How can green fintech help save the planet?
Editor’s note: Today we’re featuring a guest post by Sofie Blakstad and Rob Allen of Hiveonline, the winner of the recent Ericsson Garage Start-Up Challenge. You can read about the contest and the incubation process or check out the Ericsson Garage site for more information. This post was first published on The Networked Society blog.
Sofie says that she is excited to tap into a global network of telco and communications partners, particularly supporting small and micro-businesses in developing economies with access to financial services and formal reputation. “Ericsson’s partnerships with technology and IoT providers will help us to build our data ecosystem,” she says. “Meanwhile, access to expert knowledge in Ericsson’s global organisation will be invaluable in supporting hiveonline as we build from a handful of people to a larger, more complex organisation.”
By Sofie Blakstad and Rob Allen
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
- Reputation systems to build trust
- Fractional ownership of assets
- Improved identity applications through traceability of use/ownership
- Disaster prediction and management
- Traceability of investment and tracking of development funds
Use cases for sustainable development fintechs
Some sustainable fintech solutions are already in the early stages of production, with pilots springing up as the opportunities arise. Tokenisation of renewable energy is probably the most mature, 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 been engaged by UNEP and various other groups to build solutions in some of these areas, so while the technology is emerging, NGOs and investors are already participating in these scenarios which will be in production within 18 months.
Much of the sustainability agenda requires injections of cash from investors, donors or governments, to progress. While there has been significant investment globally, the success of initiatives varies between different geographies and industries. In many cases, green investment is lacking 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 utilizing things such as Internet of Things (IoT), artificial intelligence (AI) and blockchain can help by reducing this risk, creating audit trails, collecting and analyzing data and creating greater transparency. Our first example describes how blockchain can reduce the risk of corruption and volatility in a complex overseas donation scenario, while similar approaches apply to investment.
Aid pipeline management over blockchain
Aid management over blockchain has already 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.
Aid for disaster relief and longer-term development programs 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 a global NGO, then another currency in-country and possibly further conversions as global distributors are used.
Aid is also traditionally subject to significant “leakage”, with funds and goods diverted to corrupt officials or, commonly, local people 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. Reducing interim stages such as merchants responsible for distribution, and ensuring end recipients benefit directly from the aid, is critical to reducing leakage.
Blockchain 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. Self-executing contracts offer the opportunity to automate much of the administration.
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.
The system captures pre-determined recipients of aid, 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 combined with authentication such as biometrics, which can be managed outside traditional know your customer (KYC) scenarios, while the underlying cryptocurrency provides full traceability of transactions via blockchain technology.
Recipients can “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, which is, for example, validated by biometric identity recognition while the contracts measure pre-set criteria. This reduces ambiguity and the risk of fraud and provides confidence for donors and NGOs alike.
The system manages the transfer of value, which can be created based on input of USD (for example) and released as local currency, minimizing exchange risk and providing full traceability for every transaction.
This platform addresses the major risks associated with aid pipelines today, that is, reduced exchange and transaction costs, and “leakage” or diversion of funds by corrupt entities and individuals. 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.
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. 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 example: community farming and urban greening
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. 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.
- 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.
- 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 is an integrated, community-based holistic application of a circular economy platform, based on self-executing contracts and e-wallets, where assets and cryptocurrency can be transacted seamlessly over the platform via a simple mobile interface. This is combined with vertical farming and urban agriculture supporting a local food circle, delivered by a consortium of local businesses.
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). Prosumers can 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.
This type of circular economy also provides a rich opportunity for education, again creating opportunities for employment in local urban populations.
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.
This article is an excerpt from Sofie and Rob’s randomised, post-structural Let’s Not Build a Bank series of articles, which will be appearing in 2018 in print form.
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