Could fintech help the planet cope with climate change?

Some major players — Prince Charles; bankers from Barclays, Standard Chartered, and BNP Paribas; three fintechs; and professors from the University of Cambridge — all hope the answer is yes.

On Tuesday at the One Planet Summit in Paris, they are expected to announce they are developing blockchain technology that lets banks see which potential borrowers use environmentally sustainable practices and therefore are worthy of preferential lending terms. Such disclosures presumably would put pressure on companies to pollute less.

It’s an interesting potential use for blockchain, a response to humans’ decades of callousness about wasting environmental resources, a way for banks to improve their image and attract environmentally conscious investors and borrowers, and a potential business opportunity for fintechs.

Buckingham Palace
Royal imprimatur
Prince Charles convened a group of global corporations and startups to look at how financial technology could be used to redirect capital flows toward sustainable projects. A task force was established that included Barclays, Standard Chartered, BNP Paribas, three fintechs and Cambridge University. Adobe

The banks involved hope to meet climate-change goals and improve their overall reputation.

“The banks are going to be rewarded in the sense that their image and their desire to have a positive impact on society is going to be greatly enhanced — which is a great reward,” said Marguerite Burghardt, head of the Trade Finance Competence Center at BNP Paribas. “The banking industry is looking at improving its image and having a positive action on the planet and society, having a key role in improvement of life conditions on earth.”

Earlier this year, Prince Charles convened a group of global corporations and startups to look at how financial technology could be used to redirect capital flows toward sustainable projects. A fintech task force was set up that included the three banks, three fintechs and Cambridge University.

“From the outset, all the participants were very keen that we focus on real economic issues and came up with real, live examples,” said Rhian-Mari Thomas, managing director and chairman of Barclays’ Green Banking Council. “We wanted to focus on devising a real tangible pilot, and then use that as a test bed to see how such different entities could collaborate together and what lessons we would learn. That’s how we came out with this supply chain challenge and pilot we’re about to launch.”

The blockchain — which might run on Ethereum or Hyperledger — will capture data about whether participants in a supply chain are adhering to sustainability requirements. The data will be verified by fintechs such as Landmapp, which can confirm how much land a company owns. The banks will use the information to offer better prices and terms to those that meet the highest sustainability standards.

“That banking facility will provide the incentive for those suppliers to not only provide the data but to behave in a more sustainable way,” Thomas said. “Sustainable sourcing is very important to our clients.”

There might also be an opportunity for the bank to provide blockchain finance and invoice finance.

Where does blockchain come in? The immutability of the technology could give the bankers confidence that the sustainable-practices information is true. And the shared ledger will of course give everyone involved a view of the information without the need for third parties or the emailing of documents.

“Blockchain presents a great way of creating shared data initiatives amongst different large parties,” said Jessi Baker, founder of the U.K.-based Provenance, one of the three fintech firms involved in the effort. “So for me, the key aspect of blockchain is interoperability and creating a common system architecture.”

The other two fintechs are Landmapp and Halotrade, which uses smart contracts and algorithms to convert supply chain data into preferential pricing terms in banks’ systems.

The goal of the pilot is to test the hypothesis that better loan terms for sustainable practices will motivate companies to make environmentally friendly choices to obtain those better terms, noted Andrew Voysey, director of sustainable finance at Cambridge’s Institute of Sustainability Leadership.

“That’s why we have to test this in the real world using key supply chain companies,” Voysey said. For instance, Unilever has signed up. “If it’s successful, it could be pretty transformative.”

The pilot is expected to go live in December 2018. The first users will be 10,000 tea farmers in Malawi.

The project may go beyond blockchain technology.

“We’re talking about how many new technologies can come together to enable what today are siloed systems for product traceability and trade finance,” Baker said. “Those two haven’t really been connected yet. It’s not just blockchain allowing us to make those connections — it’s also the existing tech landscape, with mobile, open data sets, and many startups are helping digitize impact data on the ground.”