The Tipping Point for Climate FinTech: Conversation with Aiaze Mitha on Consumption to Conservation

In the latest Finstep Tipping Point Thought Leadership Series, Finstep Asia Founder, Musheer Ahmed is in conversation with Aiaze Mitha, who is a sustainability and fintech expert and advisor as well as being responsible for leading a joint initiative the UN with the UNDP and UNCDF on fintech and SDGs. Being board members of the Global Impact Fintech Forum, both Musheer and Aiaze delve on how FinTechs can contribute to making a positive impact on climate change and sustainability. They discuss how Fintech entrepreneurs can provide digital solutions that are sustainable for our ecosystem.

Change in the Fintech Industry’s Response to SDG and Sustainability in the Last 3 - 7 Years

Aiaze begins by stating that there has definitely been a visible shift in the market and Fintech entrepreneurs are increasingly becoming more responsible and receptive to the climate agenda. He says that fintech entrepreneurs have realised that in order to achieve the SDGs, people need to join forces and they are designing solutions to address these SDG as well as environmental concerns and challenges. With a similar shift in Venture Capital and early stage investment spins, Aiaze talks about the developments in ClimateTech. Between June of 2020 and June of 2021, around US $90 Billion were poured into that sector, which was a 200% increase compared to the previous period. He reiterates that investors are putting in a lot of money into that space leading to a whole new industry and area of innovation emerging from the fintech space into the climate space.

How Consumption Impacts Sustainability and What Fintechs Can Do

With the planet being closer to 10 Billion people than ever before and increased extreme climate events, Musheer asks about Aiaze’s view on consumption and fintech. Aiaze says that consumption is a key driver of climate change, biodiversity loss and about 2/3 of global carbon emissions are directly/indirectly linked to human consumption and consumption choices (food, household energy consumption, commute, etc). He is currently involved in an initiative at the e-commerce level that uses fintech innovations to engage shoppers to make greener purchases. It encompasses everything from sustainable products to engaging shoppers with either positive or negative types of narratives; for instance, by making x purchase they’ve either avoided carbon emission or they are responsible for deforestation.

Disparity in Financial and Technology Inclusion

While talking about how Ola did better than Uber in India as it catered to the existing technological infrastructure present in India viz using 2G vs Uber using 3G, Musheer asks Aiaze to reflect on the lack of financial and technological inclusion that exists in the society. Aiaze says that the technology gap definitely exists; the good news is that there is convergence on basic technology capabilities around the like, basic connectivity through basic mobile phones. The more advanced capabilities in terms of both skills and advanced technologies are divergent, leading to an increasing focus on investments to converge the gap as well as making it accessible to everybody.

In reference to the e-commerce innovation earlier talked about, Aiaze mentions that it requires a certain level of sophistication and digitalisation of the market and the economy. However, he says that there are other ways to promote sustainability; he is currently working with ecommerce platforms in the South East Asian markets to engage users, including offline, by getting together to clean a park, clean a beach, recycle, etc and move towards sustainability. He talks about how in Indonesia payment platforms are helping local communities to recycle materials and convert them into handicrafts, while at the same time giving them the opportunity to sell these goods through an online shopping platform.

Fintechs Driven to Help Sustainability

Aiaze talks about how it is important to reflect on how we make choices — in a reflective way, a non-reflective way or a combination of both. He says most carbon calculators in the market use the reflective side and provide information that can be analysed allowing people to make decisions. Aiaze gives the example of Ant forest in China (initiative of the Ant group, the financial services/fintech Arm of Alibaba) and how it has designed a model to drive green actions of the users in an engaging way through social interaction on an online platform that drives a lot of engagement around using green points, planting trees in a virtual forest, etc. He says that these social elements are inherent to the connected society we live in and leads to creating a broader movement towards more sustainable choices and actions.

Increased Engagement of Retail Participants

Aiaze talks about how retail investment is a major area, apart from consumption. Aiaze says that retail investors hold the power to move the needle in terms of sustainability by either investing in different types of funds or specific instruments like green bonds. He says that there’s also a huge wave of fintech innovation in terms of footprinting and accounting to measure the ESG performance of different financial instruments to engage retail investors on their investment choices along with engaging users to actually make greener choices.

Musheer mentions the Genesis Project by the BIS Innovation Hub along with HKMA in Hong Kong which essentially used DLT to tokenize the green bond lifecycle.

Impact Fintech Technology can have on Sustainability

Aiaze spoke about how a number of fintechs are looking at biodiversity and nature in different ways and one promising and interesting angle is how do you actually create nature markets. He says that one of the challenges today is that people attach more value to a dead tree because of what you produce with it than to a living tree. He gives the example of an elephant; there’s a market for a dead elephant for its ivory and is worth $40,000. If we measure and draw an economic model that measures the value of living elephants and their carbon cycle capabilities, ecologocial contribution in maintaining the savanna, eating the Acacia trees and making sure that savanna remains a grassland, the value would be around US $1.75 million over a lifespan of 60 years. He says that securitizing this element could attract international financial capital markets, corporate investments and retail user investments leading to tokenization enabling everyone to get a piece of/own a part of the elephant for its lifetime. He says that this model allows evaluating and valuing the potential impact of a living biodiversity into an economic model, leading to financing of conservation and restoration efforts, thus, sustainability.

Fintech Projects that Focus on Biodiversity

Aiaze talks about an organisation called Rebalance Earth which is focusing on designing a model in the context of elephants as well as other keystone species to provide a valuation of what our living biodiversity means to us and being able to bring that in a financial instrument in the form of a tokenized asset. He emphasises that even though we know intuitively how important nature is, actually putting an economic model that allows financial flows  leads to greater consideration of nature into financial decision making processes and that is going to be a game changer.

Aiaze’s Advice to Fintech Firms

Being a fintech entrepreneur himself, Aiaze concludes by saying that it is important to not lose sight of the impact you are trying to achieve in the world. He says that you need to be able to actually track and measure that your biodiversity and your solutions towards biodiversity are thriving. He also offers to help in any way he can.