirBnB or Uber, where peer to peer transactions are managed via a platform, and the ability for customers to transact directly with producers has had a transformational effect on how these sectors of the economy work.
Such platforms can facilitate B2C distribution and interaction, however when measuring more qualitative elements such as behaviours and exchange of non-financial assets, emerging technologies present significant benefits of traceability, provenance, disintermediation and transparency.
- Traceability: blockchain transactions and self-executing contracts offer a full lifecycle audit of value for asset exchange, together with restrictions on destinations for exchanges of value, so customers can be confident where their money is going.
- Provenance: blockchain records demonstrate the full lifecycle of an asset, which can be a digital representation of a physical asset, service or agreement. This can also include evidence relevant to sustainability such as location of origin, chemical composition, species identification (for food), etc. so customers have confidence they’re buying what they intend to buy.
- Disintermediation: self executing contracts managed through business logic peer to peer, remove the need for the traditional third party to intervene in managing transactions. Through automatically executing contracts, complex business rules, such as those applying to irregular supply and demand in circular economies, can be encoded so that the need for administration and central intermediaries is significantly reduced or removed, taking much of the challenge and cost out of running circular economies.
- Transparency: parties to the contract, which can be all members of a community, can have full visibility of all agreements and execution, meaning that communities can be self-policing, removing the need for third party auditing.
Furthermore, the use of internal cryptocurrency linked to certain types of activity can encourage a circular economy to promote sustainable behaviours, if used to transact for selected goods and services, which is extremely relevant to circular economy activities. This is an extension of the typical e-wallet use we are familiar with e.g. Espresso House phone app, into a wider and richer marketplace economy.
Solution
The solution is based on self executing contracts and e-wallets, where assets and cryptocurrency can be transacted seamlessly over the platform via a simple mobile interface. Communities using these contracts and e-wallets would be able to manage complex supply and consumption loops without the need for a central intermediary. In combination with Internet of Things (IoT) devices such as sensors, stock and distribution can be controlled and partially managed through automation, avoiding the usual challenges of complex supply and demand variations. Additionally, using blockchain technology, we can ensure that community members are only transacting within the circular economy, by guaranteeing the origin of goods and services and allowing transactions only with nominated persons or classes of people.
Because that most circular economy initiatives are focused on outcomes rather than technology, this platform is delivered as a bundled packaged that can easily be configured and modified by less technical startups to meet multiple business model needs, for example integration with IoT devices to monitor supply chains, energy monitoring, etc and Artificial Intelligence technology where needed. As the self executing contracts and payments interface is delivered over mobile, we extend our reach to communities with lower exposure to technology, supporting maximum community engagement, while offering sophisticated solutions.
By creating a base platform for multiple circular economy applications, the door opens for interoperability and interaction between an ecosystem of circular economies across the country and potentially globally.
Native cryptocurrency can either be pinned to local fiat or bespoke internal “GreenCoin”, or alternatively associated with a particular asset central to the circular economy in question (e.g. “SustainableFishCoin”).
Below we present two examples of how this platform can be used to support sustainable marketplaces.
Circular Economy Example: Community Farming and Urban Greening
Summary
Growing urbanisation, rising food costs and inequality are leading to malnutrition in urban poor populations, even in developed economies. Meanwhile, more food is being imported as cities expand over farmland. While governments are promoting urban farming, the scale and volumes of produce people are able to grow in gardens or open spaces falls far below a practical solution to supply urban populations with produce.
The circular economy marketplace, combined with green and agritech, provides a solution to these challenges in the shape of a pioneering example of holistic community based farming and greening, with a positive impact on disadvantaged SMEs and community segments alike.
Background / the problem
The division between rich and poor is growing, while the population of underprivileged and underserved individuals is increasing in developed economies, where certain sectors, such as immigrants, suffer from disproportionately high unemployment levels. Access to fresh fruit and vegetables is particularly limited for poorer populations in developed economies, with many poorer regions in the United States designated “food deserts” because of the lack of access to fresh produce.
Many countries that have the climate for growing vegetables and fruit are importing large quantities, because the economics of rural farming don’t attract sufficient numbers of producers; this in turn leads to higher costs of produce which in turn, impacts the urban poor.
Given the high level of imports and the cost of fruit and vegetables, targeting urban greening and fruit/vegetable production in urban areas benefits urban communities by reducing food costs and carbon footprints. In addition to the core marketplace system, developments in urban greening, both social and thanks to Agritech present solutions for creating a multi-layered food circle:
- Vertical farms are aiming to bring food production back to cities, reduce carbon emissions and water usage and address the growing challenge of feeding the world’s ballooning urban population. Vertical farms minimise the need for energy, water and pesticides.
- Low-tech urban farms can be created on any open space or roof, as Copenhagen has shown in the last few years after dictating that any new roof with less than 30% slope has to be greened. Schools, communities and neighbourhoods support urban farms across the city and this can also be achieved in Stockholm and its neighbourhoods, with appropriate organisation. While these don’t produce enough volume to be a primary food source, they help communities form an emotional connection with growing food.
- Integral to urban agriculture is the introduction of bees to the urban environment. Copenhagen and Stockholm have also demonstrated it’s possible to sustain a large population of bees alongside a greener urban environment, and we can learn from their experience while contributing to a reversal of the global decline in bee numbers.
- Public fridges or People’s fridges, placed in strategic locations, can accept unsold food from retailers or private individuals, making it available for others to take.
- Autonomous vehicles for distribution as these become commonly available
- Home management including cold storage management: as smart fridges emerge, we plan to integrate these into the supply chain removing friction from the ordering and purchasing process. Using the self executing contract logic, this will enable consortia of domestic and commercial cold storage appliances, including people’s fridges, to collaborate on goods ordering and distribution management.
The solution
The solution is an integrated, community based holistic combination of the core circular economy platform vertical farming and urban agriculture supporting a local food circle, delivered by a consortium of local businesses. Because of the scale of this solution, it is likely to be contracted by the government or municipality. Large circular economy initiatives like this are also a key tool in boosting local small business economy and non-traditional employment, firstly building infrastructure and then operating facilities such as urban farms, beehives and vertical farms.
The solution includes sending waste to biomass energy sources, with internal cost allocation via the cryptocurrency. Large producers such as vertical farms sell their produce directly over the platform to small and large consumers, including commercial or domestic cold storage units, distributed via traditional or automated distribution networks (or simply picked up at the source). Small producers such as households create self executing contracts over the system, which can be bidded for by consumers including automated cold storage facilities, without the need for intervention. Prosumers can therefore transact directly with each other and with commercial consumers, forming a core part of the food distribution circle, and reducing the need for intermediaries and associated overhead costs.
Thanks to the cryptocurrency and contract logic, provenance is clear to consumers and distribution can be controlled to local markets as much as desired. Opportunities for interaction with other circular or marketplace economies built on the platform also exist, with the option to transact directly with these circular or marketplace economies in cryptocurrency, maintaining the full provenance and integrity of the supply chain across multiple types of marketplace.
The platform supports rich reporting to such authorities, which allows the government or municipality the ability to monitor performance closely, based on the non-financial metrics such as volume of food distributed, number of unemployed people contracted to work, or distribution of fresh food in food deserts.
This type of circular economy also provides a rich opportunity for education, again creating opportunities for employment in local urban populations.
Sustainable Marketplace Creation Example: Sustainable Fisheries
While core circular economy applications such as the food circle empower communities to sustainable behaviours, other types of marketplace application can also support sustainability, in particular where scarcity is threatening populations such as fish.
Background / the problem
With global fish consumption doubling over the last 30 years, 1 in 12 people now depend on fisheries for their livelihoods and around 3 billion rely on fish as a primary source of animal protein. Despite this, 64% of fisheries are now overfished and more than 90% of all fisheries have no effective data management in place. Because locating fish catches is challenging, even with GPS trackers, and once in the supply chain, fish are difficult to trace, validating sustainability is extremely difficult to impossible, and subject to widespread fraud.
Meanwhile, quotas force edible bycatch to be regularly discarded, leading to waste and missed opportunities for additional cheap food sources and increasing the relative cost and footprint of fish that do make it to the table. As with meat and other food produce, the supply chain is opaque and subject to fraud, however fishing is unique in that it is forced to harvest large amounts of edible food which is discarded, because of quotas designed to protect the environment.
Technology opportunities
For the catch through to plate supply chain, there are multiple technology solutions which can be integrated with the core circular marketplace platform to address the fraud and provenance challenges.
- Fish recognition technology such as Fishface, currently piloting in Indonesia, can identify species based on a mobile camera shot. This software validates the species of the catch, and can record multiple species.
- Cameras, designed to be incorporated in fishing nets, trace the time and origin of the catch together with GPS recording.
- IOT integration with blockchain such as https://01.org/sawtooth/seafood.html to tag fish once caught
- Machine Learning (ML) can support both recognition applications such as the fish categorisation software, and matching applications supporting asset allocation such as the recipe allocation to specific types of fish
Additional future opportunities include IoT integration of autonomous vehicles into supply chains, which can be integrated into the supply chain at a later stage, IoT warehouse management and sorting, full integration into national cryptocurrency and further downstream applications of ML such as customised pricing and market-based storage management for caterers.
The solution
The solution is a multi-layer aggregation of these technologies with the core circular economy platform of self executing contracts, wallets, payments and behavioural reputation system, delivered over smartphones. Tailored cryptocurrency such as SustainableFishCoin or a standardised currency pinned to the local fiat can be used within the system to transact.
When a catch is made, in-net camera records catch and fishers scan fish. The fish identification software then categorises and “counts” the fish, and the Platform logs the fish types, location and timing of catch and fisher tags fish. The platform then writes a hash record to the public blockchain identifying the origin of catch, and this is repeated for each box of fish. The platform creates a self executing contract for core catch, demonstrating sustainability, which follows the fish through the distribution chain.
The platform identifies relevant recipes for bycatch, and writes the self executing contract bundling recipes with species/numbers. It identifies relevant processors and catering outlets with access to distribution centre and alerts them with opportunity, prices and recipe options. Catering outfits and processors bid for bycatch, and the contract makes allocations without the need for a retailer.
The fish is then landed at distribution centre, where it is sorted semi-automatically according to the contract terms (the target is eventually for full IoT automation). The sorting is recorded onto blockchain, tracing forward movement of fish through the supply chain via IoT tags.
For processors and catering outlets picking up bycatch, payment is made over the platform (if using digital or crypto currency) or can be made through standard payments channels, while for the main catch, purchasers are alerted directly and offered the opportunity to place orders via central contract; any residual is assigned via business rules to the distributor and the allocation recorded to the blockchain.
The distribution pickup is recorded on blockchain including full provenance and contract details, destinations of all allocations. At the central distribution centre, the residual main catch is tagged and redistribution also recorded on blockchain, and this continues for any number of intermediate transactions. At the point of delivery, the transfer to primary retailer (catering, processor or retail) is recorded, and provenance can be displayed (on menu, restaurant bill, packaging, price display, etc.) as required, with the certification for sustainability, including, if required, where the fish was caught.
Conclusion
In this article, we’ve described how fintech can support many of the UN’s Sustainable Development Goals, and drilled into examples of how top-down and bottom-up solutions can be created using these technologies. We describe the technologies such as cryptocurrencies, tokenisation, blockchain, IoT and AI in greater detail in other chapters.
While many of these examples are in development and some of the technology is still evolving, it is key to note that the technology for all of these solutions exists today, and in many cases, is already in use. We anticipate that these fintech solutions, and solutions like these, will become dominant in how capital markets and marketplace economies operate within the next few years. This should be good news for the planet, and for economies, at the same time.
Kay points:
- Financial technology solutions, and particularly those based on blockchain, can help to accelerate the implementation of the UN’s Sustainability Development Goals
- Top-down solutions include creative approaches to investment, including alternative approaches to investment products, crowdfunding platforms and aid pipeline management
- Bottom-up solutions include community based platforms, circular economy and solutions that leapfrog traditional financial services
- The technology is evolving, but there are existing precedents such as M-Pesa that demonstrate the impact that alternative financial solutions can have in supporting sustainability in developing economies
- Sustainability challenges apply to developed as well as developing economies, and they can all benefit from these solutions