Taghizadeh F. Green Digital Finance And... Development Goals 2022

Economics, Law, and Institutions in Asia Pacific
Farhad Taghizadeh-Hesary
Suk Hyun Editors
Green Digital
Finance and
Sustainable
Development
Goals
Series Editor
Makoto Yano, Research Institute of Economy, Trade and Industry (RIETI), Tokyo,
Japan
Editorial Board
Reiko Aoki, Japan Fair Trade Commission, Tokyo, Japan
Youngsub Chun, Department of Economics, Seoul National University, Seoul,
Korea (Republic of)
Avinash K Dixit, Department of Economics, Princeton University, Princeton, NJ,
USA
Masahisa Fujita, Institute of Economic Research, Kyoto University, Kyoto, Japan
Takashi Kamihigashi, RIEB, Kobe University, Kobe, Hyogo, Japan
Masahiro Kawai, Graduate School of Public Policy, University of Tokyo, Tokyo,
Japan
Chang-Fa Lo, WTO, Geneva, Switzerland
Mitsuo Matsushita, Nagashima Ohno and Tsunematsu, Tokyo, Tokyo, Japan
Kazuo Nishimura, RIEB, Kobe University, Kobe, Hyogo, Japan
Shiro Yabushita, Org for Japan-US Studies, Waseda University, Tokyo, Japan
Naoyuki Yoshino, Keio University, Tokyo, Japan
Fuhito Kojima, Graduate School of Economics, University of Tokyo, Tokyo, Japan
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Farhad Taghizadeh-Hesary · Suk Hyun
Editors
Green Digital Finance

and Sustainable Development
Goals
Editors
Farhad Taghizadeh-Hesary Suk Hyun
School of Global Studies Graduate School of Environmental Finance
Tokai University Yonsei University
Hiratsuka, Kanagawa, Japan Wonju, Korea (Republic of)
TOKAI Research Institute for Environment
and Sustainability (TRIES)
Tokai University
Hiratsuka, Kanagawa, Japan
ISSN 2199-8620 ISSN 2199-8639 (electronic)

ISBN 978-981-19-2661-7 ISBN 978-981-19-2662-4 (eBook)
https://doi.org/10.1007/978-981-19-2662-4
© The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature
Singapore Pte Ltd. 2022
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Acknowledgments
We are grateful to the Graduate School of Environmental Finance of Yonsei Univer-

sity and the Ministry of Environment of the Republic of Korea for supporting this
book project. We also thank Professor Naoyuki Yoshino and all the participants of
the workshop titled Green Digital Finance for Achieving Sustainable Development
Goals hosted by Tokai University and Yonsei University (June 30–31, 2021) for their
comments on the presented papers. We also thank Ms. Juno Kawakami of Springer
Nature for her help in publishing this book. We are exceedingly grateful to all the
contributors to this book. Without their valuable contributions, we would not have
been able to finalize this book.
v
Introduction
Green Digital Finance and Sustainable Development Goals
To meet obligations under the Paris Agreement and achieve the sustainable develop-
ment goals (SDGs), significant investments in renewable energy generation and green
infrastructure are necessary worldwide. An estimated US $5–7 trillion of annual
investment will be needed to deliver on UN SDGs and the Paris Agreement on
Climate Change (Kharas and McArthur 2016). However, even before the COVID-19
pandemic, global investment in renewables and energy efficiency was not enough to
meet the SDGs (Sachs et al. 2019; IEA 2020). In 2020 and 2021, in the wake of the
COVID-19 pandemic and the global economic recession, the ongoing investment
in renewable energy and energy efficiency projects fell due to a decline in global
economic growth and rising investor uncertainty. Energy efficiency investment is not
adequate to meet sustainability goals and reduce the effort required from the energy
supply (IEA 2020).
As restrictions associated with the COVID-19 pandemic are easing and economies
are opening, governments are beginning to unveil their economic recovery plans.
However, there is a lack of motivation to strengthen climate change adaptations
and environmental management in the recovery plans. The recovery outlook seems
to follow the approach of “growth first and green it when possible” that is typical
of existing development plans. Globally, many governments seeking to stimulate
economic growth in the economic recovery have rolled back environmental regu-
lations and taxes, and increased fossil-fuel-intensive infrastructure and electricity.
This practice will endanger the Paris agreement on climate change and several SDGs
(Yoshino et al. 2021).
One of the main barriers that the establishment of new infrastructure is facing
is difficulty in accessing finance. Although several new green financing solutions
such as green bonds, green banks, green credit guarantees, carbon taxation, carbon
trading, village funds, and community trust funds have been established in different
countries, the current green investment gap shows that these sources are not sufficient,
vii
viii Introduction
and alternative ways to finance projects are required (Hyun et al. 2020; Taghizadeh-
Hesary and Yoshino 2019, 2020).
Technological innovation is already offering sustainability solutions across the
financial system’s five core functions: moving value, storing value, exchanging
value, funding value creation, and managing value at risk (UNDP 2019). Increasing
transparency, accountability, decentralization of the financial system, improving
risk management, increasing competition, lowering costs and improving efficiency,
increasing speed, increasing cross-sectoral collaboration, and integration are features
that financial technology (FinTech) can provide (UNDP 2016). Artificial intelligence
(AI), distributed ledger technologies (DLT) or blockchain, peer-to-peer lending plat-
forms, big data, Internet-based and mobile-based payments, Internet of things (IoT),
matchmaking platforms including crowdlending, and tokenizing green assets are
potential means to scale-up green finance to achieve SDGs (Yoshino et al. 2020).
According to UNEP (2018), AI could lift global GDP by US $15–20 trillion by 2030.
Securing the resilience of such an achievement, notably its environmental and social
sustainability, may well be accomplished by digitalizing finance or “digital finance.”
A literature review shows a gap in utilizing digital instruments and FinTech in
green finance. Against this background, this book aims to fill this literature gap by
providing several high-quality empirical reviews and case study papers on ways to
promote green digital finance to meet SDGs.
The book consists of 17 chapters that are categorized into three sections.
Part 1 covers the prerequisites for facilitating green digital financing, consisting
of four chapters.
One of the major challenges facing green finance initiatives is participation from
the private sector. The focus of international organizations and governments is now to
bring private sector initiatives and investment into the mainstream of green finance.
Integration of technology into these initiatives is an appropriate tool. Along with a
host of benefits, technology also brings risks and challenges. Banking and financial
sector regulators and supervisors face the challenge of aligning existing regulations
with dynamic changes.
In Chap. 1, Vijay Kumar Singh explores the regulatory and legal considerations
for promoting green digital finance. This chapter also focuses on the major concerns
relating to “green digital finance” regulation.
Due to the nascent nature of green business models, lack of data, and other
related barriers, green finance is considered too risky and costly by financial service
providers. Digitalization can reduce the cost, and by leveraging the data, stream-
line the risk assessment of green lending. In Chap. 2, Nestan Devidze explores
the current state of green digital financing. The chapter assesses the persisting
barriers and provides policy recommendations to expand the transformative impact
of digitalization in financing the green development agendas of countries.
In Chap. 3, Peter J. Morgan assesses the risks associated with green digital finance
and coping policies. Digital financial technologies, especially the new generation of
financial technology (FinTech), can promote green finance and create new risks and
unintended consequences, both for the environment and users, which can limit their
potential to scale sustainable finance. This chapter describes risks associated with
Introduction ix
the environment, the use of crypto assets, alternative finance, automated investment
advice, and cybercrime.
In Chap. 4, Yener Coskun and Ibrahim Unalmis investigate the role of government
policies to develop a more effective green digital finance framework based on the Paris
Climate Agreement Goals and SDGs. They suggest that government policy actions
are critical for successful implementation at national and global levels. Specifically,
governments can support green digital finance by implementing sound regulatory
policies and establishing incentives through green data initiatives, lower taxes, and
technological infrastructure investment.
Part 2 focuses on the recent progress in green digital finance in Asia and Europe,
consisting of eight chapters.
In Chap. 5, Ehsan Rasoulinezhad and Farhad Taghizadeh-Hesary employ two
qualitative methods: Interpretative Structural Modeling (ISM) and the Technology
Acceptance Model (TAM), to evaluate the opinions of advanced experts to determine
the critical success factors of green digital finance market development in Iran. The
findings show that among all distinguished critical success factors, accessibility and
transparency in the green digital finance market, the profitability of green projects,
and responsibility of developers of digital green finance tools, easing capital mobility,
political stability, and regulatory quality in the field of digital green finance are the
main areas that should be addressed by Iran’s policymakers.
In Chap. 6, Dharish David, Miyana Yoshino, and Joseph Pablo Varun look at
the potential of natural assets convertible to carbon credits in the Association of
Southeast Asian Nations (ASEAN) region, which is vulnerable to the impacts of
climate change. The chapter highlights a significant demand for FinTech solutions in
the carbon credit market, such as financial instruments and associated technological
innovations, to develop large-scale regional or voluntary carbon markets.
In Chap. 7, Sakib Bin Amin, Farhad Taghizadeh-Hesary, and Farhan Khan assess
how to facilitate green digital finance in Bangladesh. The chapter argues that the
primary objective for the government of Bangladesh is to focus on preparing a
policy framework for digitization alongside the establishment of a strong regula-
tory authority for market regulation and stability. The chapter also highlights the
importance of interdisciplinary research and development programs for acquiring
new FinTech ideas for facilitating green digital financing in Bangladesh for green
transition and meeting SDGs.
In Chap. 8, James F. Paradise looks at the role of green digital finance in
achieving SDGs in China’s Belt and Road Initiative (BRI). This chapter highlights
the importance of moving beyond exhortatory statements toward binding resolutions,
increasing the rigorousness of environmental standards, embedding sustainability
considerations in BRI projects, and helping to increase the implementation capacity
in developing countries.
In Chap. 9, Asif Ruman et al. highlight the critical role of FinTech microenterprises
in the financial innovations and sustainability interlinkage using a qualitative case
study from Finland. The qualitative assessment of three Finnish microenterprises
shows that FinTech can develop unique technology-based sustainable (green) offer-
ings to microenterprises. These offerings include the possibilities for other firms
x Introduction
to engage with sustainability-conscious consumers, invest in sustainable firms at

reasonable return rates, and get rid of paper receipts for transactions using credit or
debit cards.
In Chap. 10, Sarvar Gurbanov and Farahim Suleymanli provide an analytical
assessment of progress in green digital finance in the Republic of Georgia. The
study illustrates to what extent green finance and its digitization level are available
in the Republic of Georgia. The major policy implication is that the country faces
unintended consequences despite a robust regulatory attempt to mobilize private
financial sources. This case study is relevant for many developing countries for
drawing lessons on better policymaking.
In Chap. 11, Vijeta Singh, Nandita Mishra, and Farhad Taghizadeh-Hesary high-
light the investment requirements in India to achieve SDGs and outline the steps taken
by India toward the digitalization of green finance. This chapter also underlines the
challenges faced by India in the field of green digital finance. It draws some initial
recommendations for policymakers in harnessing green digital finance for achieving
SDGs.
In Chap. 12, Suk Hyun analyzes the current status and challenges of green digital
finance in the Republic of Korea. The Korean New Deal policy has an essential
meaning in that it suggests a direction for transition to a digital economy and a green
economy. However, there are limitations as it is presented in various separate projects
under the Digital New Deal and the Green New Deal. This chapter highlights that the
nexus between the Digital New Deal and the Green New Deal needs to be explored
for successful implementation of the Korean New Deal Policy.
Part 3 covers the role of FinTech and financial innovations in scaling up green
digital finance, and it consists of five chapters.
In Chap. 13, Tim Schloesser and Karsten Schulz show how distributed ledger
technology (DLT) can be used effectively for innovative climate finance. They first
introduce the technology and discuss its sustainability and different possible DLT
governance structures. They provide an overview of sustainability-related initiatives
and networks linked to DLT. This chapter reviews various DLT applications in decen-
tralized finance (DeFi), asset management, measurement, reporting, and verification
(MRV), tokenization, and other relevant fields. The chapter concludes with an outlook
on the role of DLT in climate finance and presents recommendations for overcoming
some of the remaining risks and obstacles.
In Chap. 14, Mohamed A.B. M. T. Thaker et al. study the potential role of FinTech
and digital currency for Islamic green financing by providing an integrated model.
There is an absence of an integrated model in the literature, which could enhance the
role of FinTech and digital currency in Islamic green financing. The chapter fills this
literature gap in setting a new research direction for integrated FinTech and digital
currency models that can further enhance and optimize the efficiency of Islamic green
financing.
In Chap. 15, Keun Jung Lee and Hong Jeong provide a framework for digital-
izing green bonds. They propose a blockchain-enabled green bond issuing platform
that can provide an adaptive and efficient system that lowers intermediary costs by
reducing information asymmetry and facilitating compliance, scalability, disclosure,
Introduction xi
and security by increasing transaction transparency. The proposed architecture could

be of significant value to researchers and practitioners in the financial sector.
In Chap. 16, Namita Vikas, Percy Venegas, and Sourajit Aiyer look at the role
of banks and other financial institutions in enhancing green digital finance. This
chapter looks at how banks and financial institutions can link finance, technology, and
sustainability. This will promote green finance intermediation, financial inclusion,
and green capital mobilization. The chapter identifies the challenges and opportuni-
ties that banks may face, both on the supply side and demand side, while working
toward green FinTech solutions.
In Chap. 17, the last chapter, Yooshin Jung and Kimin Lee explore the role and
tasks of peer-to-peer (P2P) lending platforms in activating green digital finance.
As the chapter shows in cases of P2P lending platforms in the Republic of Korea,
Sweden, the United Kingdom, and the United States, P2P lending platforms can
contribute to the vitalization of green digital finance because they utilize information
technology and the Internet in the lending market. However, given that the P2P
lending platform is a new financial service, it will take time to be activated because
of various regulations and obstacles discussed in this chapter.
This book is a valuable resource for researchers and policymakers of finance,
economics, and sustainability. The policy recommendations provided in this book
are essential to accelerate the development of green digital finance for meeting SDGs
in different jurisdictions.
Farhad Taghizadeh-Hesary
School of Global Studies
Tokai University
TOKAI Research Institute for
Environment and Sustainability
(TRIES)
Tokai University
Suk Hyun
Graduate School of Environmental
Finance
Yonsei University
Wonju, Korea (Republic of)
References
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green bonds. Finance Research Letters. https://doi.org/10.1016/j.frl.2020.101816
IEA—International Energy Agency (2020) World energy investment 2020. International Energy
Agency, Paris
xii Introduction
Kharas H, McArthur J (2016) Links in the chain of sustainable finance. Accelerating private invest-
ments for the SDGs, including climate action. Global Views, no. 5, September 2016, The
Brookings Institution
Sachs J, Woo WT, Yoshino N, Taghizadeh-Hesary F (2019) Importance of green finance for
achieving sustainable development goals and energy security. In: Sachs J, Woo WT, Yoshino
N, Taghizadeh-Hesary F (eds) Handbook of green finance: energy security and sustainable
development. Springer, Tokyo
Taghizadeh-Hesary F, Yoshino N (2019) The way to induce private participation in green finance
and investment. Finance Res Lett 31:98–103. https://doi.org/10.1016/j.frl.2019.04.016
Taghizadeh-Hesary F, Yoshino N (2020) Sustainable solutions for green financing and investment
in renewable energy projects. Energies 13:788. https://doi.org/10.3390/en13040788
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cation of distributed ledger technologies. Int J Finance Econ 26(4):6060–6073. https://doi.org/
10.1002/ijfe.2108
Yoshino N, Taghizadeh-Hesary F, Otsuka M (2021) Covid-19 and optimal portfolio selection for
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1016/j.frl.2020.101695
Contents
Part I Prerequisite for Facilitating Green Digital Financing

1 Regulatory and Legal Framework for Promoting Green
Digital Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Vijay Kumar Singh
2 Current State of Green Digital Financing and the Associated
Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Nestan Devidze
3 Assessing the Risks Associated with Green Digital Finance
and Policies for Coping with Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Peter J. Morgan
4 Role of Governments in Enhancing Green Digital Finance
for Meeting the SDGs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Yener Coskun and Ibrahim Unalmis
Part II Recent Progress in Green Digital Finance in Asia and

Europe
5 Identification of Critical Success Factors for Developing
the Green Digital Financing Market in Iran . . . . . . . . . . . . . . . . . . . . . 91
Ehsan Rasoulinezhad and Farhad Taghizadeh-Hesary
6 Developing FinTech Ecosystems for Voluntary Carbon
Markets Through Nature-Based Solutions: Opportunities
and Barriers in ASEAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Dharish David, Miyana Yoshino, and Joseph Pablo Varun
7 Facilitating Green Digital Finance in Bangladesh: Importance,
Prospects, and Implications for Meeting the SDGs . . . . . . . . . . . . . . . . 143
Sakib Bin Amin, Farhad Taghizadeh-Hesary, and Farhan Khan
xiii
xiv Contents
8 The Role of Green Digital Finance in Achieving Sustainable

Development Goals in China’s Belt and Road Initiative . . . . . . . . . . . 167
James F. Paradise
9 Microenterprises, Financial Innovation and Green Practices:
Qualitative Case Studies from Finland . . . . . . . . . . . . . . . . . . . . . . . . . . 187
Asif Ruman, Ahmad Arslan, Petri Sahlström, and Shlomo Tarba
10 Analytical Assessment of Green Digital Finance Progress
in the Republic of Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205
Sarvar Gurbanov and Farahim Suleymanli
11 Mapping the Current Practices and Patterns of Green Digital
Finance in India and the Way Forward . . . . . . . . . . . . . . . . . . . . . . . . . . 223
Vijeta Singh, Nandita Mishra, and Farhad Taghizadeh-Hesary
12 Current Status and Challenges of Green Digital Finance
in Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Suk Hyun
Part III Role of FinTech and Financial Innovations in Scaling up

the Green Digital Finance
13 Distributed Ledger Technology and Climate Finance . . . . . . . . . . . . . 265
Tim Schloesser and Karsten Schulz
14 The Potential Role of Fintech and Digital Currency for Islamic
Green Financing: Toward an Integrated Model . . . . . . . . . . . . . . . . . . 287
Mohamed Asmy Bin Mohd Thas Thaker, Ahmad Bin Khaliq,
Hassanudin Bin Mohd Thas Thaker, Md Fouad Bin Amin,
and Anwar Bin Allah Pitchay
15 A Framework for Digitizing Green Bond Issuance to Reduce
Information Asymmetry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 309
Keun Jung Lee and Hong Jeong
16 Role of Banks and Other Financial Institutions in Enhancing
Green Digital Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329
Namita Vikas, Percy Venegas, and Sourajit Aiyer
17 Roles and Tasks of Peer-to-Peer Lending Platforms
in Activating Green Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 353
Yooshin Jung and Kimin Lee
About the Editors
Dr. Farhad Taghizadeh-Hesary is an associate professor of economics at Tokai

University in Japan and a co-founder and vice-president at the International Society
for Energy Transition Studies (ISETS) based in Australia. He has taught as an assis-
tant professor at Keio University and Waseda University, Tokyo. He is a recipient
of an Excellent Young Researcher status and grant from the Ministry of Educa-
tion of Japan. He is also a visiting professor at Chiang Mai University (Thailand),
visiting professor at Keio University (Japan) and a distinguished research fellow,
and an external scientific member at the University of Economics Ho Chi Minh City
(Vietnam). Currently, he serves as the editor-in-chief of the Journal of Environmental
Assessment Policy and Management and as associate editor/board member of several
other journals, including Singapore Economic Review, Global Finance Journal, and
Economic Change and Restructuring. He has guest-edited special issues for several
journals, including Energy Policy, Energy Economics, Finance Research Letters,
Economic Analysis and Policy, Journal of Environmental Management, Climate
Change Economics, and Resources Policy. His research credits include authoring
more than 250 academic journal papers and book chapters and editing 15 books,
published by Springer Nature, Routledge, World Scientific, and Asian Develop-
ment Bank Institute. Dr. Taghizadeh-Hesary holds a Ph.D. in economics from Keio
University, with a scholarship from the Government of Japan (MEXT).
Dr. Suk Hyun is dean of EastAsia International College (EIC) and head professor of
the Graduate School of Environmental Finance, Yonsei University. Prior to joining
EIC in 2018, he was a visiting scholar in the Department of Economics, University of
Southern California, and a research fellow at Korea Capital Market Institute (KCMI).
He worked as an economist at the Bank of Korea during 2009–2010 and spent
three years (2006–2009) in Japan as a bond market specialist in charge of the Asian
Bond Markets Initiative (ABMI) Task Force at the Japan Bank for International
Cooperation (JBIC). His expertise is in international finance, bond markets, and the
Japanese economy, with recent research covering infrastructure bonds, green bonds,
xv
xvi About the Editors
capital market development, and financial integration in Asia. He has a bachelor’s

degree in economics from Yonsei University and earned his master’s and Ph.D.
degrees in economics from Keio University.
Part I
Prerequisite for Facilitating Green Digital
Financing
Chapter 1
Regulatory and Legal Framework
for Promoting Green Digital Finance
Vijay Kumar Singh
Abstract “Green digital finance” emerged as a concept out of the potential inno-
vations that technology could offer to the financial system (FinTech) in promoting
green initiatives. “Green finance” and “digital finance” have evolved over the years
as independent concepts; however, a marriage of these terms to form a cohesive
approach on “green digital finance” is new. New technologies like blockchain, arti-
ficial intelligence, machine learning, big data, and Internet of things have brought
new possibilities in improving financial services in general and ramping up green
finance specifically. One of the major challenges faced by green finance initiatives is
participation from the private sector. The focus of international organizations is now
to bring private sector initiatives and investment into mainstream climate finance.
Integration of technology into these initiatives is a pertinent tool. Along with a host
of benefits, technology also brings with it a lot of risks and challenges. Banking and
financial sector regulators and supervisors face the challenge of aligning existing
regulations with the dynamic changes. This chapter explores the evolution of the
concept of “green digital finance” and how this is connected to achievement of
sustainable development goals. Existing regulations and policy framework on green
digital finance, if any, are explored. Regulatory and legal consideration for utilizing
digitalization in scaling up green finance are also explored. This chapter provides a
discussion of all major concerns relating to the regulation of green digital finance.
Keywords Green digital finance · Climate change · Green finance · Sustainable

development · Legal · Regulatory
1.1 Introduction
Green digital finance (GDF) is a term of recent origin that has not yet gained a firm
definition. Broadly, GDF refers to utilizing technology for exploring solutions in
finance that also contribute to sustainability (greenness). Different terms like “green
V. K. Singh (B)
UPES School of Law, Energy Acres Kandoli, Dehradun, Uttarakhand, India
e-mail: [email protected]
© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 3
F. Taghizadeh-Hesary and S. Hyun (eds.), Green Digital Finance and Sustainable
Development Goals, Economics, Law, and Institutions in Asia Pacific,
https://doi.org/10.1007/978-981-19-2662-4_1
4 V. K. Singh
finance,” “climate finance,” “digital finance,” and “sustainable finance” are used
interchangeably; however, the context in which they are used may vary. It would
be pertinent to explore the three words of “green digital finance” to understand the
concept clearly.
Requirements for “finance” go to the root of any developmental activity, as it is
with sustainable development goals (SDGs). More specifically, the “climate action”
agenda of the world requires finance to be sourced from not only public entities or
governments but calls for an action from private enterprises/sources as well. This in
turn requires innovative financing solutions to unlock the potential of bringing the
“sustainable development” agenda to every table. It is very important to establish a
link between green finance, digital finance, and social finance. Integrating “digital”
to “green finance” or “sustainable finance” makes it “green digital finance” (Oertli
2020).
Green digital finance holds a strong promise to drive financial inclusion that
would serve those in poverty, ultimately contributing to sustainable development.
New technology formulations like blockchain, artificial intelligence (AI), big data,
cloud computing, and Internet of things (IoT) open up new areas of reform in green
finance.
The requirement of GDF in achieving SDGs is all pervasive, but tracing such a
concrete regulatory and legal framework is a difficult task. Although several national
and regional initiatives have been taken in this regard, they are largely scattered
around in different soft instruments and there is yet to emerge an international treaty.
Achieving SDGs is a complex task for countries because there is a dichotomy of
purpose of achieving development and protecting the climate. Making the 2030
agenda successful would require an integrated approach on policy and programming,
data and analytics, financing, and innovation and learning (SDFA 2018).
Harnessing the digital revolution for advancing SDGs has become one of the
most important action areas by UN agencies (UNDP co-chairs the UN Secretary-
General’s Task Force on Digital Financing of SDGs), and it is reiterated that digital
technologies that are revolutionizing the financial markets can be the game changer
in meeting SDG goals (UN Task Force on Digital Financing of SDGs 2020). Finance
forms a key pillar for achieving SDGs, and this is evident from Goal No. 17, which
focuses on global partnership. This partnership for promoting GDF shall include
the public–private partnership (state and non-state actors), technology sharing (by
developed countries), and developing a common regulatory and legal framework. The
green goals under the global climate conferences have always had some resistance
from developing and underdeveloped countries. One of the primary reasons for this
resistance has been the need for support on advanced technology and finance from
the developed world, which includes multinational corporations.
The decision reached in Paris at COP 21 in 2015 was one of the major land-
marks in the climate action program that recognized the role of non-state actors in
supporting the sustainability agenda. The roles of public participation, technologies,
and use of markets and mechanisms were reiterated while the SDGs emphasized
the requirement of partnerships and collaborations for “leaving no one behind”. The
commitment at the UN to mobilize $100 million per year by 2020 to support the
1 Regulatory and Legal Framework for Promoting … 5
climate finance agenda has not been achieved. The “Race to Net Zero” cannot be
achieved by unilateral efforts, but by collaboration of all stakeholders. Technology
would provide the platform and mechanisms for these collaborations, be it through
financial institutions, manufacturing or trading houses, consumers, or governments.
Interestingly, at COP 26 (Glasgow), the commitment for mobilizing finance was
reiterated by all stakeholders, although the focus on GDF was not very apparent.
The question arises whether the term had been a fad or it actually needed focused
development.
This chapter is based upon descriptive and exploratory research. Given that the
concept of GDF is new, the availability of literature for review is low. Most of the
material covering this concept is available independently under the topics of “green
finance” and “digital finance.” This chapter has joined these independent points to
determine the available regulatory and legal framework for promoting GDF. This
chapter seeks to answer the following questions:
i. What is the importance of a stable regulatory and legal framework for promoting
GDF?
ii. What are the existing regulations and are they effective?
iii. What is the potential way forward?
Regulatory and legal framework forms an important component of any reform. People
seek legal validity and implications of their actions. This also brings forward the
coherence of application and practice nationally and internationally. Hence, this
chapter provides an important perspective in a book on GDF.
1.2 Historical Background and Synergy with the United

Nations Agenda
The fountainhead of the concept of green finance is the Paris Agreement of 2015
wherein the international community agreed upon the concerns of climate change
and made a commitment to keep global warming below 2 °C and aimed to bring
it to 1.5 °C. Each nation member had to provide their charter of commitment
toward controlling global warming (referred to as NDCs or nationally determined
contributions).
Disparity in development between nations and their reliance on fossil fuels and
absence of technology necessitated mobilizing funds for supporting the developing
countries toward their net zero goal. The Paris Agreement introduced the concept of
“Climate Finance,” which was needed to mitigate the large-scale investment required
to significantly reduce emissions. The United Nations Environment Programme
(UNEP), which observes its 50th year of existence in 2022, manages the environment
fund along with the contributions received from the Global Environment Facility
(GEF, est. 1992) and the Green Climate Fund (est. 2010). These funds are utilized
for sustainability initiatives focusing upon the seven broad thematic areas of climate
change, disasters and conflicts, ecosystem management, environmental governance,
6 V. K. Singh
chemicals and waste, resource efficiency, and environment. Pursuant to the deci-
sions in the Kyoto Protocol (2010), an adaptation fund has also been established
to help vulnerable communities in developing countries to adapt to climate change
initiatives.
SDGs can only be achieved when there is development finance available to
poor countries, adoption and implementation of investment promotion regimes for
the least-developed countries, and mobilization of additional financial resources.
Assisting developing countries in attaining long-term debt sustainability through
coordinated policies aimed at fostering debt financing, debt relief, and debt restruc-
turing, as appropriate, and addressing the external debt of highly indebted poor coun-
tries to reduce debt distress is another important factor. A review of SDGs clearly
shows the importance of harnessing the full potential of the financial system to lead
the global economy’s transition toward sustainable development (World Bank 2017).
Any shortfall in achieving one goal may impact the others. For example, green initia-
tives cannot work amidst hunger and poverty, and that is the precise reason for focus
of the SDGs on “leaving no one behind.”
UN Secretary General Antonio Guterres has said that “the 2030 Sustainable Devel-
opment Agenda has a powerful vision, but we must ensure financing is sufficient.
That means making creative use of digital technologies that are revolutionizing the
financial markets.” In his roadmap for financing the 2030 agenda for sustainable
development, six action areas and “15 key asks” are directed toward various stake-
holders like policymakers and regulators, the financial industry, shareholders, and
citizens. One of the key asks highlights the need to “regulate new digital finan-
cial sectors to address cybercrime and money laundering, provide efficient finan-
cial intermediation for inclusion and remittances, and mitigate the risks of misuse
and unintended consequences” (United Nations Secretary-General’s 2019). This ask
is directly related to ensure confidence in the digital financial systems that will
contribute toward sustainable development.
Law is fundamental to fair and effective governance. Law sets substantive norms,
establishes decision-making institutions and processes, and provides mechanisms
for accountability and conflict resolution (Martin et al. 2016). A study of EU-25
countries over 2000–2018 confirmed a positive nexus between the regulatory quality
and the green economy and confirmed that the standard of regulation matters for
economic performance (Cigu et al. 2020). Green finance is a subset of “sustainable
finance,” because it refers to financial services integrating environmental, social, and
governance (ESG) criteria into business or investment decisions. Sustainable finance
supports investments across a broad set of sectors that are required to build an inclu-
sive, economically, socially, and environmentally sustainable world. A sustainable
financial system would be driven by a comprehensive approach involving market-
driven transformation, national policies, and international support and coordination
(World Bank 2017).
1.3 The Concept of Green Digital Finance
“Green finance” has been defined by the G20 GFSG (2016) as “financing invest-
ments that provide environmental benefits in the broader context of environmentally
sustainable development”. These environmental benefits range from reduced pollu-
tion (air, water, land, or environment) to improved energy efficiency. According to
the Reserve Bank of India (RBI 2021), “green finance refers to the financial arrange-
ments that are specific to the use for projects that are environmentally sustainable or
projects that adopt the aspects of climate change”. Some examples of environmen-
tally sustainable projects could be production of energy from renewable resources
like solar, wind, or biogas, or clean transportation like electric vehicles.
Financial technology (FinTech) is presented as the key driver for financial inclu-
sion that ultimately contributes to achieving SDGs (Buckley et al. 2020). The Finan-
cial Stability Board (FSB) provides a working definition of FinTech as “technologi-
cally enabled financial innovation that could result in new business models, applica-
tions, processes, or products with an associated material effect on financial markets
and institutions and the provision of financial services” (FSB 2017). FinTech services
may be broadly categorized into the following four areas (BIS 2018a, b):
• Credit, deposit, and capital raising services
• Investment management services
• Payment, clearing, and settlement services (retail and wholesale)
• Market support services (applicable to all the above)
– Portal and data aggregators
– Ecosystems (infrastructure, open source, application programming interfaces)
– Data applications (big data analysis, machine learning, predictive modelling)
– Distributed ledger technology (blockchain, smart contracts)
– Security (customer identification and authentication)
– Cloud computing
– Internet of things/mobile technology
– Artificial intelligence (bots, automation in finance, algorithms).
FinTech is a millennial buzzword that has drawn the attention of all stakeholders
not only because of its potential to harness innovation and transform the financial
sector, but also because it has a small carbon footprint and is environment friendly.
The FinTech initiatives that contribute toward environmental goals are referred to
as “green Fintech”. Although it is yet to have a universally recognized definition or
global reach, green FinTech ecosystems are rapidly growing across the globe (Walsh
2021). Digital finance has been defined in multiple ways by various organizations,
but the simplest one given by the World Bank states, “digital finance refers to the
impact that the Internet and related digital technologies have on the financial sector”
(SDFA 2018).
Financial services may also promote UNEP’s circularity approach, which uses
the 9-R concept (reduce by design, recycle, repurpose, re-manufacture, refur-
bish, repair, reuse, reduce, and refuse) to bring “circular economy” into action
8 V. K. Singh
(UNEP Finance Initiative 2020). Policy and regulatory innovations in the area of
digital finance are crucial. Most of the green digital finance initiatives are “national”
in approach, whereas given the cross-border nature of digital, it is important to achieve
international convergence (SDFA 2018). Digitization of finance would further require
the connection of critical innovation areas like mainstream finance, FinTech, and
sustainable finance (Bayat-Renoux and van der Lugt 2018). One of the challenges
in integrating sustainability considerations in finance is the nature of the data, which
in one case is financial and in the other is non-financial information for which no
uniform established metrics currently exist.
An analysis of the various definitions of “green digital finance” brings forward
multiple perspectives; however, to sum up, Marianne Haahr, CEO of Green Digital
Finance Alliance GDFA, explains that GDF means “harnessing emerging technolo-
gies and digital tools to create new services, products, strategies, and commercial
models that work to create offers focused on the green finance demanded by today’s
user.” Emerging technologies that are generally referred to include AI, big data,
blockchain, and IoT.
1.4 Regulation and Policy Framework of Green Digital

Finance
One of the five approaches taken by the UNEP Inquiry (2016) was “directing finance
through policy,” which aims toward reforming legal and market structures, consid-
ering impacts on sustainability when developing and reviewing financial regulations,
and strengthening the legal and judicial system to aid enforcement, which ultimately
integrates with sustainable development goals. Growth of digitization into various
sectors also opened up possibilities in the financial sector, especially the opportunities
into GDF.
The Digital Finance Strategy of the European Union (EU) highlights the need for
a digital transformation in financial services, in particular, putting in place a detailed
framework that enables uptake of distributed ledger technology (DLT) and crypto
assets in the financial sector (EC 2020a). The strategy is toward integrating these
new innovations in the platform for sustainable finance. It is contemplated that an
efficient digital finance strategy will also bring in new opportunities and channels
to mobilize funding for the “Green Deal.” While respecting a level playing field,
the Green Deal puts forward a commitment to make the relevant EU legislation and
policies consistent with, and contributing to, the fulfillment of the climate-neutrality
objective. The European Green Deal reaffirms the Commission’s ambition to make
Europe the first climate-neutral continent by 2050 (EC 2020b).
Analysis of the above two documents from the EU, clearly shows that “digital
finance” and “sustainable finance” strategies although interrelated are dealt with
in separate policy frameworks. There tends to be a disconnect between the digital
finance and sustainable finance agendas (Bayat-Renoux and van der Lugt 2018). Even
after discharging a complementary role to each other and working toward achieving
the larger SDG goals, the actual potential of digital finance to develop green finance
remains underutilized, as also reflected during COP 26 deliberations.
Digital finance weaves into itself several digital technologies and applications. Big
FinTechs (BFTs) are emerging that may have significant positive/negative impacts
on the path toward achieving the SDGs. At present, there is no systematic or holistic
international governance framework that manages potential negative impacts or
effectively promotes the positive impacts (Charamba et al. 2021). Exploring the
regulatory framework relating to some major digital technologies would provide an
idea about the direction of policy and regulatory framework in this regard. One of
the key recommendations of the Digital Finance Task Force of the UN has been
to “strengthen inclusive international governance to develop policies, regulations,
standards, and corporate governance arrangements at the international level, suited
to securing SDG-aligned global digital financing platforms and markets” (UN Task
Force on Digital Financing of SDGs 2020).
1.4.1 Digital Ecosystem/Platforms
Digital finance started its journey with the initiatives on “digital banking,” and
to begin with, existing banking laws and regulations were applied to digital
banking as well (see https://greendigitalfinancealliance.org/sustainable-digital-fin
ance/). However, with the opening up of the sector and growth of digital banks,
there emerged a need to have specific regulations for digital banks, crowd funding,
FinTech balance sheet (FBS) lending, and other areas to regulate a technology-
enabled business model. Protection of customer data and managing cyber security
risks came to the forefront as regulatory concerns. FinTech platform financing allows
the matching of lender and debtors without engaging the formal banking channels
by way of crowdfunding or FBS (Ehrentraud et al. 2020).
1.4.1.1 Big FinTechs and Their Regulation
Sergeev et al. (2021) discusses the challenges of regulating BFTs. BFTs are firms
having their operations in several areas including but not limited to finance. Mostly,
the innovations by these firms are in the area of providing the necessary platform,
its security, and handling of consumer grievance (Mitha 2021). These companies
have brought innovations contributing to financial inclusion; however, at the same
time, they have brought regulatory challenges raising policy issues around financial
stability, competition, and data privacy (Frost et al. 2019). BFTs not only include
new-generation players but also include incumbents/mature FinTechs like Visa and
MasterCard that are venturing out in this area.
10 V. K. Singh
1.4.1.2 Regulatory Sandboxes
Regulatory sandboxes are well-defined relaxed regulatory ecosystems that allow the
startups to test their products, services, or solutions in the financial market in a live
environment (Baker McKenzie 2018). Beginning their journey in 2016, regulatory
sandboxes are now quite popular with policymakers around the world. While many
FinTech startups are venturing into green finance solutions, some lone examples can
be found of sandboxes that specifically support green digital finance; for example,
the Financial Conduct Authority (FCA) in the UK promoting the Green FinTech
Challenge.
1.4.1.3 Crowdfunding
As the name suggests, crowdfunding refers to money being raised from a large
number of people through a portal/intermediary for a project or a cause. Technology
has enabled peer-to-peer lending (unsecured loans) platforms wherein the lenders and
borrowers are matched. The business model involves a set of rules of the platform
and commission for services. There are several green energy crowdfunding platforms
like Energy4impact, Windcentrale, and Greenvesting with an objective to invest in
environment-friendly projects. Regulators in different jurisdictions have dealt with
peer-to-peer lending differently, by encouraging it, playing cautious, or prohibiting it
altogether. While green crowdlending is a great idea, it is yet to have any concession
from the regulatory standpoint.
1.4.2 Machine Learning and Artificial Intelligence
Machine learning (ML) focuses upon computer programs that behave intelligently
by working on algorithms and inferences based on analysis of vast data (big data).
It is basically a sub-set of artificial intelligence (AI). AI has brought a wave of
transformations in every sector and has provided hope for newer areas like “green
finance.” While ML has been in place for quite a while supporting algorithmic trading,
leveraging AI for sustainable finance would be a game changer. One of the major
challenges posed by AI systems is its initial dependence upon humans who would
supervise and monitor it. It progressively reduces the role of humans as AI systems
expand from supervised learning to unsupervised deep learning neural networks
(Buckley et al. 2021).
One of the first OECD AI principles highlights “the potential for trustworthy AI to
contribute to overall growth and prosperity for all—individuals, society, and planet—
and advance global development objectives.” AI is a dynamic concept and requires
an ecosystem that permits this dynamism to flourish. Having a clear policy frame-
work that encourages innovation and competition for trustworthy AI has become
imperative. From an environmental perspective, AI may help with predictions based
on patterns of data and a consequent response to climate change risks. An analysis

of the national policy frameworks for regulating AI stems from concerns relating to
algorithmic bias, privacy, safety and accountability, and human rights issues among
others (OECD 2021a).
In addition to exploring the application and need to adapt current legislation for
AI, emerging regulatory actions for AI trustworthiness include: (i) providing soft
law guidance; (ii) considering hard law approaches; (iii) introducing application-
specific moratoriums or bans; (iv) promoting controlled environments for regula-
tory experimentation (sandboxes discussed above); and (v) supporting international
standardization efforts and international law efforts (OECD 2021a).
Regulation of AI has become pertinent because of its associated risks arising in
data, financial stability, cybersecurity, law, and ethics (Buckley et al. 2021). Although
the potential of AI to achieve a green transition in several fields of environmental
policy is noted above, there are some direct negative environmental effects because
of the use of digital hardware and infrastructure such as data centers and networks.
Energy consumption in using these technologies is very high. Most of the interna-
tional initiatives around AI do not sufficiently consider the environmental dimension
of sustainable development (Gailhofer et al. 2021).
1.4.3 Big Data
Storing data has become cheaper, while its quality and capacity have increased
dramatically in line with Kryder’s Law. This has resulted in large volumes of data.
As per Moore’s Law, computing power has also increased and new vistas are further
being opened up by technologies like quantum computing (Buckley et al. 2021). In
the financial markets, “data is oil” and structured data is a gold mine. Data forms the
backbone of investment decision-making, as investors need help to clearly visualize
and understand how their investments are contributing to the sustainable develop-
ment goals, and specifically to green goals (Oertli 2020). Access to high-quality
and comparable data will be vital to increase opportunities for more sustainable
investments.
Lack of good-quality data on companies’ environmental profiles may hinder the
uptake of green finance. Without such data, banks will not know their exposure
to environmental risks (Chakravarti 2021). The Monetary Authority of Singapore
(MAS) recently released its guidelines on environmental risk management for banks,
highlighting four areas of concern: (i) climate change—the amount of greenhouse
gases that businesses emit; (ii) loss of biodiversity—the damage done to life by
businesses; (iii) pollution—the pollutants that businesses emit; and (iv) changes in
land use—for those businesses that use land in their operations.
While the guidelines are welcome, there is still no standardization in treatment of
data in green finance. To actualize the potential of big data in green digital finance
it would be important to develop a common agreeable taxonomy and benchmark
12 V. K. Singh
on data collection, analysis, and reporting. For example, data churning in big-data
servers use a lot of energy, so use of cloud computing may reduce carbon emissions,
however, how much still needs to be clearly spelled out and reported (Spicer 2019).
1.4.4 Blockchain Technology and Cryptocurrency
Distributed ledger technology (DLT), commonly referred to as blockchain, has

received a lot of attention because of its application to cryptocurrency (e.g., Bitcoin).
Financial services traditionally have been associated with systems and processes
rooted in physical registers, papers, and documentation. Maintenance of this phys-
ical infrastructure and process has not only derailed innovation in the financial sector,
but has also dented the goals of “financial inclusion” and sustainability. Blockchain
provides a solution by reducing transaction costs through “shared database of trusted
transactions distributed across large peer-to-peer networks” (UNEI 2018).
FinTech and blockchain have already been related to sustainability applications
and use cases. The UNEP (2016) has identified over two dozen distinct applica-
tions of FinTech for sustainable development and in varying levels of implementa-
tion, including four applications in energy: pay-as-you-go resource utilities, flex-
ible energy supply and demand, peer-to-peer renewable energy, and community
distributed generation (Nassiry 2018). Blockchain has been used as a case study
in peer-to-peer energy transactions, trade and exchange of carbon credits, and even
climate finance like crowdfunding noted above.
Blockchain as a solution is a game changer because its technology posits auto-
regulation nullifying the role of any intermediaries. The technology being new has
unknown risks and allowing them beyond sandboxes has been a matter of debate and
different regulatory treatment in different jurisdictions. Marian (2019) has concep-
tualized the term “blockchain havens” similar to “tax havens,” where the regulatory
thresholds are kept low to attract big FinTechs; however, this poses challenges of non-
compliance and is not conducive to streamlined regulatory/policy growth, especially
with concepts like GDF.
1.4.4.1 Tokenization of Digital Assets
Tokenization is basically the digital form of securitization of assets, wherein the value
of an asset is recorded and bifurcated into small tokens capable of being bought and
sold freely on an exchange. There are different classifications for tokens, like secu-
rity token offerings (STOs), currency tokens, investment tokens, or equity tokens.
Traditionally, these processes were paper-based, and later came to rely on central-
ized digital information systems kept by intermediaries (Allen and Rauchs 2020).
DLT-based applications in finance have advantages but also potential challenges
of regulation (OECD 2021b). Use of tokenization for green bonds is very impor-
tant, especially in the context that the investment in green initiatives would only be
successful when it reaches a minimum size. Cutting transaction costs is important.
There are three ways of regulating tokenization: (i) applying existing financial
regulations like securitization of assets; (ii) develop a new regulatory framework;
and (iii) adapting the existing regulations to accommodate the application of DLTs
in tokenization (OECD 2021a). The regulations around tokenization of digital assets
attempts to address the issues relating to terminology and definitions, property rights,
transfer of title, good faith acquisitions, rights and duties of intermediaries, and
remedies.
1.4.5 Internet of Things
In simple words, the Internet of things (IoT) is a network of “things” (including

people and machines) connected by the Internet. The Green Internet of things (G-IoT)
is a concept that works in identifying technology solutions and processes that reduce
negative impacts on the environment and, in turn, the society. “Green IoT is the
process of efficiently producing, developing, disposing of computers, servers, using
and associating subsystems (i.e., printers, displays, communications equipment and
storage devices), with a reduced negative impact on society and the environment”
(Miorandi 2012). A review of literature on green digital finance mentions IoT as
an important tool in promoting green finance; however, any direct example or case
study of regulation could not be found, as is the case generally for IoT applications.
1.5 Major Stakeholders of the Regulatory and Policy

Framework
Traditional risk assessment models may not work for integrating climate-related risk
analysis because of its complex dynamics and unpredictable chain reactions (Bolton
et al. 2020). Termed as the “green swan” (inspired from the term “black swan”),
climate risks are characterized by deep uncertainty and non-linearity. Their chances of
occurrence are not reflected in past data, and the possibility of extreme values cannot
be ruled out (Weitzman 2011). This complex collective action problem requires coor-
dinated action by different stakeholders including governments, the private sector,
civil society, and the international community (Bolton et al. 2020). A robust and
stable policy framework is one of the leading drivers of GDF (Mills et al. 2021).
Green Finance Platform (2020) and UNEP Inquiry has classified policy measures
on green finance into the five “R”s of sustainable finance: (i) reallocation and raising
of capital, (ii) risk management, (iii) responsibility, (iv) reporting and disclosure, and
(v) reset. The Green Finance Measures Database includes more than 500 plus policy
14 V. K. Singh
and regulatory measures issued. It may be noted that since 2015 there has been a
180% increase in the number of measures taken for a sustainable financial system
worldwide (GFP 2020). Digital finance related to an ecosystem of technologies such
as big data, artificial intelligence, mobile platforms, and blockchain features as one
of the 15 key thematic areas. However, there are only three initiatives listed on digital
finance coming from Kazakhstan, Brazil, and Sweden. Environmental, social, and
corporate governance (ESG); climate change; and standards and regulations are the
most addressed themes by countries.
1.5.1 Private Sector and ESG Reporting
Private enterprises would play an important role in promoting GDF. Generally

speaking, sustainability reporting has become a global practice. Popularly referred
to as ESG reporting, it requires the reporting of non-financial measures taken by the
firms in the areas of environment, social, and corporate governance. ESG reporting
has now also been linked to SDGs. There are currently several ESG/sustainability-
related disclosure frameworks that have been developed by the private sector, for
example, the Climate Disclosure Standards Board (CDSB), the Global Reporting
Initiative (GRI), the International Integrated Reporting Council (IIRC), and the
Sustainability Accounting Standards Board (SASB). In all these reporting stan-
dards, one of the components always relates to environment (Charamba et al. 2021),
although any specific mention of “digital” is difficult to trace.
In India, business responsibility reports (BRRs) must be filed by listed companies.
Each report has an input column with the descriptor: “List innovative, resource-
efficient and low carbon technologies/solutions or initiatives undertaken resulting in
lower resource footprint adopted by the business, if any.” There is a lack of uniformity
in reporting parameters of these different standards, which leads to an inability to
compare data. The BIS innovation hub on green finance has called for standardization
of ESG disclosures as well.
On financial disclosure, the financial industry has also woken up to the multi-
faceted large-scale risks associated with climate change and natural disasters like
fires, drought, flood, and COVID-19. Traditionally, these risks have been managed
through flagship programs like Principles for Responsible Investment (PRI) and
Equator Principles (EP) for financial institutions. With digitalization, traditional
principles now require a relook.
1.5.2 International Framework and Response to Green

Digital Finance
A review of literature on “green finance” generally and “green digital finance” specif-
ically, highlights that there is no international consensus on having a common regu-
latory framework. However, broad policy directions have periodically flown from
various international/regional bodies. The initiatives by United Nations agencies
have already been highlighted above while discussing the origin of the concepts of
“green finance,” “climate finance,” or “sustainable finance.”
1.5.2.1 The Group of 20
The G20 is an international forum that brings together the world’s major economies.
Its members account for more than 80% of world GDP, 75% of global trade, and
60% of the population of the planet (www.g20.org). The Green Finance Study Group
(GFSG) was established in China in 2016 “to identify institutional and market barriers
to green finance, and, based on country experiences, develop options on how to
enhance the ability of the financial system to mobilize private capital for green
investment.”
The Italian G20 presidency in 2021 has now re-established the GFSG as the
Sustainable Finance Study Group (SFSG), elevating it to a working group status.
The mandate of GFSG has now broadened and it will be “coordinating international
efforts to mobilize sustainable finance, which is crucial to achieve a global green and
sustainable recovery. The working group will make it possible to develop a long-
term G20 agenda that can help to drive the policy change needed to further align the
financial system to the Paris Agreement and SDGs.” Time will tell whether there
would be any agenda on driving consensus on “green digital finance” at the SFSG.
1.5.2.2 The Financial Stability Board (FSB)
At the international level, the work of national financial authorities and interna-
tional standard-setting bodies are coordinated by the FSB. It provides a platform
to develop and promote the implementation of effective regulatory, supervisory, and
other financial sector policies. FSB (2019) recognized the potential benefits and chal-
lenges due to the emergence of Big Tech firms operating in the financial services
sector. It has highlighted the need for addressing the data gaps, which is required to
monitor and assess climate-related risk to financial stability (FSB 2021). It has also
created the Task Force on Climate-related Financial Disclosures (TCFD) to improve
and increase reporting of climate-related financial information. No specific guidance
issued by FSB on “green digital finance” could be found, however, climate change
and sustainable finance remains on its work agenda for 2021. In addition, the focus on
monitoring FinTech activities and assessing their implications for financial stability
continues independently.
16 V. K. Singh
1.5.2.3 Bank of International Settlement (BIS)
Established in 1930, BIS is owned by 63 banks representing countries across the

world, and represents about 95% of world GDP. BIS’s Basel Committee on Banking
Supervision (BCBS) is the primary global standard setter for the prudential regulation
of banks. It provides a forum for regular cooperation on banking supervisory matters.
BIS has reiterated that:
“an emerging field in finance is the intersection between technology, sustainability, and
finance” and FinTech developments are expected to raise issues that go beyond the scope of
prudential supervision, as other public policy objectives may also be at stake, such as safe-
guarding data privacy, cybersecurity, consumer protection, fostering competition and compli-
ance with anti-money laundering, and combatting the financing of terrorism (AML/CFT).
(BIS 2018a, b)
One of the major challenges identified by BIS is about balancing the new innovations
in the financial services sector and at the same time not losing sight of the regulatory,
supervisory, and licensing frameworks. BIS has published many guidance notes on
climate finance, in particular the issue of green bonds and carbon risks. Compara-
tively, there appears to be some clarity in the approach of BIS toward green digital
finance, which essentially relies upon the technological capability and innovations
for benchmarking and evolving measurement standards for identifying actual GDF
(to take care of situations of over-reporting or false reporting of green finance).
Technology for Regulators: RegTech—There is growing interest from financial
institutions in the use of technology to satisfy regulatory and compliance require-
ments more effectively and efficiently (referred to as RegTech) and from the official
sector in the use of technology for regulatory, supervisory, and oversight purposes
(referred to as SupTech) (BIS 2018a, b). In 2019, the BIS innovation hub was
established to identify and develop insights into critical trends in financial tech-
nology for relevance to central banks. These are additional areas requiring attention,
because when the focus is on integrating “digital” with “green finance,” regulation
and compliance needs to be digital as well.
1.5.2.4 International Monetary Fund (IMF)
Ensuring stability of the international monetary system, the IMF has more than 190
member countries. It recognizes that the “financial sector has an important role to
play in the fight against climate change by supporting reductions in climate change
risk and mitigating the impact of adverse climate events” and suggests reallocation of
investments to “green” sectors for rebalancing and redistributing of climate-related
risks and maintaining financial stability. At the same time, recognizing the potential
benefits and risks with FinTech, the IMF has been closely monitoring developments in
the field of FinTech as well (IMF 2019). However, any specific guidance on “green
digital finance” could not be found. On 18 October 2019, on the margins of the
IMF/World Bank annual meetings in Washington DC, the European Union launched
together with relevant authorities of Argentina, Canada, Chile, China, India, Kenya,
and Morocco the International Platform on Sustainable Finance (IPSF 2020). IPSF’s
first Annual Report of 2020 reiterates that “FinTech and digital innovation can play
a key role in addressing challenges impeding the growth of sustainable finance.”
1.5.2.5 The Organisation for Economic Co-operation and Development

(OECD)
The OECD works on various topics including digital, environment, and finance. In
1972, the OECD adopted the polluter-pays principle (PPP) as an economic prin-
ciple for allocating the costs of pollution control. With an objective to help “catalyze
and support the transition to a green, low-emissions, and climate-resilient economy
through the development of effective policies, institutions, and instruments for green
finance and investment”, in 2016, a Center on Green Finance and Investment was
established by OECD. It also has a dedicated Blockchain Policy Center. There
has been some good work on the framework for SDG-aligned finance; however,
discussions on bringing “digital” into this framework is at a nascent stage.
1.5.2.6 Stock Exchanges and Securities Regulator
Stock exchanges could play a major role in mobilizing finance through private
enterprises and individuals by providing innovative financing models. More than
60 stock exchanges are part of the Sustainable Stock Exchanges (SSE) initiative,
which promotes sustainability reporting by the listed companies integrating the
TCFD recommendations.
The International Organization of Securities Commissions (IOSCO) has also
made recommendations “to provide (i) clarity on setting regulatory and supervisory
expectations for asset managers, policies, procedures; (ii) clear product disclosures;
(iii) have robust tools for enforcement in case of breaches; (iv) develop common
sustainable finance-related terms and definitions to ensure consistency throughout
the global asset management industry; and (v) give adequate financial and investor
education on sustainable finance practices.” These recommendations are aimed at
providing the true picture of sustainable financial investment and desist the cases
of “greenwashing” (IOSCO 2021). The EU’s Non-Financial Reporting Directive
requiring “digital tagging” of the reported information is a good example to tackle
greenwashing.
1.5.2.7 World Economic Forum (WEF)
Collaborating with public, private, and civil societies, the WEF joins the UN Secre-
tary General’s Task Force on digital financing of the SDGs. WEF provides a multi-
stakeholder platform for developing consensual policies to govern the functioning
18 V. K. Singh
of Fourth Industrial Revolution digital technologies (C4IR). For example, the WEF
was involved in the development of policy on tokenization of digital assets using
blockchain in Dubai.
1.6 Private Initiatives and Frameworks on Green Digital

Finance
It may be noted from the previous section that there is yet to emerge an international
consensus on the concept of “green digital finance.” However, there are many private
initiatives and frameworks on GDF that are creating a movement toward an interna-
tional framework, which can be witnessed by the approach of BIS noted above. Some
of the prominent private initiatives/frameworks on GDF are discussed as follows:
1.6.1 Green Digital Finance Alliance (GDFA)
GDFA is an initiative to explore the potential of digital finance to catalyze green

finance. The alliance was initiated by ANT Financial Services Group and UNEP in
2017 and has been a frontrunner in leveraging digital technologies and innovations to
enhance financing sustainable development. GDFA helps create a network of stake-
holders that can collaborate on GDF. The latest initiative has been the development
of “a green FinTech taxonomy and data landscaping” (GDFA 2021).
1.6.2 The Network of Central Banks and Supervisors

for Greening the Financial System (NGFS)
NGFS is a voluntary group of central banks and supervisors that came together in
2017 to share best practices/experiences contributing to the development of environ-
ment and climate risk management in the financial sector. The two major work
streams of NGFS are “scaling up green finance” and “bridging the data gaps.”
However, NGFS has released no recent directives specific to GDF.
1.6.3 The International Capital Market Association (ICMA)
ICMA released the Green Bond Principles (a voluntary process guidelines for issuing
green bonds), which seeks to support issuers in financing environmentally sound and
sustainable projects that foster a net-zero emissions economy and protect the envi-
ronment. ICMA also addresses the issues relating to FinTech through its committees
and encourages discussion on how new technologies may be utilized for increasing
trust in green bond issuance. Green Bond Principles (GBP) 2021 is the latest revised
version.
The International Finance Corporation (IFC) issued one of the earliest green bonds
in 2010, which helped catalyze the market and unlock investment for private sector
projects that support renewable energy and energy efficiency. IFC is also the member
of the Green Bond Principles Executive Committee and the IFI Green Bonds Impact
Reporting Harmonization Framework. These initiatives provide for self-regulating
voluntary measures and guidelines for issuance of green bonds and may serve as
the starting point for an international instrument on green bond issuance, especially
utilizing technologies like tokenization and blockchain in promoting the global debt
capital markets.
1.6.4 Financial Centres for Sustainability (FC4S)
The FC4S is a network of 16 financial centers with a mission to exchange experience

and take common action on shared priorities to accelerate the expansion of green and
sustainable finance. As part of its action plan, FC4S will share experience on green
digital finance, including through testing the Green Assets Wallet, a new approach to
improve efficiency and transparency in the green debt market (UNE Inquiry 2018).
FC4S works closely with GDFA in formulating policy recommendations to promote
tech-driven ESG practices.
1.6.5 International Development Finance Club (IDFC)
This group comprises national and regional banks and bilateral agencies with a green
finance commitment in 2020 for $185 billion. One of the important features of this
club is the mapping of member institution’s green finance contributions. For the
year 2020, the green finance investments comprised contributions to climate finance,
biodiversity finance, green energy, and mitigation of greenhouse gases, adaptation
finance, and other environmental objectives. GDF as a concept is yet to feature in its
report.
1.6.6 National Efforts
Several countries around the world are making efforts to integrate technology at
the center of their SDG commitments. Technology offers unmatched possibilities
to check pilferage and increase efficiency and accountability. For example, the
FinTech Association of Hong Kong (FAHK) highlights the importance of RegTech
20 V. K. Singh
in improving adoption of green finance through effective monitoring and scenario

analysis. Be as it may, it is important to build capacity on digitalization at the national
level, especially for developing countries to actualize the wider ecosystem of green
digital finance.
1.7 Conclusion and Policy Direction
Green digital finance or green FinTech as a concept is still evolving as is evident

from the literature review in this chapter. Most of the literature on this concept is of
latest origin not earlier than 2018 and many of them are from 2020–2021. COVID-19
and the world’s focus on garnering finance from private sources for green/sustainable
initiatives has given a push for studies around green FinTech because it offers possibil-
ities to break down existing barriers of trust deficit caused by non-uniformity of data
collection and dissemination, absence of a clear regulatory/policy framework, and
non-visible national commitments. Traditionally, the regulatory and policy frame-
works for green or sustainable finance and digital finance have moved parallel to
each other. Although limited convergence is now seen, not much academic literature
or policy/regulatory framework on green digital finance is available. This area calls
for further initiatives and research both at the national and international levels. The
IPSF (2020) reiterates:
FinTech and digital innovation can play a key role in addressing challenges impeding
the growth of sustainable finance. Technologies such as blockchain, artificial intelligence
(AI), big data, and the internet of things (IoT), can be applied to inject greater integrity,
transparency, and efficiency in sustainable finance decision-making and transactions.
Some of the major areas requiring intervention are pointed out in the following
sections:
1.7.1 Clarity of Concept/Taxonomy/Standardization
One of the major challenges in driving GDF is the lack of a globally or nation-
ally agreed-upon definition of green finance (Jena and Purkayastha 2020). Although
UNEP Inquiry (2016) has clarified the present interplay between the terminologies
such as sustainable finance, climate finance, responsible finance, and ESG invest-
ments, these terms are still used interchangeably by many stakeholders. A definition
of green finance may be based on conceptual (relating to financing and investment)
or operational (relating to sectoral taxonomy like clean energy or energy efficiency)
aspects, while understanding these aspects may relate to multiple factors (Jena and
Purkayastha 2020). The difference between “greening finance” and “green finance”
is still unclear, and adding “digital” to this further increases the confusion.
Digital technologies like AI, blockchain, and ML require data consistency with
proper categorization to run analytics. For example, proliferation of standards in
ESG reporting has been the cause of much confusion, incongruity, and, in some cases,
fraudulent misrepresentation of green credentials and greenwashing (Charamba et al.
2021). IOSCO (2021) has also noted “a multitude of voluntary reporting standards
and the fact that these can have different target users and scope, as well as using
different formats and metrics can make it difficult for investors to compare such
information across the different voluntary frameworks.” Hence, there is a call for a
universal disclosure framework, especially under the aegis of UNCTAD or WTO.
1.7.2 Data Collection—Information Symmetry
Green FinTech’s reliance on authentic and large sets of sustainability data is very
important for driving innovation in the field. Information asymmetry in data also
leads to anticompetitive situations. Interoperability is compromised and development
of a global framework is difficult because of information asymmetry in data on green
finance. There is an immediate need for an international sustainability data platform
(GFN 2021). Access to high-quality and comparable data will be vital to increase
opportunities for more sustainable investments. Data is the backbone of investment
decision-making: investors need help to understand how companies may fare as the
environment changes, regulation evolves, new technologies emerge, and customer
behavior shifts (Oertli 2020). Bringing down the cost of data on sustainability risks
and returns would be crucial for FinTech startups to innovate new models and frame-
works for GDF. Digital technologies can help address information asymmetries and
measurement challenges by producing, gathering, analyzing, and verifying large
quantities of data (including non-standard data) related to environmental and social
performance, at high speed and low cost (UNEI 2018).
1.7.3 Addressing Potential Regulatory Risks and Challenges
GDFA reports that only 5–10% of bank loans are “green” in countries where such
information is recorded and less than 1% of total bond issuance is made up of labeled
green bonds. While there is a huge opportunity in this area, it is a great challenge in
absence of clear regulatory/legal framework internationally.
Roadmap for a Sustainable Financial System (2017) highlights that “policy and
regulatory measures targeting sustainability have grown 20% year on year since
2010. Nearly 300 policy and regulatory measures targeting sustainability were in
place in over 60 countries as of October 2017. Growth in measures has averaged
roughly 20% year on year since 2010—with an increase of roughly 30% since July
2016” (World Bank 2017).
22 V. K. Singh
Addressing the implications of FinTech developments for banks and bank super-
visors, BIS (2018a, b) has listed ten key implications and concerns. One of the impli-
cations points toward the regulatory/policy dichotomy of taking a technology-neutral
approach to regulation of financial services versus having customized regulation for
green FinTech providing clear development space for new technologies to emerge.
For example, the use of DLTs or other technology does not affect the traditional
way that regulators have been assessing investments. There is a need for evolution
of regulators as well, possibly through the use of RegTech (OECD 2021a).
Sergeev et al. (2021) identifies four major policy and regulatory areas having
relevance in regulating big FinTechs. These are financial regulation, competition
and antitrust regulation, telecommunications/Internet regulation, and data protection
regulation, in addition to processes directly addressing ESG/SDGs.
OECD (2019), while examining the scope of blockchain as an enabler for sustain-
able infrastructure, reiterates the need for a clarification on “regulatory treatment,
particularly in the realm of securities law, tax law, the legal recognition of data stem-
ming from blockchain databases, as well as data privacy and consumer protection”
and calls for “a closer collaboration between governmental regulators and the wider
blockchain ecosystem consisting of actors in the private sector could be considered.”
1.7.4 Mitigating the Risk of Green Digital Finance
To enable digitalization of financial services for achieving SDGs, it is important

to identify and mitigate the risks that may act as barriers. These risks may be
infrastructural, economic, or social (UNESCAP 2021). Some of the major risks
associated with digitalization of green finance may be categorized as: (i) lack of
customer access to digital infrastructure (Internet and basic technologies); (ii) high
cost associated with the infrastructure and platforms; (iii) lack of uniform regulatory
oversight; (iv) anticompetitive practices by dominant players (for example, holding
of big data by first movers); (v) lack of interoperability between different service
providers; and (vi) lack of innovation culture.
In relation to collection, processing, and use of data by AI systems, there are risks
associated with leakage of private data, ethical concerns with reference to treatment
of data, data security, and data monopolization. Another important risk relates to
digital fraud and opening up of channels for money laundering and international
crime. The EU has emerged as the first jurisdiction to come up with a proposal to
regulate AI developments. The proposed law seeks to draw a balance between the
rights of the AI developers and that of the owners of fundamental rights. Interestingly,
most of these fundamental rights are in a way related to the SDGs including the
SDG on environment. Out of the four available policy options, the EU has preferred
the option 3+, which provides for “horizontal EU legislative instrument following a
proportionate risk-based approach + codes of conduct for non-high-risk AI systems”
(EC 2021). The world must come together to address the barriers and risks associated
with GDF.
1.7.5 International Convergence/Platform
Previous sections have already established a case for international convergence on

green digital finance. One of the international organizations must take the lead in
setting these standards, and the compliance must move from voluntary to mandatory.
The potential for bringing major international organizations (UNEP, WTO, or BIS)
should be explored. Involvement of any of these organizations would ensure the
development of standards with a global perspective. To begin with, even an informal
platform on the lines of International Competition Network (ICN) may be useful.
Draft model guidelines on green digital finance that integrate it with SDG principles,
risk management, and cyber security interoperability would be helpful.
1.7.6 Advocacy and Capacity Building
Advocacy is a very important tool in popularizing new concepts like GDF. It is now
well accepted that the success of GDF depends upon multiple stakeholders including
governments, private investors, startup entrepreneurs, and financial regulators and
supervisors. To build a GDF culture, the involvement of academia and researchers
is equally important. Involving academia would ensure adequate capacity building,
especially on the following points: (i) how green digital finance as an innovation
area is promoted through teaching curricula, special courses, and research; and (ii)
how multi-disciplinary engagement that brings together finance, technology, and
environmental departments could be encouraged within academic institutions as
well as with market actors (UNEI 2018).
Availability of open-source codes and adequate “regulatory sandboxes” will
enable development of AI and blockchain solutions for GDF. Mentoring and incuba-
tion support for startups showing potential on green FinTech needs special attention.
Developing the human capital that understands digital technology will go a long way
to ushering in the culture needed for promotion of GDF.
1.7.7 Consumer Protection
At the heart of any regulatory or policy framework is the concern for consumers. The
regulators are cautious in their approach to avoid any backlash with new technology.
In terms of green digital finance, there are issues surrounding safety of consumer
funds, inappropriate or fraudulent selling in the name of “green/sustainable” invest-
ments, digital breaches, and cybersecurity issues. While digital technologies like
blockchain offer solutions to “enable immutability of data as well as real-time moni-
toring of the environmental impacts of financed projects with the help of IoT tech-
nologies,” there are also risks of failure. It may be noted that most national regulators
24 V. K. Singh
are paying strong attention to consumer protection, which at times becomes a barrier
for an open regime of green digital finance.
From the above analysis, this is clear that green digital finance as a concept is of
recent origin and it will take some time to settle, especially when “green finance”
and “digital finance” are dealt with under separate tracks by most of international
organizations. However, the future looks bright with many projects being undertaken
in this area both at the national and international level by public and private bodies
alike. For example, BIS and Italian G20 Presidency for 2021 has announced the
techsprint 2021 on green and sustainable finance, seeking technology solutions for
the following three problems: (i) data collection, verification, and sharing; (ii) anal-
ysis and assessment of transition and physical climate-related risk; and (iii) better
connecting projects and investors. These initiatives at the international level would
definitely bring a robust regulatory and legal framework for propelling green digital
finance for achieving the SDGs.
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Chapter 2
Current State of Green Digital Financing
and the Associated Challenges
Nestan Devidze
Abstract Tackling climate change is one of the most significant challenges facing
the world. Financing sustainable development has been at the forefront of discussion.
The financing gap to achieve the sustainable development goals in developing coun-
tries was estimated at several trillions of dollars annually before the pandemic. The
need for sustainable rebuilding intensified in the light of the COVID-19 effect. The
world’s financial system needs to respond to the short-term collapse in resources of
developing countries and provide long-term strategies to build back better following
the COVID-19 pandemic. Given the nascent nature of green business models, a lack
of data, and other related barriers, green finance is considered too risky and costly
by financial service providers. Digitalization has the potential to reduce the cost,
and by leveraging the data, streamline the risk assessment of green lending. This
chapter explores the current state of green digital financing. We assess the persisting
barriers and provide policy recommendations to expand the transformative impact
of digitalization in financing the green development agendas of countries.
Keywords Green digital finance · SDG finance · Impact investments · FinTech
JEL Clasificación G21 · O13 · O33 · Q01 · Q55
Abbreviations
AI: Artificial intelligence

DFI: Development finance institution
FinTech: Financial technology
FSP: Financial service provider
GIIN: Global Impact Investing Network
GSM: Global system for mobile communications
N. Devidze (B)
Tbilisi, Georgia
https://doi.org/10.1007/978-981-19-2662-4_2
30 N. Devidze
GSMA: GSM Association

IoT: Internet of things
IRENA: International Renewable Energy Agency
MFI: Microfinance institution
MSMEs: Micro, small, and medium-sized enterprises
PAYG: Pay as you go
PV: Photovoltaic system
REDD: Reducing emissions from deforestation and forest degradation
SDGs: The United Nations sustainable development goals
UNCTAD: United Nations Conference on Trade and Development
2.1 Introduction
Tackling climate change is one of the most significant challenges facing the world.
Financing sustainable development has been at the forefront of discussion, and the
financing gap that must be bridged to achieve the sustainable development goals
(SDGs) in developing countries was estimated at several trillions of dollars annually
before the pandemic. Developing countries, principally those with underdeveloped
financial systems, face increased challenges in financing national development
priorities. The financial systems in developing countries are characterized by a
dominant banking sector and have large areas of the economy that remain unserved
by the formal financial sector (UNEP 2016). It is important that green financing
promotes and supports the flow of financial instruments and related services toward
the development and implementation of sustainable goals and ensures the inclusion
of low-income and middle-income groups.
The need for sustainable rebuilding has intensified in the light of the effects
of COVID-19. The world’s financial system needs to respond to the short-term
collapse in developing countries’ resources and long-term strategies to build back
better following the COVID-19 pandemic. Because of the nascency of green business
models, lack of data, and other related barriers, green finance is considered too risky
and costly by financial service providers. Digitization has the potential to reduce the
cost and by leveraging the data, streamline the risk assessment of green lending.
Digitalization of financial services has been developing at an increased rate over
past decades. Digital finance increases outreach, reduces costs, and makes transac-
tions faster. According to McKinsey Global Institute’s study, US $2.1 trillion can be
added in new credit by digital finance (McKinsey Global Institute 2016). According
to the Peric (2016), transactions by digital finance are 90% cheaper than traditional
transactions.
Green digital financing can be viewed from several angles. One way to define it
is as the greening of digital finance, which means incorporating environmental risks
and opportunities into financing and investment decisions. Another way to define
2 Current State of Green Digital Financing … 31
green digital financing is to leverage technology to develop green and environmen-

tally friendly financial products and services. This chapter focuses on the latter and
explores the current state of digitalization of green financial products and associ-
ated challenges. It explores how digitalization increases the level of financial flows
to sustainable business and livelihood practices and how it helps investors obtain a
constant rate of returns and deliver impact. The chapter is focused but not limited
to digital solutions to retail green financial products. Digital finance also provides
innovative green enterprises with a variety of new financing channels, such as intel-
ligent investment consulting, supply chain finance, and consumer finance (Cao et al.
2021). Another role that digital finance plays is matching funds, which increases the
transformation rate from saving to investment. Credit and risk control are impor-
tant for the financial market to fulfill its role as a matcher between borrowers and
lenders (Masmoudi et al. 2019). Digital finance can evaluate the credit and risk
of consumers with big data technology, which can result in significantly reduced
asymmetry between financial institutions and consumers (Dendramis et al. 2018).
The approaches and tools deployed in green digital financing may vary. Star-
tups and scaleups develop green digital finance solutions to impact climate change
positively. Various platforms and solutions have emerged including big data and arti-
ficial intelligence (AI) technologies for faster credit assessment; mobile platforms
are actively used for easy payments with or without traditional bank accounts. Even
traditional financial institutions are trying to deploy technology to reduce operating
costs and access sophisticated analysis tools.
Despite the numerous innovative models of green digital financing emerging
across different regions, several barriers persist, limiting the opportunities to leverage
technologies to a scale where the need for green financing is satisfied. Besides the
generic challenges related to SDG financing, which are also prevalent in green digital
financing, this study identifies specific challenges faced by green digital financing.
This study reveals that the sustainable finance and development communities act
separately from the digital technology players. Likewise, governments plan actions
toward promoting sustainable finance on the one hand and digital finance or FinTech
on the other. This creates missed opportunities for digitally enabled co-benefits
between financial inclusion and sustainable finance (Sustainable Digital Finance
Alliance 2018). Furthermore, numerous challenges exist related to technological
capacity, impact assessment and management practices, funding, and the regulatory
environment.
An international coordinated effort is necessary to address these challenges.
Development finance institutions (DFIs), governments, and the private sector shall
collaborate to create an environment that encourages growth and success of digital
solutions to green financing.
This chapter reviews the current state of green digital financing and identifies
the associated challenges. It starts by explaining the need for digitalization in green
financing. It is followed by a discussion of the most-widespread technological solu-
tions for green financing and presents case studies of innovative actors providing
technical solutions in green finance. The overview supported by the case studies
identifies how digitalization and advanced technologies can scale and benefit the
32 N. Devidze
demand and supply side of green financing. It further analyses how various tech-
nologies can benefit each stage of green lending. The chapter discusses generic
challenges associated with financing SDGs and specifically impacted investments.
It also identifies the specific barriers to green digital financing. Finally, this chapter
provides policy recommendations for governments to create an enabling environ-
ment for green digital financing and promote the adoption of advanced technologies
by green finance.
2.2 The Importance of Digitalization in Green Finance
Digitalization is an essential driver for efficient finance and lending methodologies

regardless of its mandate. In a study published in 2016, McKinsey Global Insti-
tute estimated that two billion individuals and 200 million businesses in emerging
economies lack access to savings and credit, and even those with access can benefit
from only a limited range of products. The study outlined various dimensions where
digital finance can have a substantial impact: digital finance has the potential to
provide access to financial services for 1.6 billion people in emerging economies.
It could increase the volume of loans extended to individuals and businesses by US
$2.1 trillion and could enable financial institutions to save US $400 billion annually
in direct costs, while sustainably increasing their balance sheets by as much as US
$4.2 trillion (McKinsey Global Institute 2016).
Digitalization is essential for green financing because of the product infancy and
high associated risks. Green products are considered higher risk by financial service
providers (FSPs) for several reasons. First and foremost, FSPs do not have the expe-
rience and data to shape their green products and accurately estimate risk. High
perceived risk is translated into higher pricing of the financial products. Second, the
underlying technologies are new and are considered risky.
An example of this is distributed solar photovoltaic systems (solar PVs). Installa-
tion of solar PVs has been scaling rapidly over the past decade. However, in countries
where solar PVs are still new, appropriate quality standards are yet to be established
and the secondary market is absent. Customer trust in the technologies is low, and
they are hesitant to incur high upfront costs for the acquisition and installation of the
technology. Moreover, FSPs do not consider PVs as reliable collateral and require
additional collateral from the borrowers, making the financial product inaccessible
to low-income borrowers.
The additional need for digitalization arises when we observe lending to micro,
small, and medium-sized enterprises (MSMEs). The need for green financing is
substantial in rural and remote areas because of climate vulnerability of the commu-
nities, a lack of necessary infrastructure and because in many cases these communities
are the closest to crucial climate ecosystems. Historically, remote communities have
been largely excluded from formal financial services because of the challenges and
high costs of reaching them physically. When access to financial services is possible,
it is typically limited, and FSPs face high operating costs by passing them on to
borrowers via high interest rates.
Such factors make financial products expensive and unattractive for the benefi-
ciaries without concessional support. However, to fill the climate finance gap, 56%
of future climate investment is expected to come from the private sector. To ensure
involvement by the private sector, investment needs to become commercially viable.
Digitalization could benefit the sector and help to tackle the challenges in various
ways:
i. AI and advanced credit assessment technologies enable FSPs to accurately
estimate lending risk.
ii. Technologies contribute to accumulating data crucial for financing and invest-
ment decision-making.
iii. Digitalization enables FSPs to expand their outreach to remote locations and
cover previously untapped customer segments.
iv. Digitalization has the potential to reduce the cost of lending significantly. Finan-
cial Times estimates transactions are 90% cheaper than traditional transactions
(Peric 2016). The cost-saving becomes even more significant in relation to rural
and remote communities.
As a result of digitalization, greater outreach and lower lending costs are possible,
which will scale the lending and will make the products self-sustaining. It has the
potential to attract higher amounts of private funds, which is the key to scaling
green digital financing. An increased scale of green digital finance can have a double
benefit: it can contribute to the environmental objective, including mitigation and
adaptation goals, and it will boost overall lending and increase financial inclusion.
By reducing the cost of lending and streamlining the risk assessment of green
lending, digitalization has the potential to reduce the cost of lending significantly.
It can eliminate the operating costs that prevent FSPs from reaching communities
in remote areas, which otherwise are left beyond the financial system and excluded
from green development agendas. By digitalizing the services, FSPs can increase their
outreach and involve underserved communities in the formal financial sector. Beyond
the impact of financing, digitalization provides an opportunity to previously under-
served customers to create a successful track record and build a strong credit history,
which will further improve their access to credit. All the benefits mentioned, including
low cost of debt, improved credit profiles, and clear risk assessment tools, contribute
to building a self-sustaining green finance scheme capable of filling the financing gap
by attracting private sector investment. Figure 2.1 demonstrates the abovementioned
effect of digitalization benefits in green financing and its contribution to countries’
green and sustainable development goals.
34 N. Devidze
Scaling in
Increased green and
Improved
Low cost Increased flow of sustainable
credit
of debt outreach private practices.
profiles
investments
Fig. 2.1 Benefits of digitization of green financing
Loan sourcing
Credit analysis
Delivery channels
Impact assessment
Awareness building
Fig. 2.2 Various stages of green lending are supported by digitization
2.2.1 Benefits of Digitalization on the Various Stages

of Green Lending
Technologies can be deployed in various stages of green financing. Figure 2.2

indicates the stages of green lending, which can be supported by technological
advancement.
• Loan sourcing: to determine the need for financing and identify sustainable
investment opportunities. Financial service providers are approaching innova-
tive ways to find customers, along with traditional needs assessment practices.
Automated scorecards are used to research customer need identification. Various
methods, including geospatial analysis, have been utilized to identify the need for
specific products and services in specific areas or communities.
• Credit analysis. There are various examples of big data, machine learning, and
AI-driven models that distill millions of data points to identify distinguishing
characteristics and drivers of repayment. Big data aggregates large amounts of
complex data from various sources to enable financial providers to expand the
scope of inputs and efficiency of their credit analysis. Artificial intelligence and
machine learning use algorithms and computer science to analyze large datasets
and automate complex decision-making. Catalyzing machine learning for credit
scoring has proved to be an effective and efficient practice that a growing number
of financial service providers are adopting. The digital credit assessment models
make the analysis efficient and reliable and contribute to the increasing speed
and reliability of data collection. In addition to the risk assessment, AI enables

advanced models to assess the environmental performance of the businesses or
activities and make multi-dimensional credit decisions.
Case Study 2.1: Pay-as-you-go Model for Renewable Energy Financing

Pay-as-you-go (PAYG) models have been growing in renewably energy
financing, mostly in distributed solar PV financing. Distributed energy service
companies and off-grid energy companies are using these models to help
customers acquire technology that requires high up-front fees, which are still
unaffordable for the broad mass of people in developing countries, despite
the downward trend in the prices of solar PV systems. Companies selling
the systems using PAYG concepts have increasingly appeared in the market.
Under the PAYG model, an energy provider rents or sells solar PV systems
in exchange for regular payments through a mobile payments system. The
system is blocked automatically if the customer fails to pay the pre-agreed
fee and cannot be used until the obligation is met. After the debt is recov-
ered, the technology is unlocked. Payments are made through mobile payment
systems, which are perfectly suited to small loan delivery channels with highly
automated cashless payment processes. Digital payments, agent distribution
network, cloud-based monitoring, and significant leverage over the borrower
are factors that have enabled the growth of this model. Through these technolo-
gies, the management of credit becomes straightforward and efficient for the
distributor companies. These companies are normally non-lending organiza-
tions and would not be able to manage credit if it included operational burden,
which has been eliminated by the technology.
There are various benefits associated with expansion of the PAYG model.
Energy access has improved with adoption of distributed solar PV systems
and the model has enabled access to energy in off-grid areas without large
investments in network expansion. Access to energy is linked to various other
socio-economic benefits. Furthermore, the model and increased number of
providers have attracted increased investment in the off-grid energy sector
from DFIs and the private sector.
Moreover, PAYG providers offer other lending products to the borrowers.
The payment data gathered through PAYG models can be analyzed to assess
the creditworthiness of a specific customer, which can then be used to upgrade
to a larger solar PV system or secure further financing for other activities.
Accordingly, the model contributes to building credit histories and overall
financial inclusion.
Currently there are more than 50 companies in Africa, Asia, and South
America operating under this model. According to IRENA (2020), around 8
million people gained energy access with PAYG models during 2015–2020 and
36 N. Devidze
there is potential to reach another 772 million (or ~ 64%) off-grid consumers
that have access to mobile networks.
• Delivery channels. Digital banking and mobile payment platforms contribute

significantly to low-cost and easy transactions. Although digital payments have
been utilized for decades in traditional banking systems, mobile payments have
been transformative for the lower-income segment of borrowers. It has unlocked
the world of digital transactions to low-income borrowers and MSMEs. Tradi-
tionally, MSME lending was based on physical money flow, which exposed the
service providers to a higher risk of transactions and operating costs. In addition to
the security and lower cost of transactions, digital payments provide reliable data,
which can further contribute to advancements in the financial sector. The need
for digital delivery channels was further exacerbated by the COVID-19 pandemic
and social distancing requirements. The example of successfully leveraged remote
delivery channels is presented in Case Study 2.1, discussing the pay-as-you-go
(PAYG) model.
• Impact assessment. Automated scorecards have been established for the impact
assessment of lending. In addition to the impact assessment of individual
borrowers, digitalization and increased access to the data enable green lending
performance evaluation, which enables FSPs, investors, and policymakers to make
informed decisions. Moreover, this data can become a tool for regulators like
central banks to make evidence-based decisions.
• Awareness Building. Because of data availability and outreach, FSPs are well
positioned to build awareness on climate change mitigation and adaptation
practices. An example of this is provided in Case Study 2.2, which presents
“carbon-conscious banking” as introduced by Meniga, a digital banking solution
provider.
Case Study 2.2: Carbon-Conscious Banking

Meniga is a company providing digital banking solutions globally. Through its
digital financial products, Meniga has introduced carbon-conscious banking.
It has integrated carbon profiling into digital banking to mainstream carbon
awareness. Using private banking data, the application measures personal
carbon footprint and provides suggestions for reduction of the footprint by
offering green financial products and offset schemes. The advantage of inte-
grated digital banking over other carbon calculators is the ready availability
spending data that does not require customer inputs. By deploying advanced
analytics, the application gives deeper insight to customers including trends.
Meniga’s Carbon Index is based on publicly available databases and the

latest environmental science. Meniga works with a number of scientific advi-
sors for guidance on the evolution of the Index and provides a digital journey
for customers that provides an awareness of climate change, insight through
measurement of personal carbon footprint and gives them advice to take action
through green financial products and offsetting. Meniga collaborates with the
UNFCCC to source projects in developing countries that reduce, avoid, or
remove greenhouse gas emissions from the atmosphere. According to the
study conducted by Meniga, banks could help their customers to reduce their
carbon footprints by an average of 20%. The impact can be huge if the banking
population adopted these technologies on a large scale (Meniga 2021).
2.3 Overview of Common Digital Practices Adopted

by Green Finance
While technologies in the financial sector continue to progress, the key digital finance
technologies with the biggest economic development potential and social impact are
AI, cloud computing, big data, online and mobile platforms, and the Internet of things
(IoT).
2.3.1 Big Data, Machine Learning, Artificial Intelligence,

and Cloud Computing
Big data, machine learning, artificial intelligence, and cloud computing contribute
to increasingly automatic decision-making capabilities at low cost. Big data aggre-
gates large amounts of complex data from various internal and external sources,
creating access to vast real-time data. Machine learning and AI use algorithms and
computer science to analyze the datasets, make predictions, automate decisions, and
provide recommendations. These approaches increase the efficiency and quality of
the analysis drastically. Leveraging these technologies makes credit analysis cheaper
and more effective than ever. Besides the traditionally used inputs, technologies
enable the FSPs to integrate sector-specific data into their analysis, whether environ-
mental data, energy, supply, or other factors affecting the lending risk. Case Study
2.3 discusses an example of Nithio, a startup providing advanced credit analytics
tools for renewable energy financing.
38 N. Devidze
Case Study 2.3: AI-Driven Credit Scoring by Nithio

Access to funding has been recognized as a major barrier for the development
of off-grid solar energy in Africa. A Washington DC based startup Nithio
Holdings wants to unlock that access for hundreds of millions of potential
African solar customers by deploying AI for credit scoring.
As many of the leading global asset managers, banks, and corporations
make financial commitments to combat the climate crisis, there is an untapped
opportunity to deploy capital in developing countries where both financial and
social impact can be maximized.
High levels of perceived investor risk driven by limited experience and a lack
of recorded consumer credit data have created a major bottleneck to financing
off-grid energy solutions. Without the ability to accurately assess customer
creditworthiness, it remains difficult for PAYG solar operators to demon-
strate the economic viability of their business and attract development capital.
Without adequate repayment data and basic information on target households,
providing highly accurate credit risk analytics has not been possible. Prop-
erly evaluating credit risk requires granular consumer data coupled with the
financial expertise to not only deeply understand local consumers, but also to
match the right type of capital for each customer. As the industry scales up, it is
essential to adopt a comprehensive solution that unlocks capital and manages
PAYG users’ credit risk.
Nithio’s credit-scoring platform relies on algorithms that have been trained
to estimate default rates based on anonymized data provided by solar system
operators and developers. The system deploys geospatial household data
covering subjects such as monthly expenditure, education and employment
levels, and car or cellphone ownership. The analysis helps investors and PAYG
operators better understand their portfolios’ financial potential and identify
areas for investment or development that best fit their investment risk profile
(Deign 2021).
The goal of the technology is to give developers, lenders, and investors
confidence in funding solar systems. It aims to tap into the African solar
market, which is roughly ten times bigger than the US residential solar sector
today, based on 2019 predictions from Wood Mackenzie Power & Renewables
and the Solar Energy Industries Association. Moreover, it will open major
opportunities for high-impact investments.
2.3.2 Mobile Money for Easy Payments

with or without a Banking Account
The need for cost efficiency in banking, especially in a high-risk environment

for lending to MSMEs, has pushed financial service providers to innovate service
delivery channels. This shift has allowed mobile phones to become the primary
point of contact between bank and client, bypassing physical branches. According
to the Global System for Mobile Communications Association (GSMA), over the
past 5 years, the value of transactions between mobile money platforms and banks
grew fourfold, reaching US $68 billion in 2020, up from just US $15 billion in 2015.
The COVID-19 pandemic has further accelerated the adoption of mobile money. In
2020, the number of mobile money accounts grew by 12.7%, reaching 1.21 billion
accounts globally (GSMA 2021). Mobile money enables digital money providers to
provide cost-efficient financial services to households. One of the most successful
mobile money services, M-Pesa, originating from Kenya, sourced most of its client
base among mobile users who had never opened a bank account before. Despite the
associated risks and challenges, technology-enabled lending to previously untapped
segments has achieved high growth rates.
In June 2020, the value of loans disbursed by responding mobile money providers
was US $423 million. Mobile financial services span the full spectrum of financial
services, from payments and current accounts to savings, loans, investments, and
insurance.
Case Study 2.4: GSMA as an Example of Centralized Effort to Leverage

Technologies to Address the United Nations Sustainable Development
Goals (SDGs)
GSMA is an organization that unites the 750 mobile operators and 400 compa-
nies involved in the broader mobile ecosystem. GSMA plays a crucial role to
leverage mobile technologies to reach SDGs, and it aims to stimulate innova-
tion to deliver sustainable business and socio-economic impact. It provides a
research platform and deploys its market expertise to encourage partnerships
between the mobile industry, tech innovators, governments, and the develop-
ment sector. One of its focus areas is climate tech, which promotes integra-
tion between digital technology, climate mitigation adaptation, and resilience
strategies.
40 N. Devidze
2.3.3 Peer-to-Peer Lending and Crowdfunding Platforms

Supporting Green Digital Financing
Peer-to-peer (P2P) lending platforms have been on the rise over the past two decades.
In 2013, the P2P lending market was valued at US $3.5 billion, which rose to US
$67.9 billion in 2019 and is projected to reach US $559 billion by 2027 (Swaper
2021).
The key objective of P2P lending is to boost the lenders’ returns and reduce the rate
of interest for the borrowers. In addition, it aids in providing quick and convenient
loans, because P2P lending is entirely an online platform. Lesser operating costs and
lower market risk for lenders and borrowers are the major factors driving the global
P2P lending market. In addition, the adoption of digitalization in the lending sector
adds to the transparency over traditional banking systems, which is expected to fuel
the market’s growth.
Green lending platforms allow investors of all scales, from small individual
investors with $10 to spare to major institutional investors, to lend their funds to
creditworthy businesses or individuals looking to fund energy efficiency, low emis-
sions, and renewable energy projects. Several P2P lending platforms worldwide
offer various green financing opportunities and the available financing options can
differ by investment type, investment size, and goal. The type of financing might be
lending or equity, while investment size can start as low as US $10 and might reach
six digits. While some social platforms enable investors to lend purely for social
purposes without return, most of the P2P platforms offer attractive returns to the
investors.
Several examples of P2P green financing are provided below, proving that
transactions can vary significantly by goal, type, and size of financing.
Example 1: A customer was seeking US $200 to acquire solar PV for his household.
The borrower approached a local microfinance institution (MFI) for a loan and was
listed on Kiva.org through the partnership of the local MFI with Kiva. Kiva enables
its partner financial institutions to upload the loan proposals and customer profiles on
its website through its crowdfunding platform where thousands of individual lenders
can crowdfund the loans. After listing for 10 days, the loan was 87% funded by six
individual lenders from different continents.
Example 2: A fuel recycling company was seeking US $150,000 to convert organic

waste into green energy and fertilizer from biogas in Barbados. The debt will mature
in 2 years and offers an attractive 20% annual interest rate. The project managed to
raise ~ US $86,000 on the Raise Green crowdfunding platform within 30 days.
2.3.4 Blockchain Technology Offering Secure

and Transparent Transactions Enables Innovative
Solutions to Green Financing
Distributed ledger technology or blockchain is a shared database of trusted trans-

actions distributed across large P2P networks. The encrypted and distributed nature
of data makes it inherently secure and transparent to store transactions and records.
Blockchain can tokenize capital and incentivize investments and behavior. It also
enables “smart contracts” that allow for pre-agreed conditions to be programmed
and contractual arrangements to be executed automatically once the conditions are
met.
Impact tokens represent a solution enabled by blockchain. Impact tokens represent
a group of tokens that unlock finance for projects with positive social and environ-
mental impacts. The tokens are registered on a blockchain and can be tracked along
a supply chain. They offer proof that a positive impact has been delivered, which can
be attributed to a particular activity or investment (Uzsoki and Guerdat 2019).
Case Study 2.5: Internet of Impact and Example of REDD-Chain

Impact tokens aim to unlock the necessary financing for the SDGs by providing
trust through transparency, low costs, and verifiable data. Blockchain tech-
nology is well equipped to address the long-standing challenge of accurate
impact measurement. Measuring the results is crucial to understanding effi-
ciency and effectiveness of the funding, and creates incentives for more impact
investments.
Accurate proof of impacts enables innovative funding mechanisms, like
results-based funding approaches under which payments are based on
achieving pre-defined verifiable results (Uzsoki and Guerdat 2019).
An example of tokenizing environmental impact is Reducing Emissions
from Deforestation and forest Degradation (REDD)+ , which aims to reduce
emissions from deforestation and forest degradation in developing coun-
tries. By giving forests a financial value through the issuance of carbon
credits, the project aims to incentivize local communities to protect forests.
Currently, REDD + projects face various challenges including resource-
intensive processes of monitoring GHG emissions related to deforestation,
certifying projects, and paying for carbon credits. In addition, these projects
normally face a lack of transparency. The REDD-chain project addresses most
of these challenges by leveraging new technologies like blockchain, IoT and
AI.
Blockchain technology brings the necessary transparency of accounting and
reporting to the program, which enables impact tracing and reduces the risk
of fraud. It enables results-based payments with smart contracts to automate
many of the resource-intensive processes. Observation on the conservation of
42 N. Devidze
forests is done using high-resolution satellite images, providing confirmation

that the conditions of the smart contracts in place have been fulfilled. Mobile
apps create easy access to projects via mobile apps. The token system also
serves as reliable proof of impact for the investors (Uzsoki and Guerdat 2019).
Ultimately, the solution enables the financial sector and the broader group of
investors to join the efforts, while beforehand only large investors could afford
to engage in conservation because of the high costs of coordination efforts.
The innovative solution of REDD-Chain enables small individual investors to
become token holders and participate in the conservation program in a secure
and verifiable manner.
2.4 Challenges Associated with Financing the SDG
The UN estimated that to reach the SDGs, total annual investments in SDG-related
sectors in developing countries need to be in the range of US $3.3–4.5 trillion, which
means that there is an annual financing gap of around US $2.5 trillion (UNCTAD
2014). The growing trend until 2019 was reversed by the COVID-19 pandemic, which
has further increased the financing gap by reducing SDG-relevant green investments
in developing countries by 42%. Cross-border project finance deals directed toward
SDG sectors decreased by 42% relative to 2019, which is similar to the drop in
greenfield investments (UNCTAD 2021).
It is clear that public finance alone cannot meet the demand. Therefore, private
sources of capital must play a significant role in financing the SDGs. Investments must
be mobilized through a wide range of financial instruments, engaging the various
types of private financial institutions, including commercial banks, sovereign wealth
funds, pension funds, insurance companies and development finance institutions, and
smaller investors like foundations.
Sustainable investing has gained considerable traction in the financial industry
during the past decade, and this growth has been partially reinforced by increased
empirical evidence of the strong financial performance of these assets. “Impact invest-
ments” are investments offering a balanced mix of attractive financial returns and
positive social and environmental impact. This section focuses on the challenges
associated with impact investing. Despite the growing trends in impact investments,
significant barriers persist in reaching the desired SDG financing scale. Several
key barriers have been identified by Global Impact Investing Network (GIIN) in
its Annual Impact Investor survey conducted in 2018:
i. The need for appropriate capital. Blended finance is essential to meet the
financing needs of the projects on various scales of risk and return. To meet
the financing needs and help the projects become more attractive for private
investors, participation of various types of capital is required, including risk-

patient capital, concessional, or subordinated capital (GIIN 2018). Public funds
must aim to make projects bankable to attract private funding rather than crowd
out private investment.
ii. The lack of commonly accepted impact measures. Currently, the industry
lacks robust and standardized ways to measure the impact of financing. To
maintain impact performance, transparency, and comparability of the projects,
reliable and commonly accepted impact measurement practices must be in
place.
iii. The lack of identity of impact investing and commonly accepted definition.
There is limited understanding of the nature of impact investment by investors
and how to integrate it into existing portfolio mandates (GIIN 2018).
iv. The lack of bankable projects. This challenge has persisted since the very
inception of impact investments, and relates to the lack of investment opportuni-
ties with a risk profile satisfactory to investors. The demand in financing SDGs
is huge, and projects promising adequate returns and high impact opportunities
are prevalent, especially in developing countries. However, these opportunities
often bear risk that private investors are unwilling to accept. This barrier is
interconnected with the need for appropriate capital mentioned earlier in the
chapter. By blending public capital, public funding can provide a necessary
bridge to improve the risk profiles of projects and make them attractive to
private investors.
v. Highly segmented market. The impact investment market is highly diverse
in terms of financial return mandates, motivation for engaging in the sector,
impact themes, geography, and asset classes, which results in a high level of
segmentation (GIIN 2018).
2.5 Challenges Associated with Green Digital Financing
The generic challenges faced by SDG investments applies to green digital financing
and green financing. This section further identifies the specific challenges faced
by green digital financing. These challenges are slowing down the adoption of
technologies and scaling green financing through digitalization.
The main challenges of green digital financing are weak digital infrastructure
and lack of robustness of the technologies. Other challenges relate to limited under-
standing of sustainable digital finance, silos between stakeholder groups, lack of
international cooperation on cross-border risks and opportunities, and limited value
and use of sustainability data for financial decision-making (Sustainable Digital
Finance Alliance 2018). Specific challenges that were identified are:
i. Lack of integration between stakeholders. Sustainable finance and develop-
ment act separately from digital technology players. Similarly, policymakers
and regulators view sustainable finance and digital technologies as distinct
areas, resulting in separate government plans to promote sustainable finance
44 N. Devidze
on the one hand and digital finance or FinTech on the other. This creates missed
opportunities for digitally enabled co-benefits between financial inclusion and
sustainable finance (Sustainable Digital Finance Alliance 2018).
ii. Lack of understanding of the lending specifics by Financial Technology
(FinTech) companies. In the case of FinTech companies, presence in the
lending markets and the limited experience of credit analysis and assessment
of financing needs can be problematic.
iii. Week digital infrastructure and high technology costs. Financial institu-
tions frequently face the problems of weak digital infrastructure and high
technology costs. Despite the significant progress in digitizing their func-
tions, large financial institutions continue to run their core systems on legacy
IT infrastructure that is expensive to maintain, which impedes institutions’
ability to have a unified view of data across silos. The costs and operational
risks of replacing legacy systems and upgrading to new technology solutions
are high. Some new technologies, like blockchain, do not easily integrate with
other ordinary business platforms.
iv. Limited sustainability-related data availability. Sustainable finance invest-
ment decisions require extensive environmental data, which is currently avail-
able on a limited scale. Even where datasets may be in place and the value is
placed on using data to increase investment in sustainable outcomes, adopting
digital finance to overcome sustainable finance barriers may be slow because
of a lack of standards and methodologies related to translating behavioral
data into environmental performance data. There are also costs of adoption
and limited capabilities to understand and analyze such data (Sustainable
Digital Finance Alliance 2018).
v. Lack of commonly accepted and transparent impact assessment tools.
This challenge is prevalent in most areas of SDG financing. There have
been various efforts to introduce the tools for environmental assessment.
However, the lack of commonly accepted and standardized environmental
impact evaluation tools still persists as one of the major challenges of green
financing.
vi. Nascent business models. Sustainable digital solution providers are often
startups bearing a high risk of failure. The nascent nature of business models
creates uncertainty around the returns for investors and the high risk of
defaults. Therefore, they face difficulties in accessing finance. In many cases,
they are not categorized as green products and cannot meet the mandates of
green funds (Sustainable Digital Finance Alliance 2018).
vii. Standards and regulation. Several of the technologies underlying digital
finance are still nascent. Scaling such technologies in the coming years
will require new standards and regulations. This raises the question of
standard-setting at global, regional, and national levels. Appropriate balance
is required in pursuing regulation to ensure stability and security without
stifling innovation and market initiative.
viii. Regulatory barriers for blockchain technologies. New regulatory princi-
ples may be needed where blockchain technologies become an integral part of
both the financial system and the real economy, and where consensus proto-
cols are run through an international network of nodes. This is a form of
market failure and new policies may be required to promote technological
innovation.
2.5.1 Fintech’s Risks and Unintended Consequences
Despite the obvious associated benefits, adoption of FinTech solutions creates unin-
tended economic, social, and environmental consequences. The rapid growth of
online platforms, social networks, and email providers raises the issue of the use
and protection of customer data. Concerns have been raised around the safety and
reliability of AI, because it has access to a vast amount of data. While policymakers
are responding to the concerns around data protection, constantly developing tech-
nologies leaves some mistrust, which hinders the adoption of technologies in various
legislation and sectors.
Another concern related to digital technologies has been its environmental effect
through production, use, and termination of software and hardware. Hardware
production requires materials that are obtained by mining processes that particularly
harmful to the ecosystem. At the same time, energy consumption by the Internet has
become a major concern. It is estimated that the already huge carbon footprint of
data centers will further grow in future as the demand triples over the coming decade.
While smart devices might offer improvements in energy efficiency, these devices
are expected to increase the demand for energy and data centers. Similarly, despite
the benefits of blockchain discussed in the earlier study, its energy consumption
and carbon footprint are concerning. Countries are responding to the environmental
challenges of digital technologies and more energy-efficient protocols are emerging
(Sustainable Digital Finance Alliance 2018). This intensifies the need for sophisti-
cated tools for impact assessment and calculating the social and environmental foot-
prints of the technologies. Customers, companies, and governments need to have
access to standardized tools to be able to make informed decisions and maximize the
impact while limiting the social and environmental footprints.
2.6 Policy Recommendations to Scale Green Digital

Financing
In the OECD publication entitled “Social Impact Investment: The Impact Imperative
for Sustainable Development,” action areas were mapped to encourage growth and to
assist social impact investments into the mainstream. The framework provides policy
guidance to policymakers and providers of development co-operation, development
financiers, social impact practitioners, and the private sector to help them maximize
the contribution of impact investing to the SDG agenda. The framework indicates
46 N. Devidze
four recommendations for delivering impact imperatives including financing, policy,

innovation, and data management recommendations (OECD 2019).
The framework differentiates between the demand and supply actors of the sector
and above all outlines the importance of the growing involvement from the private
sector. It outlines the government’s role as a market regulator, market participant,
and market facilitator.
We will use the structure of the OECD framework as a base and modify it to
provide customized policy recommendations to promote green digital financing.
First, we map the stakeholders on the demand and supply sides and intermediaries
between them.
Demand-side actors:
• Retail borrowers, households
• MSMEs
• Social enterprises
• FinTech
• Non-profit and profit with purpose organizations, etc.
Intermediaries
• Local banks and financial institutions
• Accelerators, incubators, etc.
Supply-side actors:
• Governments
• Multilateral development banks
• Financial institutions
• Multilateral climate funds
• Other public sector development organizations
• Institutional investors
• Foundations
• Family offices
• High net worth individuals.
Households and MSMEs are the end beneficiaries of retail financial products. At
the same time, social enterprises and FinTechs are the key drivers of innovation and
new financing models. For MSMEs, social enterprises, and FinTechs, returns are
promising; however, lending to these segments bears high risk, which is why investors
turn away from such investments. To match the investments with investors’ expecta-
tions, a diverse pool of investors is needed. Public funders can fill the gap by providing
de-risking instruments like guarantees or currency swaps. Moreover, they can provide
early-stage capital necessary to bring the project to a stage that becomes attractive for
private investors. For nascent financing models to reach bankability from the early
stage, they must have access to various types of capital, including flexible and patient
capital, grants, guarantees, first-loss capital, and long-term concessional lending.
Intermediaries, including local financial institutions, can act as a bridge to deliver
capital to small projects that otherwise would not be able to fundraise from large
international investors. At the same time, along with the accelerators and incubators,
they can deliver the necessary capacity-building services to the beneficiaries.
We have converted analytical dimensions of the OECD political framework to
adjust it to green digital financing. Listed policy instruments need to be deployed
to create an enabling environment for green digital financing, match demand and
supply sides, and strengthen financial and capacity-building intermediaries.
Policy
• National strategies specifically on green digital financing;
• Identification of a formalized function;
• Fiscal incentives: tax and investment relief.
Granting financial access
• Establishment of various types of funds supporting innovation in green financing:
investment readiness fund, outcome fund, venture capital fund;
• Technical assistance, capacity building;
• Establishment of incubators, accelerators, fund of funds;
• Other (grants, debt, equity, mezzanine, guarantees).
Providing and sharing information
• Communication campaign;
• Consultation with external stakeholders;
• Research, studies, data publication.
The involvement of DFIs, the private sector, and other relevant stakeholders is crucial
to promote green digital financing. However, government’s role in acting as an anchor
in these efforts should not be underestimated. Governments have the tools to influence
the industry directly or to call other supply-side actors for greater engagement. The
chapter lists the policy recommendations that governments need to undertake to
develop green digital financing on national and global levels:
i. Create policy and regulatory body for green digital financing. Currently,
there is no unified policy or regulation toward green digital financing. The
policies applied to green financing are unrelated to policies applied to digital
lending. This creates missed opportunities and confusion for green digital
financing. The regulators need to take a customized approach to green digital
financing to create an enabling environment for the industry’s growth.
ii. Encourage investment in green digital technologies. Governments are
equipped with several tools that can effectively encourage investments in
digital technologies advancing green finance.
a. Public funds can be allocated to the projects to lower the risk of
investment from the private sector.
b. Government should encourage creating hackathons, incubators, and
accelerators that focus specifically on crowding in solutions related to
sustainable business models.
48 N. Devidze
c. Government can promote alliances and working groups for information

sharing and dissemination to create transparent and reliable information
sources for investors.
iii. Promote collaboration and knowledge sharing.
a. Strengthening collaboration and knowledge sharing between sustainable
startups.
b. Encourage research, studies, and data publication.
iv. Facilitate the creation of standardized tools and instruments. The method-
ology for translating financial purchase data into environmental data is
currently limited. To support greater adoption of digital finance to scale up
sustainable finance, it would be helpful to improve and standardize accounting
methodologies for translating a wide range of financial transaction data into
environmental performance data.
v. Catalyze innovation and experimentation in addressing SDGs. To develop
and scale green digital financing for SDG financing, an enabling environ-
ment has to be created for innovation and experimentation. The full range of
development actors need to be involved to develop ecosystems for innovation
and experimentation, and governments have to play a central role. While the
private sector plays a key role in innovating and piloting new approaches, the
public sector needs to create an enabling environment by supplying finance
where private investments cannot be attracted, thereby creating a favorable
regulatory environment and promoting knowledge sharing. Effective interna-
tional coordination, including public and private sectors, is needed to develop
ecosystems and find much-needed innovative solutions (OECD 2019).
vi. Foster close interaction between FinTechs, sustainable finance providers,
and regulators. To make sure that the regulation fits appropriately into the
development and life-cycle management of the companies working in green
digital financing, interaction between FinTechs, finance providers, and regu-
lators is required. An example of such enabling policy is a regulatory sandbox,
representing a framework set by the regulator allowing FinTech startups to
conduct experiments under regulatory supervision.
vii. Ensure funding for data infrastructure and facilitate standardized data
sharing. Given that a lack of data has been identified as a major constraint
faced by green digital financing, the supply-side actors, including govern-
ments, need to play a crucial role in securing financial support for transaction
and performance data and related infrastructure. Likewise, coordinated efforts
are necessary to implement the data standards and linkages between existing
data platforms (OECD 2019).
viii. Implement public policies addressing consumer protection and cyberse-
curity risks. While governments try to take the most benefit out of FinTech,
they need to ensure that consumer protection and cybersecurity concerns are
addressed on the policy level. Multiple financial regulatory authorities are
implementing public policies to enable the provision of digital services, such
as data protection regimes, allocating rights and responsibilities for accessing

and sharing consumer data, and cybersecurity strategies facilitating both
public and private institutions’ mitigation of cyber risk and their response,
and recovery from cyber-attacks (Ehrentraud et al. 2020).
2.7 Conclusions
The financial sector is moving fast toward digitization. Various innovative financing
models are emerging in green financing and SDG financing broadly. FinTechs and
innovative startups are developing tools to make green lending and green investments
cheap, easy, transparent, and widely accessible. Even traditional financial institutions
have been attempting to incorporate innovation into their operations. The tools are
not limited to a specific purpose. They aim to digitize a broad range of products and
processes. Despite the visible progress, green digital financing has developed on a
limited scale. Amongst the several major issues hampering the development of the
industry, the main challenge is the fragmented approach to green digital financing and
silos between stakeholders. Furthermore, the lack of reliable data, nascent business
models, and the absence of commonly accepted impact assessment practices have
been major challenges that require collaborative effort to overcome.
To overcome these challenges, an ecosystem of actors needs to be developed,
which will include governments, DFIs, the private sector, and other financial and
development actors. The system needs to be provided with transparent and reliable
data to scale systemically. At this stage, the governments and DFIs need to play
a central role in creating the industry’s ecosystem and an enabling environment to
scale. The active interventions from these entities are crucial to bringing the industry
to maturity when it can function and grow self-sustainably.
Besides the environmental benefit, green digital financing can increase finan-
cial inclusion and benefit the financial sector broadly. By the active collaboration
between stakeholders on a national and global level and directing recourses in the
right direction, the benefits of green digital finance to the world can be substantial.
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Chapter 3
Assessing the Risks Associated
with Green Digital Finance and Policies
for Coping with Them
Peter J. Morgan
Abstract Digital financial technologies, especially the new generation of financial

technology (FinTech) can promote green finance, but also can create new risks and
unintended consequences for the environment and users, which can limit the potential
to scale sustainable finance. This chapter describes risks associated with the environ-
ment, use of crypto assets, use of alternative finance, use of automated investment
advice, and cybercrime. Digital technology can have negative side effects on the envi-
ronment through hardware and software production, use, and disposal. Use of crypto
assets involves risks related to crypto asset exchanges, illicit financial flows, and
possible tax evasion. Alternative finance involves risks related to insufficient inter-
nalization of environmental spillovers, maturity mismatches, unclear definitions of
green finance, information asymmetries, and the insufficient analytical capacities of
banks and other investors. Robo-advisors can steer investors toward opportunities
in green investments, but also can be risky for the uninitiated. Crime-related risks
associated with the use of FinTech include the theft of sensitive consumer and corpo-
rate financial data through hacking, phishing, or other fraudulent means, and theft
of online financial assets. International cooperation will be needed to address these
risks and promote the development of digital green finance that is compatible with
financial stability and consumer protection. Promotion of digital financial literacy is
also vitally important.
Keywords Green digital finance · Cyber risk · Crypto assets · Digital technology
JEL Codes G12 · Q4
P. J. Morgan (B)
Asian Development Bank Institute, Kasumigaseki Bldg, 8F, Kasumigseki 3-2-5,
Chiyoda-ku, Tokyo 100-6008, Japan
https://doi.org/10.1007/978-981-19-2662-4_3
52 P. J. Morgan
3.1 Introduction
“Green finance” refers to financing of investments that promote environmentally

sustainable development. The benefits of such investments include reduced pollu-
tion, lower greenhouse gas (GHG) emissions, higher energy efficiency, and mitigation
of and adaptation to climate change. Green finance covers measures to internalize
environmental externalities and change risk perceptions to promote environmen-
tally friendly investments and discourage harmful ones. Green finance includes a
wide range of financial institutions and asset classes and encompasses public and
private financial institutions. It covers the effective management of environmental
risks throughout the financial system (G20 Green Finance Study Group 2016).
However, a number of factors can limit the capacity of green finance to grow to
the needed scale, including information asymmetries, high costs of searching for
green investment projects, and the obstacles faced by investors to identify and assess
opportunities of green investments and price risks of unsustainable investments (G20
Sustainable Finance Group 2018).
Digital technologies can help address these challenges by upgrading the quality
and timeliness of needed data, and by lowering the cost of obtaining such data. They
can also help to raise the involvement of individuals and firms in shaping financial
decision-making (G20 Sustainable Finance Group 2018).
Digital finance represents the nexus between digitalization and finance. Although
there is no single agreed definition of digital finance, it covers a wide range of
innovative financial products, new financial businesses, finance-related software,
and new forms of communications and interactions for customers (G20 Sustainable
Finance Group 2018). Financial technology (FinTech) represents the latest wave of
digital finance innovation. It is connected with a wide range of new technologies and
digital components including big data, machine learning and artificial intelligence
(ML/AI), online platforms, distributed ledger technology (DLT) and blockchain, and
the Internet of things (IoT).
However, use of digital technologies and FinTech can generate new risks and
unexpected side effects for both the environment and for users, which may limit their
capacity to scale up sustainable finance. There is increasing global recognition of the
opportunities and risks of digital finance to promote sustainable finance, including
by the G20 Sustainable Finance Study Group (G20 Sustainable Finance Group 2018)
and the United Nations (UN Environment 2018). This chapter discusses these risks
and possible ways to contain them to promote inclusive and sustainable investment.
Inadequate digital infrastructure, which may be characterized by high costs and
unreliable broadband connectivity, may also constrain the potential benefits of digital
finance. High technology costs, risks, and limited robustness may also limit the poten-
tial scaleup of projects. Adopting digital finance to overcome barriers to sustainable
finance may be impeded by a lack of standards and methodologies needed to translate
behavioral data into environmental performance data (SDFA 2018). Business models
and markets are new and there is inadequate information regarding their effective-
ness (SDFA 2018). Some digital financial technologies are still at an early stage of
3 Assessing the Risks Associated with Green Digital … 53
development and scaling up these kinds of technologies in the future will necessitate
new standards and regulations.
Digital technology may impose unintended side effects on the environment
through hardware and software production, use, and termination. Electric power
demands of global data centers and DLTs and the environmental impacts arising
from the extraction of raw materials used to produce new technologies can have
significant negative impacts. While the problems related to use of energy and mate-
rials are beginning to be addressed, there is still uncertainty about the robustness and
scalability of these solutions.
Use of crypto assets also involves risks, including regulatory issues related to
crypto asset platforms such as crypto exchanges, illicit financial flows, criminal
activity, and possible tax evasion. Alternative finance such as peer-to-peer (P2P)
lending and equity-related crowdfunding can provide new sources of funds for risky
ventures but entail risks. Platforms need to be regulated, while the lack of recourse of
collateral exposes investors to risks they may not fully comprehend. Robo-advisors
can steer investors toward opportunities in green investments, but can be risky for
the uninitiated (Deloitte 2021).
Criminal exploitation of digital technologies poses risks to protecting sensitive
consumer and corporate financial data. Such risks include hacking and other leak-
ages of financial data. Major data breaches have underscored the need for greater
protection of electronic data and more emphasis on education of consumers.
Many of these risks need to be addressed by international cooperation and the
development of standards. Promotion of digital financial literacy is also necessary
to inform users about FinTech-related digital financial services and products, their
risks, and avenues of recourse in the event that users experience fraud and losses.
This chapter is structured as follows. Section 3.2 describes the range of green
digital finance applications. Section 3.3 describes environmental risks, Sect. 3.4
describes risks related to crypto assets, Sect. 3.5 describes risks related to alter-
native finance, Sect. 3.6 describes risks related to investment advice, Sect. 3.7
describes crime-related risks, and Sect. 3.8 concludes and summarizes policy
recommendations.
3.2 Scope of Green Digital Finance Applications
Digital technology can promote green finance in four main ways: (i) by providing
more accurate, timely, and verifiable information related to the assessment of invest-
ment projects using applications such as big data, ML/AI, DLT, and IoT; (ii)
by lowering costs through automation of processes using these same technolo-
gies, thereby making innovative business models more attractive to customers and
investors; (iii) by encouraging investment by promoting financial inclusion via alter-
native finance; and (iv) by steering investors to green financial products via automated
investment advice and payment systems.
54 P. J. Morgan
Digital financial services (DFS) are defined as financial services that rely on
digital technologies for their delivery and use by consumers (Pazarbasioglu et al.
2020). FinTech broadly refers to the latest wave of innovations in DFS, driven by
developments such as smart mobile phones, AI, ML, and big data. FinTech typi-
cally excludes more traditional digital transactions such as those using credit cards
or Internet banking, although the divide can be somewhat arbitrary. The Financial
Stability Board (FSB) defines FinTech as “technologically enabled financial inno-
vation that could result in new business models, applications, processes, or prod-
ucts with an associated material effect on financial markets and institutions and
the provision of financial services” (FSB 2017). These functions may be viewed as
continuing efforts to reduce financial frictions, such as information asymmetries,
incomplete markets, negative externalities, misaligned incentives, network effects,
and behavioral distortions (FSB 2017).
The FSB classifies FinTech activities into five major categories of financial
services:
• Digital payments, clearing, and settlement: Electronic money (e-money), mobile
phone wallets, digital currencies (including cryptocurrencies, stablecoins (cryp-
tocurrencies for which value is linked to a fiat currency or basket of fiat currencies),
and central bank digital currencies (CBDCs), remittance services, value transfer
networks, and digital exchange platforms.
• Deposits, lending, and capital raising (alternative finance): Crowdfunding, P2P
lending, online balance sheet lending, and invoice and supply chain finance.
• Insurance: Insuretech (use of technology to develop more efficient and targeted
insurance products).
• Investment management: Internet banking, online brokers, robo-advisors
(computerized algorithms offering investment advice), crypto asset trading,
personal financial management, mobile trading, and cryptocurrencies.
• Market support: Portal and data aggregators, ecosystems, data applications, DLT,
security, cloud computing, IoT/mobile technology, AI, and ML (FSB 2017).
Financial institutions are investigating the use of DLT for applications such as cross-
border payments, lending, equity funding, and digital clearing and settlement. The
ability to transfer and record ownership of digital assets and store information in
a secure and unchangeable way is regarded as an advantage of DLT that reduces
information asymmetries. DLT may change the way record keeping, accounting,
payment, settlement, and other key aspects of financial markets are carried out. The
technology may also increase transparency and reduce counterparty risk. A number
of central banks are experimenting with or researching the use of DLT in financial
market infrastructures (FMIs). Benefits could include increased efficiency as a result
of improving transaction speed and improving the resilience of networks by using
distributed data management (IMF 2019). Digital identity verification can improve
information security and reduce transaction costs (FSB 2017). Smart contracts are
also seeing wide potential applications.
One application of payment systems to green finance is green payment systems.
These have two main aspects: (i) combining payments services with donations for
green projects; and (ii) promotion of greening of the payments system itself, such
as using recyclable materials for credit cards. Crowdfunding for green projects is an
essential application of FinTech to green finance, either via P2P lending or equity-
based or donation-based crowdfunding. Robo-advisors can make an important contri-
bution to green finance by steering investors toward green financial products such as
green bonds.
Many DLT finance projects are directed toward renewable energy investments,
including tokenized energy investments, off-grid PVs, smart grids, e-mobility, carbon
accounting, and offsetting (GDFA et al. 2020).
3.3 Environmental Risks
3.3.1 Risks
Digital technologies may have harmful effects on the environment if not well under-
stood and managed, including degradation of ecosystems, high demand for water
and high energy consumption coming from global data centers, and the use of DLT
(G20 Sustainable Finance Group 2018). Extraction of raw materials used to produce
these new technologies can also harm the environment (UNEI 2018).
It is estimated that global data centers have annual carbon emissions at least
as large as those of the air transport sector. Moreover, electric power demand of
data centers is expected to increase threefold in the next 10 years. Although use
of “smart” devices promises to increase energy efficiency of homes, some recent
research suggests that such devices may actually increase demand for data centers
(SDFA 2018).
Blockchain’s carbon footprint is also very large. Mark Carney, former Governor
of the Bank of England, cited estimates of up to 52 TWh for bitcoin mining—twice
the electricity consumption of Scotland (SDFA 2018).
3.3.2 Solutions
While many of the problems related to energy and material use are being addressed,
questions remain about the practicality and scalability of the proposed solutions.
Some G20 member countries have developed “green electronics” procurement
systems and e-waste regulations and management systems as a response to the envi-
ronmental challenges of digital technologies. For example, the European Union has
adopted two directives to deal with e-waste, while in the United Kingdom, where
data centers are taxed, centers were offered an incentive scheme in 2014 that would
reduce or eliminate their carbon taxes if they met certain efficiency targets (SDFA
2018).
56 P. J. Morgan
There have been numerous related proposals, including: improving the availability
of product information and sharing; increasing environmental information provided
to consumers to perceive the environmental impacts across the production chain;
using digital technologies to develop a wide range of instruments that might improve
environmental monitoring; improving the environmental governance and perfor-
mance of the mining and extraction sectors; promoting the circular economy, and
promoting measures to increase the lifetime of information and computer technology
products (Liu et al. 2019).
3.4 Crypto Asset-Related Risks
3.4.1 Risks
According to the Bank for International Settlements (BIS 2018b), a digital currency
is an asset that only exists electronically, and that can be used as money (means
of payment, store of value, unit of account). Digital currencies in some cases use
DLT systems to register and verify transactions made using them. Digital curren-
cies include those issued privately as well as digital versions of national currencies.
Digital currencies that use cryptographic techniques to verify transactions are called
“cryptocurrencies” or “crypto assets.” These terms are used interchangeably by inter-
national organizations such as BIS and FSB. Cryptocurrencies such as Bitcoin have
great price volatility, which greatly limits their attractiveness as means of exchange,
but stablecoins such as Tether and the Diem project, for which values are linked to
those of national currencies, may overcome the issue of price volatility and poten-
tially pose greater competition to fiat currencies, although scalability may still be an
issue.
If innovative payment and settlement services based on cryptocurrencies develop
into systemically important FMIs, losses suffered by them could impair the supply of
important services and become an obstacle to recovery or orderly resolution. In some
cases, these important services are provided by a parent company in other business
lines, such as so-called bigtech companies, whose other priorities might conflict with
those implied by the offering of financial services, and could lie outside the normal
financial regulatory scope (FSB 2017). Bigtech firms are large globally active firms
with a relative advantage in digital technology, such as Apple, Facebook, Google,
Ant Financial, and Tencent. Network effects and economies of scale and scope might
lead to higher market concentration and the emergence of non-financial players as
systemically important firms, which could degrade the resilience of the financial
system and its ability to recover from shocks.
Because of their relatively small size, traditional cryptocurrencies are not consid-
ered to pose a systemic risk at this time. Moreover, given the low probability of
a private cryptocurrency such as Bitcoin ever accounting for a significant share of
transactions, it seems unlikely that a private cryptocurrency would ever become
systemically important. However, this situation could change if one or more of them
achieves widespread adoption (FSB 2017). These risks are discussed below.
Operational risk is probably the main microfinancial risk connected with cryp-
tocurrencies, especially ones that are decentralized, do not have a formal governance
structure, and allow essentially anyone to participate in the system. Enforcing oper-
ational requirements to ensure the efficiency and stability of a cryptocurrency that
lacks a governance structure and allows anyone to participate would undoubtedly
be challenging (FSB 2017). For example, private cryptocurrencies work only if the
incentives included in their design support transactions in an environment where
there is a lack of trust among participants. These kinds of incentive structures have
performed acceptably so far, but only at relatively small scales, and their scalability
is not yet proven. There is still a risk that a private cryptocurrency system could be
introduced that has an unstable or faulty design (FSB 2017).
Individual users of cryptocurrencies face risks such as critical third-party service
providers of the cryptocurrency infrastructure such as exchange platforms becoming
insolvent, being hacked, or engaging in fraudulent activity. Bitcoin exchanges have
already failed numerous times to sufficiently safeguard the Bitcoins held by users,
leading to large-scale losses.
At the level of macroprudential risk, sufficiently wide use of cryptocurrencies
could potentially reduce the demand for cash and related payment infrastructures.
This could damage the ability of these payment infrastructures to provide efficient
and reliable services. Regulation and supervision of a cryptocurrency would inher-
ently be more difficult in view of its borderless nature. Cryptocurrencies and digital
wallets could take the place of legacy bank-based payment systems, while payment
aggregators could become the main channel for getting access to banks and obtaining
bank accounts and loans, thereby becoming systemically important. Market concen-
tration may also develop in other areas, such as the collection and processing of
customer data (FSB 2017).
Widespread use of cryptocurrencies might also diminish the ability of the central
bank to control monetary policy and the economy and reduce the effectiveness of its
lender-of-last-resort role. Given that monetary policy actions also support financial
stability, this could negatively affect financial stability as well. This issue is discussed
further in Sect. 3.7.
If the transaction volume of a global stablecoin increases dramatically, it is not
clear that the issuer would be able to continue to supply it without disruptions to
payments and substantial volatility in the value of the stablecoin. In an economy
with an unstable, unreliable government, the availability of a global stablecoin might
increase the risk of capital flight. Therefore, a shift in holdings from a domestic fiat
currency to a stablecoin may not only reduce the effectiveness of monetary policy
but may also lead to significant depreciation of some currencies (Shirai 2019).
The leaders of the G20 sees a need for continued monitoring of the development
of cryptocurrencies. They noted that “…[W]hile crypto assets do not pose a threat to
global financial stability at this point, we are closely monitoring developments and
remain vigilant to existing and emerging risks” (G20 2019). The G20 leaders also
expressed concerns about stablecoins in their November 2020 communique. They
58 P. J. Morgan
stated that “…[n]o so-called ‘global stablecoins’ should commence operation until
all relevant legal, regulatory, and oversight requirements are adequately addressed
through appropriate design and by adhering to applicable standards” (G20 2020).
DLT solutions entail a number of new risks. In clearing and settlement of trans-
actions, settlement finality is a legally well-defined moment, normally supported
by a legal, regulatory, or contractual framework established for a particular type of
financial transaction. However, in a DLT solution based on majority votes, multiple
parties have permission to update a common ledger. These parties need to agree on
the particular state of the ledger through a consensus process. Therefore, settlement
finality in this environment may only be probabilistic (FSB 2017).
A key issue for new technological approaches like DLT is whether they can be
implemented and work securely under a diverse range of difficult conditions. A
DLT solution is potentially vulnerable to cyber-attacks directed at either its soft-
ware or hardware components. Therefore, it could face an increased risk of cyber-
attacks directed at its network of participants while they are verifying transactions
and updating the distributed ledger.
The strength of its cryptography is another operational challenge for DLT solu-
tions. If the system’s encryption methodology is discovered, the DLT solution may
be at risk. Risks and threats are always changing. The operators of DLT solutions
must make sure that the processes and controls they use are continually assessed,
improved, and adapted. Maintaining security may be especially difficult in an open
and permissionless system.
There are also concerns about whether a payment system operating using DLTs
can work smoothly and efficiently. Morris and Shin (2018) developed a model
where banks using DLT-based payment systems have the option to delay payment.
Depending on the parameters of the system, they find that banks would have an
incentive to delay payments, which could lead to a “stalemate” of the system. Only a
central bank would be able to break this stalemate, thereby undermining the argument
for a decentralized system. BIS (2018a) also raises numerous questions about the
feasibility of DLT-based payment systems, including scalability, a potential deficit
of trust caused by the fragility of the consensus approach to transaction verification,
congestion issues leading to volatility of fees, and volatile prices.
Potential gridlocks or deadlocks of the payment system may also pose major
systemic risks. Such a situation could occur if participants lack sufficient liquidity to
settle transactions, leading to settlement queues. This situation is normally addressed
in existing real time gross settlement systems by mechanisms to conserve liquidity
and manage queues. In DLT systems, conversely, this tends to result in rapid increases
of transaction fees.
The implications of DLT for wholesale and retail payment systems need to be
carefully studied. DLT solutions are still at an early stage as a financial service
instrument, and further major work needs to be done before their effectiveness can
be sufficiently evaluated.
The tendency for transaction costs to rise rapidly as the number of transactions
increases in Bitcoin-like networks will tend to limit adoption. Also, the lack of
standards to allow interoperability between different DLT systems would restrict the
diffusion of new technologies. Transaction capacity for blockchains is very small

(10 transactions per second compared with Visa’s 40,000 transactions per second)
and networks operate separately, because they use different methodologies to reach
a consensus (SDFA 2018).
3.4.2 Solutions
A key obstacle to developing a regulatory approach for cryptocurrencies is the lack of

a common categorization of them by regulators. Regulators’ definitions of cyptocur-
rencies usually share the following elements: (i) the nature of the asset—whether it is
a digital or electronic representation of value; (ii) the properties of the asset—whether
it can be transferred, stored, and transacted electronically; and (iii) the function of the
asset—whether it can be used as a means of payment or exchange, store of value, or
unit of account. Usually, regulators use the underlying economic function as the main
criterion to classify cryptocurrencies and decide whether they belong within the regu-
latory perimeter and, if so, which regulations apply. The underlying asset criterion
is also used to determine regulatory requirements for stablecoins. To take account of
the risks of criminal and terrorist misuse of cryptocurrencies, countries are revising
their regulatory frameworks to incorporate international anti-money laundering and
counter-terrorism financing (AML/CTF) guidance (Ehrentraud et al. 2020).
The FSB has distributed a framework, developed jointly with the BIS Committee
on Payments and Market Infrastructures, for tracking the risks that crypto assets may
have for financial stability. The International Organization of Securities Commis-
sions (IOSCO) also provides guidelines for regulatory issues related to crypto asset
exchanges (UNEI 2018).
The International Organization for Standardization (ISO) has set up the Tech-
nical Committee 68 on Financial Services (TC68) and the Technical Committee 307
(TC307) on Blockchain and Distributed Ledger Technologies. The ISO Standards
Advisory Group (SAG) finds that the FinTech industry is not normally limited to a
single jurisdiction and hence can be regarded as a global or trans-national industry.
Therefore, standards to promote competition, manage risk, and encourage interop-
erability should be addressed from a global point of view. The existence of industry-
wide standards and network interoperability is a necessary condition for being able
to scale green digital finance applications. Institutions such as the IMF, the BIS, the
European Banking Authority (EBA), and the new ISO FinTech Technical Advisory
Group (TAG) recognize the need for a cross-border and global perspective (UNEI
2018).
Digital financial literacy also needs to be promoted so that consumers can navigate
the potential risks in this area. In 2016, G20 leaders emphasized the importance of
digital financial literacy and approved the High-Level Principles for Digital Financial
Inclusion, which include Principle 6 on “Strengthen Digital and Financial Literacy
and Awareness” (GPFI 2016). However, national financial education strategies typi-
cally focus on the teaching of basic financial knowledge rather than dealing with
60 P. J. Morgan
digital financial literacy. In addition, the G20 has not yet provided guidance for
digital financial literacy or digital financial education. This is an area that requires
urgent attention.
3.5 Alternative Finance Risks
3.5.1 Risks
FinTech developments may accelerate recent finance industry trends that tend to
shift credit intermediation away from commercial banks to non-banks, a diverse
and growing sector. P2P lending is a major example of this. Increased competition
from FinTech lenders such as P2P lending platforms could reduce the profitability of
traditional banks. As banks respond to competitive pressures by outsourcing certain
activities to reduce costs, this “unbundling” of bank business lines could shrink their
revenue bases. This in turn could make them more subject to losses and reduce their
cushion of retained earnings as a source of internal capital.
The P2P lending business model carries inherent risks for financial stability
(Nemoto et al. 2019). There are problematic incentives for platforms to set up loans
without bearing some of the risk of those loans. For example, P2P platforms usually
receive revenue as a function of the loan volume generated, which could incentivize
them to maximize loan provision by not maintaining normal credit standards. In
several countries, including the People’s Republic of China (PRC), P2P platforms
have indulged in fraudulent behavior and Ponzi-like schemes. In response, Chinese
regulators have largely shut down the sector. Pan et al. (2020) also point to possible
risks to supply chain financing from the use of Internet credit.
Funding for these platforms mainly comes from individual investors who are not
protected by deposit insurance, unlike bank deposits, which are insured in many
countries. If lending platforms use their own balance sheet to intermediate funds,
this could lead to maturity mismatches. On the other hand, P2P lending platforms
are not seen as performing maturity transformation, so liquidity mismatch does not
seem to be an issue. Leverage is not generally perceived as an issue either, although
this could arise if P2P or crowdfunding platforms leverage their own balance sheets
to fund lending activities (FSB 2017).
Lending platforms are also subject to macrofinancial risks. For example, large
and unexpected losses suffered by a single FinTech lending platform could lead to
expectations of losses across the sector, possibly triggering contagion risks. Also,
volatile interactions between lenders and borrowers on FinTech lending platforms
could occur if, for example, a sharp and unexpected rise in non-performing loans
leads to a sharp cut in the availability of new funds. Having a large share of retail
investors could raise this risk further (FSB 2017).
Based on the current size of the sector, FinTech firms are not considered to be large
enough to be systemically important. Using a study of 75 FinTech firms quoted on
the Nasdaq and Frankfurt Stock Exchange, Franco et al. (2020) estimate that, in the
US financial system, FinTech firms raise systemic risk by only around 0.03%, while,
in Europe they contribute close to 0%. Taking into account this and other studies,
the Committee on the Global Financial System and the FSB (CGFS and FSB 2017)
concluded that, so far, FinTech-related credit is small enough not to pose a significant
systemic risk. Nonetheless, this conclusion could change if FinTech services grow
further.
A rising share of FinTech credit could tend to lower lending standards and lead to a
more volatile supply of credit. If FinTech platforms grow to the extent that particular
sectors of the real economy rely heavily on credit from them, then any difficulties
experienced by those platforms could lead to a reduction in credit supply.
If FinTech enables borrowers to obtain credit very easily, they could face risks
of taking on excessive debt or very high interest rates. Such risks could lead to
unforeseen and large losses if DFS providers are regulated only weakly or not at all.
Excessive borrowing may also damage their credit scores.
Finally, differentials in Internet access and financial literacy could lead to use
of FinTech actually widening income and wealth gaps (Morgan et al. 2019). For
example, Ji et al. (2021) find that only increasing the breadth of financial access
coverage could significantly lower the income gap between urban and rural house-
holds, while they did not find the effects of depth of use of digitalization to be
significant. In addition, Wang et al. (2020) find that use of FinTech has tended to
widen differences of financial efficiency between more developed and less developed
provinces in China.
3.5.2 Solutions
Financial risks can be addressed mainly by regulating alternative finance platforms.

Basic principles of such regulation would include forbidding such platforms from
providing guarantees to investors, forbidding them to use their own capital for invest-
ment activities, and requiring them to register and report regularly to regulatory
authorities. Nemoto et al. (2019) proposed eight principles for P2P lending regulatory
frameworks:
(1) P2P lending should provide a safe and effective investment channel for a broad
segment of society.
(2) P2P lending should allow borrowers access to affordable and reliable capital
on fair terms.
(3) Lending should differentiate among borrowers based on risk of default.
(4) Platforms should provide investors with an accurate understanding of credit
risks, and investors should hold at least some of the risk to prevent moral
hazard.
(5) Unviable lending platforms should be able to exit the market without causing
losses to investors or funding shortfalls for borrowers.
62 P. J. Morgan
(6) Lending should be robust enough during downturns in the economic cycle
to prevent sudden stops in lending, excessive default rates, and problematic
failures of lending platforms.
(7) A competitive market between P2P platforms should be maintained to promote
consumer choice; prevent rent seeking, monopolistic, or oligopolistic prac-
tices; and avoid the systemic risk of overreliance on one or a small number of
platforms.
(8) The sector should be socially useful and serve the real economy.
In addition, there should be principles limiting the risk of balance-sheet lending.
Finally, this is also an important area to develop financial literacy so that investors
may avoid losses and borrowers may avoid excessively high debt or borrowing costs.
3.6 Risks Related to Automated Investment Advice
3.6.1 Risks
Automated investment advice, such as that provided by so-called robo-advisors,

is a rapidly growing area. Robo-advisors are investment platforms that optimize
portfolio recommendations for individual investors based on computer algorithms.
They have low costs and minimal human involvement. In general, robo-advisors use
modern portfolio theory to create an optimal diversified portfolio made up of several
asset classes. They also follow the view that indexing is the preferred strategy for
most investors. However, use of index funds implies that every stock in a given
index be held at its designated weight in that index. In the case of general stock
indices, investors will hold shares in companies that do not necessarily meet criteria
for socially responsible investment (SRI) or environmental, social, and governance
(ESG) (Investopedia 2021).
To get around this problem, many robo-advisors recommend exchange-traded
funds (ETFs) that specialize in SRI and ESG investments and otherwise optimize
these portfolios following the rules of modern portfolio theory. A robo-advisor can
reduce the costs and improve the risk performance of SRI and ESG investing for
many investors. This is because robo-advisors tend to seek out low-cost ETFs while
maintaining a proper diversification against risk. Robo-advisors can also carry out
portfolio rebalancing automatically and implement tax-loss harvesting to reduce tax
liabilities of investors (Investopedia 2021).
However, investors need to have adequate financial knowledge and skills to inter-
pret the recommendations of advisors, human or robotic. Deloitte (2021) pointed out
a number of risks associated with using robo-advisors:
• Regulatory risks: The robo-adviser environment must incorporate relevant
controls and verification procedures to meet the investment adviser’s fiduciary
responsibility. Regulators may find it difficult to determine how to evaluate a

software platform when humans still have the ultimate fiduciary responsibilities.
• Business risks: If a robo-adviser platform cannot identify a client’s risk preference
as well as a human financial adviser, this may lead to inappropriate recommen-
dations or conflicts of interest based on fees. Online questionnaires may not take
behavioral biases into account adequately.
• Operational risks: Investment firms should set up sufficient controls for their
automated adviser services to minimize risks related to customer classification,
business continuity planning, and IT governance. They need to guard against
alteration of the robo-advisor algorithm or other tampering that might lead to
inappropriate investment advice or lead the program to recommend steps not
consistent with a client’s best interests.
• Technology risks: The firm’s IT management environment needs sufficient levels
of integrity, security, resiliency, and capacity to play a key role in the allocation of
clients’ assets. It is also necessary to recognize and manage risks stemming from
third-party providers.
3.6.2 Solutions
Regulation of robo-advisors should be similar to that for other investment advi-

sors, with stronger protections of small-scale retail investors. Promotion of financial
literacy is also important to foster healthy investment behavior, including appreci-
ation of the benefits of asset diversification and the risks of speculative investment
activity.
3.7 Crime-Related Risks
3.7.1 Risks
Use of digital technologies can engender crime-related activities like hacking and
fraud because of difficulties in safeguarding personal and financial data of consumers
and firms. Data leakages have led to growing demands for increased digital and
data protection and more consumer education (UNEI 2018). Cyber-attacks are an
increasing threat to the entire financial system, and the greater use of FinTech could
add to this risk. The BIS cites cyber risk as perhaps the biggest FinTech-related
threat to financial stability, at least in the short term. The vulnerability of the finan-
cial system to cyber-attacks is likely to increase as systems of different institutions
become increasingly connected if one of them proves to be a weak link (FSB 2017).
Hua and Huang (2020) have also pointed out numerous risks related to regulatory
uncertainties, illegal transactions, and data abuse.
64 P. J. Morgan
Individuals and firms need to be aware of the increased risks arising from the
use of DFS, which are more varied and often more difficult to recognize than those
connected with traditional financial products and services. DFS users need to under-
stand the risks related to online fraud and cyber security. DFS users face a variety of
risks, including:
• Phishing: When a criminal uses emails or social networks to pretend to be a finan-
cial institution with the purpose of getting the user to reveal private information
such as login details.
• Pharming: When a virus redirects the user to a fake page, causing the user to
reveal personal data.
• Spyware: When malware downloads itself onto the user’s PC or mobile phone
and sends personal data.
• SIM card swap: When someone pretends to be the user and obtains the user’s SIM
card, thereby allowing the theft of private data (Morgan et al. 2019).
DFS users also need to recognize that their digital footprint, such as data that
they provide to Internet platforms, might expose them to risks, even if they do not
necessarily cause a loss, including:
• Profiling: Users may not be able to use certain services as a result of analysis of
their online information and activities.
• Hacking: Thieves may steal personal information from their online activities, such
as participation in social networks (Morgan et al. 2019).
Even though it may not be criminal activity, the rapid growth of online platforms
raises issues about the use and protection of consumer data, as well as risks of
some minorities potentially being excluded (G20 Sustainable Finance Group 2018).
Algorithms used by machine learning and artificial intelligence could also lead to
unintended bias against minority groups or women.
3.7.2 Solutions
Operational risks such as cyber risks may be addressed by appropriate supervision,

although this probably will require developing new capacities on the part of regu-
lators. International cooperation is also important. For example, cyber risks have
been identified as an area that “… would even benefit from a coordinated regional
approach” (WBG and ASEAN 2019).
In line with heightened regulation of the banking sector since the global financial
crisis, financial regulators and central banks have paid increasing attention to a new
kind of FinTech: “regulatory technology” or RegTech. This term describes IT inno-
vations that help financial services firms to comply with regulations. This includes
automating and digitizing AML rules that help identify income obtained through
illegal means and Know Your Customer (KYC) processes that identify and validate
users of financial services to guard against fraud (UNEI 2018).
Morgan et al. (2019) argue that countries should include digital financial literacy in
their national strategies for financial literacy to promote a comprehensive approach to
financial education. Morgan et al. (2020) also suggest that FinTech and bigtech firms
should be required to provide online digital financial education to their customers,
especially to disadvantaged groups. Given that FinTech and bigtech firms have large
networks, advanced analytical tools, and extensive user databases, these firms could
easily provide digital financial education to a large audience in a targeted way. More-
over, they argue that online training alone may not be adequate, because disadvan-
taged groups are often undereducated. They suggest that in-person training be carried
out by non-governmental organizations and financial institutions in local neighbor-
hoods to increase the impact of such programs. The combination of online and offline
education models should have great potential to diminish various digital gaps.
3.8 Conclusions and Policy Recommendations
Digital financial technologies, especially the new generation of financial technology

(FinTech), have great potential to facilitate green finance. However, they can create
new risks and unintended consequences, both for the environment as well as for users,
which can hinder their potential to scale up green finance. Various policies need to be
adopted to support the positive and innovative aspects of FinTech while controlling
the risks related to environmental damage, losses to consumers caused by fraud or
insufficient knowledge, protection of consumer data, and criminal uses. International
cooperation can make important contributions to these efforts. Nations also need to
incorporate digital financial literacy into their financial literacy strategies.
Digital technology can have unintended side effects on the environment through
hardware and software production, use, and termination. The energy demands of
global data centers and DLTs, together with the environmental impacts related to the
extraction of raw materials used to produce these new technologies, are of particular
concern. Although the problems related to consumption of energy and materials are
starting to be dealt with, the practicality and scalability of these solutions are still in
question.
Some digital financial technologies are still at an early stage of development, and
new standards and regulations will be needed to support the expanded use of such
technologies in the future. Use of crypto assets creates risks, such as regulatory issues
around crypto asset platforms like crypto exchanges. Cryptocurrencies also involve
risks, such as illicit financial flows and possible tax evasion. Coordinated standards
and regulations will need to be developed to guide growth in these areas.
Alternative finance is a promising way to expand green finance, but it faces
a number of barriers that limit its potential to mobilize green finance. These
barriers include insufficient internalization of environmental externalities, matu-
rity mismatches, unclear definitions of green finance, information asymmetries,
and insufficient analytical capacities of financial institutions and other investors to
understand the opportunities and risks in green investments.
66 P. J. Morgan
Use of digital technologies can involve crime-related risks through the vulner-
ability of sensitive consumer and corporate financial data to unauthorized leakage
and use. Crime-related risks associated with the use of digital technologies include
the threat of hacking and various kinds of fraud that may lead to unwitting leakage
of consumer and corporate financial data. Even though some activities may not be
crimes in a technical sense, individuals may also face risks related to profiling and
unauthorized use of their digital footprints.
International cooperation will be needed to address these risks and promote the
development of green digital finance compatible with financial stability and consumer
protection. It is important to continue the momentum created by the G20 Sustain-
able Finance Study Group on the topic of sustainable digital finance. Dedicated task
forces among cross-border forums and within particular international networks (e.g.,
networks of regulators) are positive factors to approach international challenges,
risks, and opportunities in this area. This kind of collaboration can create opportu-
nities for cross-border sharing of experiences and knowledge of sustainable digital
finance pilots. These measures could contribute to scaling up small-scale initiatives
(SDFA 2018).
Supportive financial supervisory authorities, tax incentives, regulatory sandboxes,
and official programs designed to promote competition and innovation are all policy
support measures aimed at developing a green FinTech ecosystem. Financial market
regulatory agencies should appropriately develop their approaches to capital require-
ments, consumer protection, and cybercrime issues to support experimentation with
alternative sustainable business models. Such programs could include liberalizing
financial markets to new models and entrants. This could help to attract foreign
FinTech firms, and to aid FinTech firms to develop within supportive ecosystems.
Support can also include simplified procedures to establish new investment funds
dedicated to sustainable digital finance (UNEI 2018).
International standards, guidelines, and information platforms for green and
sustainable digital finance should be developed. These should include criteria for
defining green digital finance solutions, assessment tools for measuring impacts, and
ways to increase the transparency of markets. At the regional level in Asia, it has
been argued that “…the ASEAN region’s broad digitization strategies and cooper-
ation agreements should complement and be coordinated with [national financial
inclusion strategies] and other strategies specific to the financial sector” (WBG and
ASEAN 2019). The ASEAN Bankers Association and the ASEAN Financial Inno-
vation Network are promising forums to advance public–private cooperation in these
areas.
Promotion of digital financial literacy is also vitally important to ensure that
individuals participating in green digital finance, either as fundraisers or investors,
make appropriate use of the financial tools available and avoid losses through fraud,
mistaken transactions, identity theft, or excessive borrowing.
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Chapter 4
Role of Governments in Enhancing Green
Digital Finance for Meeting the SDGs
Yener Coskun and Ibrahim Unalmis
Abstract The recent improvements in digital finance seem impressive in many

respects. However, emerging sustainable finance literature reveals that improvements
in digital finance have limited positive impacts on the green finance agenda. This
disconnection raises concerns about its benefits from a sustainability perspective and
brings into consideration the role of policymaking to improve the green digital finance
framework. This chapter investigates the role of government policies to develop a
more effective green digital finance framework based on the Paris Climate Agree-
ment goals and the sustainable development goals. Utilizing a literature review and
selected case studies, we suggest that government policy actions are critical for
successful implementation at national and global levels. We argue that digital finance
initiatives can be channeled into green digital finance in a well-designed ecosystem.
Specifically, governments can support green digital finance by implementing sound
regulatory policies as well as establishing incentives through green data initiatives,
lower taxes, and technological infrastructure investments.
Keywords Green digital finance · Green FinTech · Sustainable Development

Goals · Regulation
4.1 Introduction
The literature reveals that financial innovation positively impacts economic growth
(FSB 2017). As an example of technological improvement in financial services,
digital finance (DF) or financial technology (FinTech) applications (Puschmann and
Leifer 2020) may increase household consumption, foster economic growth, and
support financial stability. The main transmission channels are lowering transaction
Y. Coskun (B)
Capital Market Board of Turkey and TED University, Ankara, Turkey
I. Unalmis
TED University, Ankara, Turkey
https://doi.org/10.1007/978-981-19-2662-4_4
70 Y. Coskun and I. Unalmis
costs and increasing financial inclusion, among other benefits (Gomber et al. 2017;
Ozili 2018). Interestingly, as Dias (2017) indicated, the digitalization of financial
services has been relatively gradual in developed countries, while the speed of change
in developing countries has been much faster. Technological innovations in finance
may also contribute to sustainable growth goals defined in the Paris Climate Agree-
ment Goals (PCAGs) and the Sustainable Development Goals (SDGs). However,
evolving literature also reveals that the positive impacts of digital technologies on
sustainable finance seem limited. Hence, representing a more focused initiative to
contribute PCAGs/SDGs, green digital finance (GDF) would be a more reliable
alternative to achieve sustainability goals on the global scale.
In this chapter, we focus on the role of governments in developing a regulatory
framework for GDF development. Specifically, this chapter addresses three comple-
mentary sets of questions. First, it concerns the existing problems of GDF. Specifi-
cally, some GDF instruments are utilizing highly sophisticated or complex products
that may be difficult to understand, use, or regulate. This means that the potential
benefits of these “green” applications may decline because of a lack of sufficient
understanding of average financial services and regulatory/supervisory frameworks.
In this respect, this chapter also asks whether the high level of sophistication in
GDF products is inherently bad news for financial inclusion, market transparency,
and firm-system-wide risk management? Do policies on better disclosure framework
and financial literacy help to solve this asymmetry?
The second set of questions concerns the possible role of the official discipline
framework to improve the effectiveness of GDF applications. In this respect, we ask
whether economically optimal application of GDF needs a supportive role from regu-
lation, as the main component of the official discipline. Will this initiative result in
optimal or sub-optimal results considering the limits of regulation and highly complex
nature of GDF? While the former result may help to create a more competitive GDF
framework with well-designed customer protection, the latter outcome may translate
as new obstacles for further development in GDF such as increasing compliance costs
or declining market entry/competitiveness/risk appetite in the industry (EU 2019).
The third set of questions is related to how governments can support, if any, GDF
investments as well as GDF research and development activities? Should govern-
ments support GDF investments through tax incentives? Some GDF applications
require costly and large-scale data collection. Should governments be a part of the
data generation process? What kind of infrastructure projects should be undertaken
by the government for facilitating a FinTech ecosystem?
This chapter contributes to the GDF literature in two respects. First, we refine
the concept of GDF by also reviewing related concepts such as digital finance, green
finance, corporate social responsibility, and multi-capital-shared value. Second, to the
best of our knowledge, this chapter is the most comprehensive and focused study on
the possible roles of governments in promoting GDF. We argue that considering the
lack of time to meet PCAGs and SDGs and the less effective role of digital finance for
greening, government GDF policies may play a vital role to reach sustainability goals.
The remainder of the chapter is organized as follows. The next section documents
challenges in digital finance-FinTech and the potential of GDF. The following section
4 Role of Governments in Enhancing Green … 71
explains industry responses to GDF implementation. By also reviewing selected

case studies, Sect. 4.4 analyzes priorities in policy responses to existing problems of
GDF. In this discussion, we also attempt to design some elements of an ideal policy
framework to address existing problems and the best adaptation of GDF. Section 4.5
concludes the chapter.
4.2 Challenges in Digital Finance-FinTech and Potential

of Green Digital Finance
4.2.1 The Benefits of Finance Technology
Empirical studies in the finance-growth nexus generally suggest a positive link

between finance (size/liquidity/depth/risk level of the financial sector) and economic
growth. Therefore, the more developed financial system generally translates as
higher economic growth. As the possible source of financial development, the
economic/financial benefits of DF applications are a rather new research area in
the empirical literature. This revolution is changing the financial services industry
through innovative solutions, often developed by FinTech startups and big tech
companies (Puschmann and Leifer 2020).
Although there is no common understanding of the leading DF technologies,
UNEP (2017) suggests that key technologies underlying DF include: big data,
machine learning (ML), artificial intelligence (AI), mobile technology, advances
in web-based financing applications, distributed ledger technologies (DLTs) or
blockchain, and Internet of things (IoT). In this respect, DF involves new finan-
cial products, financial businesses, finance software, and communications delivered
by FinTech companies (FinTechs) (Gomber et al. 2017). Dias (2017) broadly defines
underlying technologies of FinTech as application program interface (API), AI,
ML, IoT, big data analytics, DLTs that also involve blockchain, smart contracts,
cloud computing, cryptography, and biometrics. From a sustainable development
perspective, Castilla-Rubio et al. (2016) suggest that ML, AI, IoT, and blockchain
technologies represent the major drivers for “FinTech for sustainable development.”
Industry sources generally suggest that DF applications may result in greater
financial inclusion, help to minimize informational asymmetries, and hence support
economic growth in emerging/advanced markets. For example, McKinsey Global
Institute (2016) indicates that DF may increase access to finance for 1.6 billion people
and contribute to GDP of all developing countries by US $3.7 trillion by 2025. UNEI
(2018) suggests that utilizing DF AI could lift global GDP by US $15–20 trillion
by 2030. Therefore, popular/scientific expectations imply that DF applications may
positively contribute to the marketplace and further support economic growth. This
perceived “magic touch” is also recognized by global standard-setters. For example,
in the Principles for DF Inclusion report, G20 (2016) suggests a number of principles
to support DF (see Box 4.1).
Box 4.1: G20 Principles for the Development of DF

G20 (2016) suggests that the following principles may enhance the benefits of DF:
PRINCIPLE 1: Promote a digital approach to financial inclusion.
PRINCIPLE 2: Balance innovation and risk to achieve digital financial inclusion.
PRINCIPLE 3: Provide legal and regulatory framework for digital financial inclusion.
PRINCIPLE 4: Expand the digital financial services infrastructure ecosystem.
PRINCIPLE 5: Establish responsible digital financial practices to protect consumers.
PRINCIPLE 6: Strengthen digital and financial literacy and awareness.
PRINCIPLE 7: Facilitate customer identification for digital financial services.
PRINCIPLE 8: Track digital financial inclusion progress.
4.2.2 The Challenges in Digital Finance-FinTech to Unlock

Green Finance
DF involves low use of cash and traditional financial services but using digital infras-
tructure. These new financial technologies have been adopted in various financial
services and have made significant changes in banking (FSB 2017), securities, and
insurance sectors in advanced/emerging countries. For example, the Green Digital
Finance Foundation (2020) suggests that 64% of digitally active consumers use
FinTech services in Germany. However, the frontrunners are China and India with
an 87% adoption rate of FinTech services.
Sachs et al. (2019: 11) suggest that FinTech can offer the potential to unlock green
finance (GF) technologies. Nassiry (2019) underlines that FinTech and specifically
blockchain may contribute to SDGs if supported by policies. According to the author,
supply chain transparency, identity and financial inclusion, and property rights are
examples of potential use cases for these technologies.
However, besides limited application of DF to sustainable finance, recent discus-
sions reveal that the positive impacts of digital technologies on sustainable finance
may be limited because of: (i) disconnection between the DF and sustainable finance,
and (ii) inherent risks and unintended consequences of digital technologies (Castilla-
Rubio et al. 2016; UNEI 2018). This picture requires the careful development of “a
green” DF framework with the aim of developing a GDF system to contribute to
SDGs. The COVID-19 crisis may slow down the transition to a low-carbon economy,
but greening FinTech may help to achieve the SDGs/PCAGs (Nassiry 2019; Sachs
et al. 2019; Yoshino et al. 2020). As a general problem, Dorfleitner and Braun (2019)
discuss that there are several barriers to the mobilization of GF, such as funding,
problems of traditional financial systems, lack of reliable green label standards, and
lack of transparency and accountability. As indicated by UNEI (2018), the existing
level of GDF remains vastly inadequate. In this respect, Inderst et al. (2012) discuss
that socially responsible investment (SRI) and environmental, social, and governance
(ESG) assets are estimated at over US $10 trillion globally while “pure” green assets
are estimated to be in the tens or hundreds of billions, depending on the definition.
Ehlers and Packer (2017) indicate that the green bond market is a small part of the
overall bond market, with less than 1.6% of global debt issuance in 2016. The G20
Green Finance Study Group (2016) indicates that the greening level in bank loans
is 5–10% in a few countries and less than 1% of the holdings by global institutional
investors are specific green infrastructure assets. This less developed picture in the
banking and securities industries is also consistent with the state of the insurance
industry.
4.2.3 Potential Impacts of Green Digital Finance
Similar to GF and DF, there is still no mutual understanding on the definition of GDF.
Closely related to concepts of sustainable/environmental/carbon/climate finances
(Noh 2019), GF can be understood as financing of investments that provide envi-
ronmental benefits (G20 Green Finance Study Group 2016). UNEI (2018) indicates
that (green and) sustainable digital finance is related to the intended application of
DF or FinTech toward the achievement of the SDGs. Within this definition, GDF is
also related to corporate social responsibility (CSR), multi-capital-shared value, and
the ESG agenda.
Blakstad and Allen (2018) anticipate that green FinTech solutions will become
dominant in capital markets and marketplace economies within the next few years.
Authors argue that using DLT (i.e., blockchain), smart contracts, and cryptocurren-
cies may remove corruption/inefficiencies and eventually contribute to SDGs in many
areas such as food supply chains, fractional ownership of assets, disaster prediction-
management, and investments. According to Puschmann et al. (2020) green FinTech
may have a broader economic impact on the economy because it connects all rele-
vant participants in the value chain including consumers, (central) banks, insurers,
non-banks (startups, big tech firms), (technology) providers, and regulators. It seems
early to analyze the empirical results of GDF applications, but promising empir-
ical outcomes are suggesting positive impacts of GF/DF, which are also possibly
implying potential development areas for GDF. For example, utilizing text analysis
and panel data from 290 cities in China during 2011–2018, Muganyi et al. (2021)
show that overall, China’s green finance-related policies have led to a significant
reduction in industrial gas emissions.
4.3 Challenges of Green Digital Finance and Industry

Responses
New financial products/technologies may result in overoptimistic expectations.

For example, there were high expectations about financial engineering before the
subprime mortgage crisis in the USA. Some had even argued that these new finan-
cial technologies might significantly improve market liquidity, efficiency, and even
housing affordability. As known, high hopes for the financial engineering applications
ended with some destructive risks after 2007 Q2.
Thanks to its rather quick adaptation, it seems that GDF created some similar
sentiments. Do green FinTech or GDF provide good things to individual/institutional
investors without negative externalities? According to Castilla-Rubio et al. (2016),
FinTech may provide increased transparency, accountability, risk management, diver-
sification, competition, inclusive prosperity, natural resource productivity, social,
economic, and environmental resilience, among other benefits. As a timely and
evolving debate in finance, (green financing and) GDF technologies seem promising
to achieve PCAGs/SDGs if these instruments can overcome various practical chal-
lenges ahead of its successful global/national implementation. In this section, we
discuss major challenges of successful implementation of (G)DF and industry
response to these challenges.
4.3.1 The Challenges of Green Digital Finance
Ozili (2018) defines the problems of DF as the following: (i) DF serves only the
people having digital devices and it relies excessively on Internet connectivity; (ii) DF
platforms generally target high-income individuals; (iii) DF may result in digital data
security, customer trust, and systemic risks problems; and (iv) regulatory framework
may not enable full-scale digital finance. Besides these unsolved DF problems, there
are a number of challenges to the successful adaptation of GDF.
We may also define several problematic issues in GDF applications. First, Mills
et al. (2021) discuss that green financial products/services have low volumes and
their trades are restricted to niche products and domestic markets. Second, it is
argued that green bonds are the most interesting area of GF (Mills et al. 2021) and
they may improve investor recognition and support long-term investment behav-
iors. However, they may also involve pricing and return uncertainties. By noting
there is no empirical evidence on how green bonds can contribute to SDGs, Sinha
et al. (2021) even find that green financing mechanisms might have gradual negative
transformational impacts on environmental and social responsibility. Third, ESG
and environmental investing may have a long-term positive impact on firm-level
financial performance, but there is also counter evidence in the empirical literature
suggesting negative/weak relations between environmental initiatives and financial
performance. Fourth, despite possible green benefits of blockchain and tokenization
(Blakstad and Allen 2018), their cryptocurrency combinations may have explicit
negative effects on SDGs (i.e., electricity consumption of cryptocurrencies). There-
fore, it is difficult to differentiate whether these applications are eventually good
or bad from the perspective of climate risk. Fifth, the benefits of GDF applica-
tions would be limited because of their costs and possible risks. In this respect, by
indicating that some initiatives integrate mobile finance and other (green) technolo-
gies such as solar panels and digital crop insurance, Hinson et al. (2019) argue that
further research on economic sustainability is needed and the cost-effectiveness of the
new/old FinTech products. Sixth, GF seems mostly related to advanced economies
and financial markets. For example, according to the Global Green Finance Index
as of April 2021, as the advanced economies’ financial centers, Amsterdam, Zurich,
and London were the top financial markets adopting green finance (Mills et al. 2021).
4.3.2 Industry Responses to the Problems of Green Digital

Finance
May industry initiatives create incentives to greening by also helping to solve the
problems of G(DF)? It seems difficult to develop a worldwide industry initiative to
solve the efficiency problems of G(DF). However, it does not necessarily mean that
socially responsible firms may successfully adopt GDF applications to develop some
answers to climate risks. In Box 4.2, we review the success story of the Ant Forest
App, an Alibaba affiliate, to show how an industry initiative may help to improve
awareness on climate risks and to effectively contribute to SDGs.
Box 4.2: The Role of Industry Initiative in Green Digital Finance: The Ant Forest
App Case
Although technology and sustainability are the primary drivers of change toward a more
sustainable economy, the impact question is still in its infancy (Puschmann and Leifer
2020). As discussed by Arena et al. (2018), the coexistence of social and commer-
cial objectives may result in significant trade-offs in companies. However, successful
GDF applications would be part of ongoing firm management. For example, Yu et al.
(2020) argue that “the use of digital finance has a positive impact on the adoption
of green control techniques in family farms through three transmission mechanisms:
improving credit availability, promoting information acquisition, and enhancing social
trust.” Hinson et al. (2019) indicate while The Digital Green Loop system eliminates
costly marketplace activities with the help of local entrepreneurs for Indian farmers,
the Hello Tractor application, operating in Kenya, Mozambique, and Nigeria, besides
several Asian countries, allows farmers to rent/buy smart tractors via a digital inter-
face. These are some cases of profit-centered “green” AgriTech applications. However,
the case of Ant Forest suggests that profit motives and social responsibilities may be
successfully merged and change the behaviors of mass consumption.
Launched by Ant Financial Services Group, an Alibaba affiliate, Ant Forest seems
the best example of how an industry initiative may transform a big economy (China)
through GDF applications. This industry initiative received a 2019 Champions of the
Earth award, the UN’s highest environmental honor. Since its launch in August 2016,
Ant Forest and its NGO partners have planted around 122 million trees in some of
China’s driest areas. As the mechanism, Ant Forest users aim to get “green energy”
points through some low-carbon footprint actions in their daily life such as using
public transport or paying utility bills online. A real tree is planted once a user collects
a certain level of points (see UNEP 2019). UNEP (2017) suggests that this initiative is
aimed at greening citizens’ consumption behavior through the use of mobile payment
platforms, big data, and social media. Yang et al. (2018) argue that by facilitating the
public’s participation in such green welfare, Ant Forest is a new-generation persuasive
system with functions like social media and gamification. Zhang et al. (2020) suggest
that green and low-carbon behaviors of Ant Forest users are related to environmental
concern, enjoyment, and game interaction.
Globally rising engagements in corporate environmentalism, booming ESG

investing, and evolving regulatory reactions provide an opportunity for internal-
ization of GDF despite existing challenges. It seems that GDF applications look
relatively successful in advanced countries. However, in most emerging countries,
GDF faces two key challenges that currently impede the countries from attaining a
better GDF framework: lack of sufficient awareness about the role of GDF, and inad-
equate infrastructure to develop successful GDF applications. In both advanced and
emerging countries, access to finance and lack of an optimal regulatory/supervisory
structure are general problems for a better GDF framework. Therefore, we argue
that despite successful industry initiatives (see Box 4.2), the problems of GDF may
require an effective regulatory response. Therefore, we cautiously define regula-
tory priorities below to improve contributions of green FinTech applications to the
PCAGs/SDGs.
4.4 Priorities in Policy Responses to the Problems of Green

Digital Finance
4.4.1 Theoretical Context
Without doubt, the role of voluntary industry initiatives in green FinTech is significant
to achieving SDGs. However, regulation may create a stronger framework. As indi-
cated by Dorfleitner and Braun (2019) and Mills et al. (2021), among others, exten-
sive applications of GF are related to sound regulatory frameworks and government
actions. Nassiry (2019) underlines that policymakers should follow more closely
with the quickly developing FinTech and blockchain sector in strengthening GF for
low-carbon, climate-resilient investment and achieving the SDGs.
Regulation is about changing the behaviors of economic agents (Goodhart et al.

1998). Although rule-making is related to statutory authorities of regulatory agencies,
sound regulatory frameworks are generally established with the contributions of
market participants and regulatory agencies. This might be a specific need to regulate
complex subjects such as over-the-counter derivatives or digital finance. As indicated
by Quintyn and Taylor (2002), this joint rule-making approach may develop answers
to three key areas: (a) to avoid the danger of monopolistic exploitation, (b) to promote
systemic stability, and (c) to provide protection for smaller less informed clients.
These components represent the usual rationales for a regulatory response in a typical
rule-making area involving G(DF).
4.4.1.1 Promoting Sustainable Finance Through Regulations
According to UNEP (2017), policy alignment, financial stability, and public finance
effectiveness are the three prerequisites to facilitate sustainable finance from a regu-
latory perspective (see Fig. 4.1). General suggestions for governments to develop
sustainable finance also include better risk management and disclosure standards,
development of green taxonomies, product standardization, and multilateral cooper-
ation for ESG implementation (G20 Green Finance Study Group 2016; IMF 2019). In
practice, rule-making attempts are observable in both self-regulatory organizations
(SROs) and also in (supra-)national authorities. For example, the London Stock
Exchange (LSE) Green Economy Mark represents an interesting attempt to use
regulation, supervision, and disclosure frameworks for the purpose of sustainability.
According to this initiative, a Green Economy Mark will be applied to qualifying
issuers’ LSE profile web page. As a supra-national initiative, we provide ten key
actions of the European Commission for sustainable finance in Box 4.3.
•Ensuring financial regulators aligned with long-term sustainable

Policy Alignment policy goals.
Financial Stability •Ensuring financial system resilience for the sustainability risks.
Public Finance •Ensuring effective use of public finance for sustainable finance.
Effectiveness
Fig. 4.1 Prerequisites to facilitate sustainable finance: regulatory perspective (Source Adopted
from UNEP [2017])
Box 4.3: European Commission’s Action Plan on Sustainable Financea

Adopted in March 2018, the “Action Plan on Sustainable Finance” of the European
Commission is one of the most important regulatory responses for adopting sustainable
finance. The ten key actions of this plan are:
I. Reorienting capital flows toward a more sustainable economy
1. Establishing a clear and detailed EU taxonomy, a classification system for sustainable
activities.
2. Creating EU green bond standards and labels for green financial products.
3. Fostering investment in sustainable projects.
4. Incorporating sustainability in financial advice.
5. Developing sustainability benchmarks.
II. Mainstreaming sustainability into risk management
6. Better integrating sustainability in ratings and market research.
7. Clarifying asset managers’ and institutional investors’ duties regarding sustainability.
8. Introducing a green supporting factor in the EU prudential rules for banks and
insurance companies.
III. Fostering transparency and long-termism
9. Strengthening sustainability disclosure and accounting rule-making.
10. Fostering sustainable corporate governance and attenuating short-termism in capital
markets.
In 2018, the EU’s High-Level Expert Group on sustainable finance (HLEG) also recom-
mended, among others, bringing greater focus on ESG factors into investment deci-
sions, upgrading disclosures, and developing official European sustainability standards
for some financial assets.b
a Available at: https://ec.europa.eu/info/publications/sustainable-finance-renewed-
strategy_en; https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018D
C0097 (accessed on 21 July 2021).
b Available at: https://ec.europa.eu/info/sites/default/files/180131-sustainable-finance-
final-report_en.pdf (accessed on 21 July 2021).
Observable in the above EU documents, government actions and regulatory

responses, aiming to develop a better sustainable finance framework, generally
present little clues on GDF. This may be related to assumed indirect relations between
DF applications and sustainability subjects. For example, incorporating sustainability
in financial advice and developing sustainability benchmarks (for the carbon foot-
print of investments) are necessarily related to DF applications. Therefore, one may
argue that the European Commission’s action plan for sustainable finance may have
some indirect elements for GDF.
There are also other institutional attempts and industry initiatives to explicitly
prioritize the optimal regulatory/supervisory framework for efficient GDF devel-
opment (see UNEP 2017; TCFD 2017; World Business Council for Sustainable
Development 2017; Green Digital Finance Foundation 2020; Green FinTech

Network 2021). For example, the Sustainable Digital Finance Measurement Frame-
work assesses three key elements of sustainable digital financing ecosystems:
(i) digital and data infrastructure, (ii) policy and regulatory guidance, and (iii)
applications that unlock financing for SDGs at the national level (Task Force on
Digital Financing of the Sustainable Development Goals 2021).
4.4.1.2 Promoting Green Digital Finance Through Regulations:

Selected Case Studies
Changing existing regulations in favor of GDF can be a policy alternative for govern-
ments. To promote innovations in GDF, governments may support the broader use
of capital market instruments. Mutual funds, pension funds, or crowdfunding would
be promising tools. In this respect, UNEI (2018) suggests that governments may
promote investment in GDF-related thematic funds and DLT-based green bonds.
Green FinTech Network (2021) argues that pension funds should have the regula-
tory flexibility to profit from opportunities created by climate change and the loss of
biodiversity through investing in venture capital funds focusing on green FinTechs.
The report suggests a 15% share of a pension fund’s assets may invest in green
FinTechs. This asset management strategy may help to change investor preferences.
As another capital market instrument, crowdfunding may also be used as a tool for
GDF development. For example, Trine, a Swedish tech startup, loans distributed solar
energy systems in rural sub-Saharan Africa by collecting funds through its crowd-
funding platform (see https://www.reutersevents.com/sustainability/green-finance-
theres-app-how-fintech-financing-sdgs; accessed on 24 July 2021). The investments
in this platform start at 25 EUR. In 2016, the company raised 333,000 EUR for seven
projects in Kenya, Tanzania, Uganda, and Zambia (see https://edition.cnn.com/2016/
12/13/africa/trine-crowdfunding-platform/index.html; accessed on 24 July 2021).
The role of government, in this example, is to facilitate necessary regulations that
allow the funding institutions to channel funds into green projects.
Governments can implement flexible yet consistent regulations to promote GDF.
Ghana is a very good example of this argument. According to the World Bank’s
Digital Financial Services report, for the period 2014–2017, mobile money account
ownership increased by nearly 200% in Ghana, and in rural areas 35% of the adults
started to use mobile money services. Ghana achieved this success by allowing non-
banks, especially mobile network operators, to issue e-money. In 2014, the number
of active e-money accounts was around 4.8 million in the country. In 2018, this
number has reached 13 million. As another GDF initiative, Orange Bank Africa
started mobile money operations in Côte d’Ivoire in 2008 and offers Tik Tak Loan
and Tik Tak Savings as the prime products. According to GSMA (Groupe Speciale
Mobile Association), the bank allowed loan amounts as low as US $9, disbursed over
US $467,000 in loans, and enabled 61,000 customers to open a savings account as
of 2020 (Pazarbasioglu et al. 2020; GSMA 2021).
M-Pesa of Kenya is another interesting success story from the developing world.
Pazarbasioglu et al. (2020) indicates that M-Pesa was first introduced in 2007 to
transfer money among individuals. In 2019, financial inclusion in Kenya had reached
above 80%, as one of the highest in Africa, and there are 58.3 million mobile wallets
(1.7 wallets per person) in the country. The success of M-Pesa depends on regulatory
flexibility. This green financing project has lowered the financing costs and enabled
more pay-as-you-go access to clean energy, particularly for poorer consumers. Then,
Kenya’s M-KOPA project aimed to combine successful mobile payment technology
(M-Pesa) with a clean solar energy system to provide clean and affordable energy to
off-grid villages in East Africa. Recently, electricity customers in Kenya have been
able to buy solar energy equipment, financed by M-Pesa, to produce their electricity.
Founded by the UK Foreign, Commonwealth, and Development Office, the
Mobile for Development Utilities Program is conducted by the GSMA. GSMA moni-
tored customers who adopted pay-as-you-go solar on mobile network operators and
a control group that had not used mobile money services yet. Results for West Africa
(Benin and Côte d’Ivoire), East Africa (Rwanda and Uganda), and Southern Africa
(Zambia) suggest that mobile money usage in all countries has increased signifi-
cantly. Not only electricity payments but also merchant and peer-to-peer payments
have also increased (Snel et al. 2020). Providing digital IDs through new digital
technologies may improve transaction efficiency and minimize costs. As mentioned
by Pazarbasioglu et al. (2020), digital IDs can enable regulators to simplify the
customer due diligence requirements and lower the cost of digital financial services.
Recent cases from the developing world suggest that digital IDs may apply broadly
to solve several problems. For example, Kiva is a decentralized digital identity plat-
form used in Sierra Leone since 2018. The main objective of the Kiva project was to
create a credit history for customers. As argued by Zwitter et al. (2020), the system
tries to make credit markets accessible for unbanked people via the creation of a
secure digital identity and stimulates economic development through microloans.
The World Food Program, on the other hand, has initiated a project using a biometric
ID based on blockchain technology. In this project, refugees living in a camp in
Jordan accumulate funds in their digital wallet and buy goods without needing any
documents or cash. As an application of DLT, Blakstad and Allen (2018) also indi-
cate that blockchain technology, combined with biometrics, was first used by the UN
to track aid distribution to Syrian refugees in 2017.
The above G(DF) cases present interesting inputs to develop GDF applica-
tions in other developing countries. Briefly, these case studies imply that green
FinTech entrepreneurship may present an opportunity to reach SDGs if they could
be supported by a coalition of institutions involving local/central governments.
4.4.2 Primary Government Actions to Promote Green

FinTech
4.4.2.1 Data Initiatives
Successful implementation of GDF requires high-quality datasets. Therefore, one of

the objectives of governments in directing DF to sustainability objectives must be to
create extensive and accessible datasets. The European Commission, for example, is
currently working on a DLT network project to make publicly available data more
accessible and comparable between EU countries (see Box 4.4).
Macchiavello and Siri (2020) indicate that private initiatives like TruValue Labs,
Sustainalytics, and yourSRI.com provide ESG-related data and advisory services.
The authors further discuss that governments can support private sector initiatives
to provide ESG data. For example, Copernicus, an EU data collection project, is a
good example of an advanced government initiative to bring together FinTech and
environmental considerations (see Box 4.4). However, existing sustainability data
initiatives are mostly available in advanced countries. As an interesting exception,
Risk Insights, a FinTech startup, provides ESG services to developing countries such
as South Africa and Nigeria (see https://riskinsights.co.za/). The company declares
that it uses big data, AI, and ML algorithms to transform publicly available informa-
tion into ESG metrics. Although Risk Insights is a private establishment, we argue
that such data initiatives should be encouraged in other emerging markets by govern-
ments to support green digital finance and to create swift action in favor of sustainable
development policies. The partnership between the Fijian government and OKO is a
good example of cooperation between governments and private initiatives (Thomson
2017). OKO is an InsuranceTech company based in Israel. It uses satellite imagery
and weather forecasts to create low-cost crop insurance for small farms with a mobile
device. Ultralocalized weather forecasts and claim management with a mobile device
enable farmers to obtain low-cost insurance against drought, floods, and hurricanes.
Despite some ongoing initiatives, we understand that there is still a lack of attempts
in emerging/ advanced countries to construct ESG datasets. This observation suggests
that governments should have a special role in the data collection in ESG. In this
respect, possible ESG data collection and rating regulations may represent the first
step to constructing firm-level ESG/sustainability data.
Box 4.4: Sustainability Data Initiatives of the EU

Copernicus Project
Having timely access to sustainability data is important for innovations in GDF. Coper-
nicus, for example, is the EU’s Earth observation program and offers daily detailed
observations about the Earth through satellite data. It provides not only past data, but
also provides climate projections and seasonal forecasts. As discussed by the Green
FinTech Network (2021), such data is relevant for agriculture and the insurance and
finance industry including GDF. For example, insurance contracts can be fairly priced
through satellite environmental data. As mentioned in the same report, high-quality data
can foster fully digitalized insurance or risk transfer products with high transparency.
Projects like Copernicus can be costly for some countries. However, governments can
support similar projects to improve low-cost data availability and accurate climate risk
information to all related parties including the firms focusing on ESG investing.
To Support ESG Data Initiatives
Governments can also initiate a centralized ESG data collection mechanism. Better
information practices on the environmental sensitivities of firms and organizations will
lead to fair pricing mechanisms in financial markets. Consequently, timely, accurate,
and rich datasets on ESG will enhance designing better GDF products in financial
markets.
In June 2020, the European Banking Federation as well as five other financial
industry associations wrote a letter to the European Commission to establish a common
ESG data register in the European Union to enhance the availability of reliable ESG
data, to facilitate disclosure, and scale-up sustainable funding.a In the letter, associa-
tions complained that the availability of quality, comparable, reliable, and public ESG
data is currently rather limited to satisfy the increasing expectations and new regula-
tory requirements. They also argue that the availability of raw harmonized ESG data
would allow for better comparability, increase transparency, lower barriers and costs,
generate efficiency, reduce complexity, and attract new players.
As the lesson, this initiative suggests for supporting ESG data construction that
government efforts and international cooperation are critical to reaching SDGs.
We believe that such data initiatives may also facilitate GDF development in
advanced/emerging countries.
a Available at: https://www.ebf.eu/ebf-media-centre/a-centralized-register-for-esg-
data-in-eujoint-letter/ (accessed on 22 July 2021).
4.4.2.2 Broader Policy Goals in Green Digital Finance Implementation
Governments’ regulatory actions on the development of GDF infrastructure may

specifically focus on selected issues. Several of the technologies (particularly DLTs)
underlying DF are still nascent. Scaling such technologies will require new standards
and regulations (UNEI 2018). GDF applications may develop with some broader
policy goals to support sound financial services. Perhaps, as one of the most important
policy goals in finance, one may expect that government actions for GDF should
support systemic stability. Therefore, first, as indicated by Muganyi et al. (2021), to
minimize the systemic risk of FinTech applications, policymakers should encourage
active participation of FinTech in environmental protection initiatives that promote
green consumption.
Second, besides systemic concerns, government actions on GDF should be also
careful about investor protection. In this respect, Siri and Zhu (2019) suggest that the
risks for consumer protection are augmented by digitalization. As an answer to this
risk, the government policies on banking, insurance, and securities may specifically
focus on investor protection in GDF applications. As the most important regulatory

rationale in the securities industry, developing an efficient framework for investor
protection is a prerequisite for market development in GDF. Therefore, policymakers
should address the risks and investor protection concerns in GDF applications.
Third, the governments, focusing on developing a hub for GDF, should have
specific policies on green FinTech startups. The Green FinTech Network (2021)
argues that possible incentives to develop a GDF hub require a tax system tailored
to the particularities of startup founders, investors, and venture capital funds, as
well as the availability of specialized talents. We believe that governments can use
fiscal policy to foster GDF in various ways. Offering tax incentives for green digital
investments as well as employees in this industry can lead to favorable outcomes
for developing new ideas and innovations in GDF. An Ernst and Young report (EY
2016) compares the FinTech environment of the UK, California, New York, Germany,
Singapore, Hong Kong, and Australia, considering (i) talent, (ii) capital, (iii) policy,
and (iv) demand (see EY 2016; UNEI 2018). The report counts effective tax incentives
in the UK as one of the reasons that make the country the leading hub for FinTech
among rivals. Another approach would be to provide subsidies for GDF projects
that prove their positive effect on SDGs. Specifically, subsidies can be designed
to reward projects in terms of their impacts. Therefore, a measurable impact scale
should be established first. Then, subsidies are distributed according to this scale.
In addition, impacts can be remeasured through time (every year for example) and
projects that have rising impact factors can be rewarded. However, this policy design
should go hand in hand with the data initiatives mentioned above. Needless to say,
data collection and distribution on climate and environment are vital for measuring
the impacts of projects.
Fourth, central banks, regulatory authorities, and SROs may develop special incen-
tives for GDF. For example, UNEI (2018) suggests that capital market regulatory
bodies may introduce some best practices and market regulations to support GDF
in the securities business. Skidelsky (2021) suggests that central banks may allo-
cate money to sectors based on their “greening” potential. Therefore, GDF startups
may incentivize. Volz (2017) summarizes relevant arguments and policy options
for central banks to tackle climate change and to promote green finance. Examples
for possible macroprudential policy tools are: (1) climate-related stress testing; (2)
directed green credit policy instruments; (3) green differentiated reserve require-
ments; (4) differentiated capital requirements through assigning lower risk weights
to green loans; and (5) green quantitative easing and reserve management. More-
over, the emerging market financial regulatory bodies and industry associations have
established the Sustainable Banking Network (SBN) in 2012. This network aims to
develop, implement, and evaluate sustainable finance regulations, guidelines, and
related policy actions. For example, as one of the members of this network, China’s
Banking Regulatory Commission (CBRC) has issued Green Credit Guidelines in
2012. In 2011, the Central Bank of Bangladesh published Policy Guidelines for Green
Banking and Guidelines on Environmental Risk Management to encourage banks
to conduct a systematic environmental risk analysis as part of the credit appraisal
process (see UNEP 2017). Given that these policies are uncharted territory for most
of the central banks, the learning by doing and test and learn approach are mainly
implemented. The Financial Conduct Authority (FCA) of the UK initiated a Green
FinTech Challenge in 2018. The aim was to develop innovative green solutions that
require regulatory support to bring their proposition to market. Successful firms
benefit from the support package of the FCA. Following the success of the 2018
Challenge Program, FCA launched another Green FinTech Challenge in 2021.
Fifth, as a broader policy goal in GDF, we may argue that policymakers should
develop well-designed supervisory tools for GDF applications. One of the goals of
this approach is to monitor possible greenwashing risks in GDF applications. Green-
washing involves some actions, such as providing misleading information, to decep-
tively persuade stakeholders that goods or services are environmentally friendly.
Taking into account regulations play an important role to prevent such actions and
voluntary CSR approaches may facilitate the diffusion of greenwashing, we suggest
that new regulatory and supervisory mechanisms should be developed to prevent
such behaviors in GDF.
Sixth, FinTechs enable efficiency in financial services after reaching a consider-
able scale (World Bank 2016). The reason is that FinTech products are profitable
if there is a large customer base. Therefore, while regulatory bodies and macro-
prudential policies promote GDF, other governmental institutions should also be in
coordination to support these policies as indicated in PCAGs. For example, GF is
related to sustainable energy as well as sustainable agriculture. Hence, coordination
between the agencies of energy and agriculture would result in a scale effect in new
financial products. On the other hand, coordination and cooperation between coun-
tries will also give rise to swift development of GDF products. In particular, sharing
data and best practices will contribute to the fight against climate change and support
sustainable development. Therefore, we should note that international cooperation
and coordination have the utmost importance to develop GDF applications.
Overall, the progress toward enhancing the full benefits of GDF seems rather slow
despite the rapid digitalization of finance. These developments may eventually create
a ground for establishing sound GDF business globally in the near future. However,
the above literature review and case studies suggest that developing countries in
particular need more government support and regulatory initiatives to support GDF
development.
4.5 Conclusion and Policy Recommendations
Climate risks have long been at the center of regulations, academic debates, and
daily economic activities. All these frameworks suggest the importance of finance
to achieve sustainable development goals (SDGs). The Paris Climate Agreement
Goals (PCAGs) (UNFCCC 2015) indicate that to significantly reduce the risks of
climate change, efforts should support low greenhouse gas emissions and climate-
resilient development. Representing the final stage of finance applications, this
chapter asks whether GDF applications are a relevant tool to achieve SDGs/PCAGs.
Increasing digitalization in consumption, production, and investments before/during

the COVID-19 period may provide a useful framework for reaching PCAGs and the
SDGs through digital finance applications. Taking into account existing practices in
digital finance that do not present sufficient answers to the sustainability problems,
“greening” of digital finance comes into consideration as the new solution.
This review synthesizes the recent literature, industry reports, and selected case
studies on green digital finance in the context of the role of governments on GDF
development. Analyzed case studies show that several industry initiatives in GDF
helped to improve access to finance, financial inclusion, and market transparency in
developing countries. However, the lack of supportive government actions is a general
problem in GDF for both advanced and developing countries. Existing successful
GDF applications in developing countries appear to be relatively minor and are
mostly market-led initiatives with some level of rule-making support. However, it
is difficult to argue that those initiatives are part of long-term strategic GDF devel-
opment plans and broadly available in all developing countries. Despite the positive
impacts of industry initiatives, analyzed case studies and implied possible gaps in
GDF development suggest that government actions still represent a critical input of
shaping the future of sustainability benefits of GDF development.
Specifically, best practices show that the actions of governments and regulatory
institutions are crucial to facilitating a fruitful ecosystem to foster GDF. Regulatory
institutions, like central banks and banking regulatory and supervisory institutions,
should be proactive and should enhance necessary rules and regulations to promote
green finance. Cooperation between regulatory institutions and financial firms is very
important at this point.
Another ingredient that is crucial for GDF development is data. ESG scoring
and ratings of companies require timely and accurate data collection. In particular,
costly big data collection projects should be supported by governments as in the case
of the Copernicus Project of the EU. Intergovernmental institutions can also be set
up for efficient data collection. This will also help harmonization of ESG scoring
between nations. Besides the importance of data initiatives and coordination among
governments, we argue that governments should specifically address the following
issues for the ideal GDF system design: systemic risk concern, investor protec-
tion, tax-subsidy policies, GDF-sensitive financial services specifically for ESG
investing and green fixed-income investing (i.e., green label standards), and a disclo-
sure/supervisory system for the GDF applications (Mills et al. 2021). Accounting
and financial reporting systems should also be designed according to the new green
finance agenda. From a supervisory and enforcement perspective, governments may
develop new frameworks for ESG rating and greenwashing. Governments may also
improve awareness of PCAGs/SDGs through GDF applications and GDF-literacy in
securities, banking, insurance, and non-financial investments to minimize possible
risks of GDF.
However, despite the above promising suggestions, one may also note the limita-
tions of government actions and the official discipline framework. For example, the
requirement of regulation may eventually result in overregulation or at best it may
create additional compliance costs or a decline in competitiveness. Therefore, it is
important to recognize that the success of GDF development for reaching SDGs may
be related to the joint efforts of policymakers and regulated firms. This approach
suggests increasing cooperation between GDF providers and governments for the
extensive/efficient adaptation of GDF.
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Part II
Recent Progress in Green Digital Finance
in Asia and Europe
Chapter 5
Identification of Critical Success Factors
for Developing the Green Digital
Financing Market in Iran
Ehsan Rasoulinezhad and Farhad Taghizadeh-Hesary
Asbtract To achieve sustainable development goals, adequate investment in green

energy infrastructure is required. Green digital finance as a blend of FinTech in green
finance can be considered a possible mechanism to absorb foreign capital to boost
the progress of green projects in different countries, which may lead to achieving
sustainable development goals. In this chapter, the qualitative methods of Interpre-
tative Structural Modeling and the Technology Acceptance Model are employed to
evaluate the opinions of advanced experts to determine the critical success factors of
developing the green digital financing market in Iran. The findings show that among
all distinguished critical success factors, accessibility and transparency in the green
digital finance market, profitability of green projects, responsibility of developers
of green digital finance tools, easing capital mobility, political stability, and regula-
tory quality in green digital finance should be addressed by policymakers in Iran.
As practical recommendations, harmonizing and standardizing green digital market
mechanisms, improving good governance indicators, and subsidizing green digital
financing tools are discussed in this chapter.
Keywords Green digital finance · ISM approach · Technology acceptance model ·

Sustainable development · Iran
E. Rasoulinezhad (B)
Faculty of World Studies, University of Tehran, Tehran, Iran
F. Taghizadeh-Hesary
School of Global Studies, Tokai University, Hiratsuka, Kanagawa, Japan
TOKAI Research Institute for Environment and Sustainability (TRIES), Tokai University,
https://doi.org/10.1007/978-981-19-2662-4_5
92 E. Rasoulinezhad and F. Taghizadeh-Hesary
5.1 Introduction
With the advent of electronic computing in the 1960s, many scholars believed that
the future of business would be influenced by computers or information technology
(IT) in general. This claim became a reality in the 1980s, which saw the beginning
of e-commerce throughout the world. e-Commerce fully matured with the devel-
opment of Internet use in the early 1990s, and economic actors around the world
were able to communicate easily and quickly with each other. According to the
World Bank database, the contribution of computing, communication, and other
services to total commercial service exports throughout the world has increased in
past decades. This growth is more noticeable for South Asia and the European Union,
while Latin America and the Caribbean have shown low-positive growth in recent
decades (Fig. 5.1).
Since the middle of the 1990s, the application of IT in various economic and
social dimensions has been considered a useful catalyst that can overcome temporal
and geographical constraints. Using IT in economic aspects can provide a sustain-
able competitive advantage for firms (Vives 1990) and generate better consumer
satisfaction (Han and Kim 2019). The role of IT in the economy has become so
crucial that many experts consider the increased use of IT in various aspects of the
economy to be influential in economic development. For example, Maryska et al.
(2012) and Fernandez-Portillo et al. (2020) express that IT can be addressed as an
90
80
% of commercial service exports
70
60
50
40
30
20
10
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Central Europe and the Baltics East Asia & Pacific

European Union Latin America & Caribbean
North America OECD members
South Asia
Fig. 5.1 Growth of computer and communication service exports (1993–2020) for different world
regions (Source World Bank database)
5 Identification of Critical Success Factors … 93
economic development engine in almost every country worldwide. Cuevas-Vargas

et al. (2016) mention that digital structure in businesses can ensure a greater business
performance, leading to a higher employment rate and strong economic outcomes.
One of the economic sectors in which IT can positively influence its effective-
ness and development is the financing of economic projects. Using IT tools in
financing (digital finance) enables countries to have better financial inclusion and
spurs financial innovation to boost economic projects. Ozili (2018) declares that
digital finance may provide affordable financial services, a better standard for a
green economy, stronger financial inclusion, and a long-term positive effect for
economic infrastructure by handling the financial movement to environmentally
friendly projects. Gomber et al. (2017) argue that employing financial technology
(FinTech) in finance makes digital finance that delivers many fresh advantages in
financial markets. According to Demirguc-Kunt et al. (2018), most people world-
wide have been made/received digital financial action. Shofawati (2019) sought to
explore how digital finance can increase the productivity of SMEs in Indonesia. The
concluding remarks highlighted the significant role of digital finance in the activi-
ties of SMEs in the country. Durai and Stella (2019) explored the linkage between
digital finance and financial inclusion. The major findings prove the positive impact
of green financial tools on financial inclusion. Moreover, digital finance can lower
financial costs for providers and consumers. In another study, Ghosh and Chaudhury
(2020) focused on the study of digital finance development in India. They depicted
that the policy of demonetization in India helped the country improve the digital
finance market. Ozili (2020) employed a critical policy discourse analysis and found
that developing digital finance cannot provide any added welfare for poor people.
Babarinde et al. (2020) investigated digital finance in the Nigerian banking system.
They found that employing digital products in the financial service sector can change
the quality of financial services and improve customers’ welfare. In a new study,
Jiang et al. (2021) sought to determine the relationship between digital finance and
economic development in China. They found that any development in digital finance
contributes to further entrepreneurship and economic growth. Using an econometric
regression analysis for 120 countries, Risman et al. (2021) studied how green finance
can affect financial stability. The empirical results revealed that market risk could
lower the positive influence of digital finance on financial stability. In FAO (2021),
digital finance was proposed as a suitable financial tool in the pandemic. This tool
can help governments and private financial institutions to represent different finan-
cial services in the context of information and communication technologies. In an
IMF working paper, Khera et al. (2021) evaluated digital financial inclusion in 52
developing economies throughout 2014–2017. They concluded that digital finan-
cial inclusion differs among countries, and therefore, there is no similar pattern of
development for digital finance among nations. Ma et al. (2021) studied the linkage
between digital finance and Chinese firm exits over 2011–2013. They found that
digital finance may lower the probability of firm exit by increasing information
asymmetry and capital flows. Contrary to the abovementioned studies, Reshetnikova
et al. (2021) argued that digital finance might lead to the threat of low participation
of aged investors because of the lower IT knowledge of this group of people.
100
90
Adults with an account (%)
80
70
60
50
40
30
20
10
0
World High-income economies Developing economies
use any digital financial service Did not use any digital financial service
Fig. 5.2 Use of digital financial services in 2017 (Source Based on data from Demirguc-Kunt et al.
[2018])
Figure 5.2 illustrates the percentage of people who made/received digital finan-
cial action in 2017 divided into those from high-income economies and those from
developing economies. Based on Fig. 5.2, the acceptance of IT to deal with financial
services is not uniform across different countries. In other words, there exist several
factors that make for stronger or weaker acceptance of digital finance in different
countries.
Regarding the current lack of capital in green projects and the necessity of
supporting these projects to protect the environment, the use of digital finance to
improve green energy projects should be critically addressed by academic research.
Taghizadeh-Hesary and Yoshino (2019, 2020) and Yoshino et al. (2019) highlighted
the rapid attention of scholars and policymakers to the green energy financing gap,
which is a significant obstacle to green development. Clarke et al. (2018) believe
that our globe needs private participation in green projects because of the limited
financial power of governments. Since late 2019, the financial power of governments
has declined because of the COVID-19 pandemic. Quitzow et al. (2021) discuss that
COVID-19 is a potential threat to progress in energy transition in many countries
and governments should seek appropriate solutions to counter the financial damage.
Qadir et al. (2021) mark green finance as an impressive strategy to finance green
energy transition projects during the pandemic and post-COVID era.
Combining the two strategies of green financing and digital financing to give green
digital financing (GDF) can provide finance for green projects throughout the world
through financial technologies (FinTech) (Cao et al. 2021; Sun et al. 2021). Such a
new financing tool can, on the one hand, lead to greater participation of private sector
investors because of the green financing advantage (Tu et al. 2020) and, on the other
hand, remove temporal and geographical constraints for investors, which increased
Quick and Making

cheap A higher rate investing in leading
information for of financial green projects counties to
investment in inclusion and more reach SDGs
green projects innovation attractive
Fig. 5.3 The pattern of efficiency of green digital finance (Source Based on United Nations [2018])
during the pandemic. In other words, private investors worldwide and from any
geographical location can participate in financing green energy projects. Notwith-
standing the positive impact of green digital finance on tracking the United Nations
sustainable development goals (SDGs), there are no unique critical success factors to
improve countries’ digital green financing markets. Li et al. (2019a) address commu-
nication and cooperation among project participants as the most crucial success
factors, while Lam and Law (2018) emphasize the golden role of financing to have
a successful green project. The United Nations (2018) expressed that green digital
finance provides investors with cheap and easy access to required information.
Furthermore, this financial tool can ensure a higher rate of inclusion and innovation
in financial sectors. Consequently, it may make the green projects more attractive for
private investors, which finally leads to achieving the SDGs: affordable and clean
energy (SDG7), climate action (SDG13), and partnerships for the goals (SDG17).
This pattern of green digital finance efficiency is illustrated by Fig. 5.3.
The approaches of interpretative structural modeling (ISM) and technology accep-
tance modeling (TAM) can be employed to determine the critical success factors in
developing green digital finance. TAM enables us to identify which factors affect
private investors in terms of their acceptance of green digital financing tools (like a
digital green bond) in the investment in green energy projects (the validation of this
approach has been depicted by numerous scholars like Holden and Karsh 2010; Jan
and Contreras 2011; Sukendro et al. 2020). In contrast, the ISM approach (e.g., see
Jayalakshmi and Pramod 2015; Verma et al. 2018; Li et al. 2019b) has been used
to identify the interrelationships among the critical success factors of green digital
financing.
The challenge of financing green projects, especially during the COVID-19
pandemic, and the great capacity of green digital financing in attracting private
investors from different countries to finance green energy projects motivates us to
carry out this academic research. Our study contributes to the existing literature
from aspects of: (i) identification of critical success factors of green digital finance
development; (ii) studying the case of Iran, which is a developing Asian nation and
is seeking to improve the green financing instrument to lower environmental pollu-
tion and reach a higher level of energy transition; and (iii) employing the reliable
academic research methods of ISM and TAM.
The main reasons to select Iran as the case study of our research are that the
challenge of capital flows in green energy projects is more prominent for this country
because of its high risk of investment and geopolitical tensions. Ghadaksaz and
Saboohi (2020) expressed that the lack of sufficient investment in green energy
projects in Iran is a major problem for the government in combating air pollution
and supporting environmental protection. Moreover, Iran needs to improve its pace
of energy transition from fossil fuels to green energy resources. As Noorollahi et al.
(2021) argued, Iran has suffered from CO2 emissions and climate change that mark
the need for this country to boost the energy transition movement. Because of the
complexity of decision-making in Iran (caused by economic and political structural
problems, sanctions imposed by the West, political tensions in the Middle East, etc.),
the key factors for the success of green digital financing in promoting green energy
projects in Iran need an in-depth study based on logical and viable methods.
The rest of this chapter follows the structured content in which Sect. 5.2
provides the related literature to green digital finance. Section 5.3 discusses the
research methodology, Sect. 5.4 reports the empirical results, and Sect. 5.5 provides
concluding remarks and recommendations for practical policies. A few suggestions
for future studies are discussed in the final section.
5.2 Literature Review
The related literature on digital green financing in Iran can be divided into two strands.
The first strand focuses on green digital finance, while the second strand contains
earlier studies about green project financing in Iran.
The first strand of literature focuses on specifications and implementations of
green digital finance. Given that green digital finance is a new green financial tool in
energy economics and finance, it has not been critically addressed in earlier studies. A
discussion paper published by the United Nations (2018) explained that green digital
finance might provide quick and cheap information for private investors through web-
based infrastructure. Therefore, they can access the data (interest rate, tax, etc.) of
green financing tools like green bonds everywhere and at all times. In another study,
Nassiry (2018) believed that green digital finance might help developing nations
gather more capital from local private investors and foreign investors to finance
green projects. Moufakkir and Qmichchou (2019) reviewed the positive effect of
green digital finance on the sustainable development of countries. They concluded
that the digitalization of green finance might help countries increase the speed of
capital inflows to their green energy projects. Puschmann et al. (2020) investigated
the role of green FinTech in combating environmental pollution in Switzerland. The
significant findings proved that green FinTech could generate a new spirit of financial
services like financing tools to promote green energy projects. He et al. (2020) tried
to determine the impact of green digital finance in a smart city. The major findings
showed that the high costs of research and development in green digital finance harm
the development of the smart city.
The second strand of studies is related to the issue of green energy project financing
in Iran. Despite the concerns of some scholars about financing green energy projects
in Iran, Hosseini et al. (2013) argued the green energy potential in Iran is unique
and profitable for governments and investors. However, geopolitical tensions and
economic recession have made these projects unattractive for foreign investors and
private sectors. Yazdanpanah et al. (2015) studied the governance of energy tran-
sition in Iran using the theory of planned behavior (TPB). They found that green
energy should become an accepted culture among Iranian people, which can be a
golden key to attracting private participation to finance green projects in the country.
Aien and Mahdavi (2020) studied different aspects of lowering the dependency of
Iran on fossil fuels through SWOT (Strengths, Weaknesses, Opportunities, Threats)
analysis. They found that financing projects are a potential threat for Iran to boost
infrastructure to increase the contributions of green energy resources to Iran’s total
energy consumption.
Similarly, Madani (2021) suggested that the barrier of sanctions in Iran’s envi-
ronmental policy implementation introduces problems in the transfer of new tech-
nologies and capital mobility from other countries into Iran’s green projects. Vaghefi
et al. (2019) indicated that with the threat of Iran’s climate warming in the future,
the country must develop an energy transition strategy to boost the share of green
energy resources in the country’s energy consumption. In another study, Nasre Esfa-
hani and Rasoulinezhad (2020) studied energy transition modeling in Iran. They
recommended the use of short-term de-carbonizing policies like issuing green bonds
to increase private participation in green energy projects. Solaymani (2021) investi-
gated the efficiency of renewable energy policies in Iran. The major empirical find-
ings depicted that green energy development may lead to higher economic growth
in Iran, which generates more free capital to re-invest in green projects. Therefore,
Iran’s policymakers should find the best way to provide the required capital to start
the first round of green projects.
Considering the aforementioned strands of literature, there has not been any study
to identify the critical success factors to develop green digital finance in Iran. Given
the importance of financing green energy projects in Iran, this research seeks to fill
this literature gap using TAM and ISM.
5.3 Research Methodology
To determine the critical success factors of developing green digital finance, we

employ two complementary approaches of TAM that can identify critical factors
influencing investors’ acceptance of green digital financing tools. This approach was
proposed by Davis (1989) and was developed based on the theory of reasoned action
(Fishbein and Ajzen 1975) and the theory of planned behavior (Ajzen 1985). In past
decades, many scholars (e.g., see Bueno and Salmeron 2008; Das and Ngacho 2017;
Saad et al. 2021) have employed this approach to find the critical success factors in
different issues. The developed approach of TAM can be used to determine the factors
affecting the use of IT-based services like green digital financing tools by investors.
Following Weng et al. (2018), our TAM framework contains the four aspects shown
Perceived Ease of
Use of green
digital finance
(PEU)
Attitude toward
using green digital
finance (ATU)
Intention to Use
Perceived green digital
Usefulness of finance (IU)
green digital
finance (PU)
Fig. 5.4 Technology acceptance modeling framework for use of green digital finance
in Fig. 5.4. It can be expected that easier use and higher functionality in a green
digital finance tool may lead to higher acceptance and stronger intention to use the
tool.
In addition to the TAM approach, ISM is employed to rank the critical success
factors. This approach was introduced by Warfield (1973a, 1973b, 1982) as a useful
management tool for dealing with complex issues (Rasoiulinejad and Nasr Esfahani
2015; Raut et al. 2017; Kota et al. 2021). The critical success factors based on
the four aspects of TAM (represented in Fig. 5.4) are identified. Next, the ISM
approach analyzes the contextual linkage among the factors to generate a structural
self-interaction matrix (SSIM), the reachability matrix. Finally, the level partition to
classify the critical success factors of green digital finance is identified.
Given that these two approaches are qualitative, we conducted a survey to run the
TAM approach and select critical success factors to evaluate through ISM. To this
end, experts from Iran’s Ministry of Economic Affairs and Finance, Iran’s Ministry
of ICT, the University of Tehran, and Iran’s Ministry of Energy were chosen as
respondents (N = 40). Table 5.1 shows the descriptive statistics of respondents in
our research.
As reported in Table 5.1, among the total selected 40 experts, 30 respondents
were men and 10 were women. About 62.5% were between the ages of 40 and 49.
Approximately 42.5% of the experts were specialized in energy economics, while 40
and 17.5% had a specialty in financing and digital economy, respectively. Twenty-one
experts held a Ph.D. degree (55%) and 45% (18 experts) had a M.A. degree.
Table 5.1 Descriptive statistics of respondents

Characteristics Total Iran’s Iran’s Iran’s University of
respondents (N Ministry of Ministry of Ministry of Tehran (N =
= 40) Economic ICT (N = 5) Energy (N = 6)
Affairs and 21)
Finance (N =
8)
N % N % N % N % N %
Gender:
Men 30 75 6 75 5 100 16 76.19 3 50
Women 10 25 2 25 0 0 5 23.81 3 50
Age:
30–39 years 11 27.5 2 25 1 20 7 33.34 1 16.67
40–49 years 25 62.5 5 62.5 4 80 12 57.14 4 66.66
> 50 years 4 10 1 12.5 0 0 2 9.52 1 16.67
Specialty:
Energy 17 42.5 2 25 0 0 14 66.67 1 16.66
economics
Financing 16 40 4 50 1 20 7 33.33 4 66.68
Digital 7 17.5 2 25 4 80 0 0 1 16.66
economy
Educational
grade:
M.A. 18 45 5 62.5 2 40 11 52.38 0 0
Ph.D. 21 55 3 37.5 3 60 9 47.62 6 100
ICT, Information and Communications Technology
5.4 Empirical Findings and Discussions
5.4.1 TAM Results
To determine the essential factors affecting acceptance of investors to use green

digital financing tools in Iran based on the TAM framework (Fig. 5.4), a questionnaire
survey was carried out with 40 respondents. These respondents, who were experts
from different academic and executive sectors, provided answers that were used to
determine the main factors in each aspect of TAM. The final determining factors
contained five elements for perceived ease of use of a green digital finance tool, four
elements for perceived usefulness of a green digital finance tool, four elements for
attitude toward using a green digital finance tool, and six elements for intention to use
a green digital finance tool. The selected critical factors according to the 40 experts
in each TAM aspect are listed in Table 5.2.
Table 5.2 Critical factors in each TAM aspect

Aspect Selected elements by experts
Perceived ease of use of green digital finance tool A1. Transparency
(PEU) A2. Accessibility
A3. Reliability
A4. Validation
A5. User-friendly
Perceived usefulness of green digital finance tool (PU) B1. Capital mobility
B2. Banking payment
B3. Sell/buy mechanism
B4. Issuer’s responsibility
Attitude toward using a green digital finance tool (ATU) C1. Promoting economic projects
C2. Profitability
C3. Environmental concern
C4. Foreign investment
Intention to use a green digital finance tool (IU) D1. Interest rate
D2. Tax exemption
D3. Political stability
D4. Regulation quality
D5. Return of investment
D6. Country risk premium
Data based on experts’ opinions
To identify the relationship between the aspects and related elements, the critical
ratio (CR) and Pearson’s correlation coefficient were employed. The findings are
shown in Tables 5.3 and 5.4.
As shown in Table 5.3, all the correlation coefficients of elements in each aspect of
the TAM approach are larger than 0.40, and the reliability of results was approved by
Cronbach’s alpha for all aspects. The correlation coefficients depict that for the case of
PEU (Perceived ease of use of green digital finance tool), the important elements for
investors are accessibility (A2) and transparency (A1) of information of green digital
financing tool. Issuer’s responsibility (B4) and capital mobility (B1) had largest
impact on the perceived usefulness (PU) of the green digital finance tool. Regarding
the attitude toward using a green digital finance tool (ATU) by investors, C4 (the
ability to invest abroad) and C2 (profitability) had the largest coefficients, while
regulation quality (D4) and political stability (D3) as two major good governance
indicators had a stronger relationship with the investor’s intention to use a green
digital finance tool in Iran.
According to Table 5.4, there are positive and statistically significant linkages
between PU and ATU, PU and IU, PEU and ATU, PEU and PU, and between IU and
ATU in Iran.
The overall conclusion from the empirical results of the TAM approach is shown
in Fig. 5.5, which presents the power of relationship between four aspects with the
main influencing elements.
Table 5.3 Critical ratio and correlation coefficients in elements’ levels

TAM aspect Reliability (Cronbach’s Element Correlation coefficient Critical ratio
alpha)
PEU 0.874 A1 0.853 12.483
A2 0.901 10.110
A3 0.810 10.843
A4 0.771 8.049
A5 0.750 12.555
PU 0.899 B1 0.860 9.794
B2 0.841 11.439
B3 0.796 10.119
B4 0.909 8.574
AU 0.901 C1 0.844 13.530
C2 0.870 8.509
C3 0.865 12.548
C4 0.873 12.980
IU 0.892 D1 0.842 12.694
D2 0.819 16.544
D3 0.864 11.074
D4 0.901 8.584
D5 0.844 9.094
D6 0.819 13.449
Data based on SPSS output
Table 5.4 Correlation

Aspect Correlation coefficient Significance level
analysis of the four aspects of
TAM approach PU–ATU 0.741** 0.00
PU–IU 0.630** 0.00
PEU–ATU 0.318** 0.00
PEU–PU 0.443** 0.00
IU–ATU 0.674** 0.00
**P < 0.05
Data based on SPSS output
5.4.2 ISM Results
In the TAM approach, the elements of each aspect could not be compared with the
elements of other aspects, and only the elements within each aspect were analyzed.
Using the ISM approach, we analyzed and compared all the elements to find the prior-
ities among them. Considering the 19 elements declared in Table 5.2, the experts
Perceived Ease of Use of

green digital finance
(PEU)
Accessibility, transparency
Attitude toward using
green digital finance (ATU)
0.443 Ability to invest abroad,

0.741 profitability
0.674
Perceived
Usefulness of green
digital finance (PU)
Intention to Use
Issuer’s green digital
responsibility, 0.630 finance (IU)
capital mobility
Regulation quality,
political stability
Fig. 5.5 TAM results for using a green digital financing tool
determined the contextual relation of all the elements (critical success factors) to
determine the direct and indirect linkages among the critical success factors of
green digital finance in Iran. The self-interaction matrix based on the contextual
relationships between 19 aspects is shown in Table 5.5.
Next, the SSIM was converted to the reachability matrix, which is a binary matrix.
To generate the reachability matrix in the ISM approach, for the symbols of V and
A, the entry (i, j) becomes 1 and 0, respectively. Regarding X and O, both entries of
(i, j) and (j, i) become 1 and 0. The reachability matrix of the critical success factors
of green digital finance in Iran is shown in Table 5.6.
The calculated dependence power and driving power from the reachability matrix
can be illustrated separately to explore which critical success factors are “linkage
criteria,” “dependent criteria,” “independent criteria,” and “weak criteria.” The clas-
sification of criteria based on the magnitudes of dependence and driving powers is
shown in Fig. 5.6.
Regarding the calculated dependence power and driving power in Table 5.6,
the classification of critical success factors of green digital finance in Iran can be
presented in Fig. 5.7.
A5 (user-friendly) is positioned in the class of weak criteria. Moreover, B3
(sell/buy mechanism) and D5 (return of investment) are two independent criteria,
while C2 (profitability) is positioned in the class of dependent criteria. All the
remaining critical success factors were placed in the category of linkage criteria,
meaning that any changes in them may significantly impact other factors in Iran’s
green digital financing mechanism. In this way, D2 (tax exemption) has the most
prominent driving power among critical success factors. In contrast, B2 (banking
Table 5.5 Self-interaction matrix for critical success factors of green digital finance in Iran
1 2 3 4 O 6 7 8 9 10 11 12 13 14 15 16 17 18 19
1 A1 X X O O V V X X A A O X X X X X X V
2 A2 A A X A A O V A X X X A V X V A V X
3 A3 V A X A A A V A X A X A V X V A V X
4 A4 V X V V X X A A V A A V X X A V V X
5 A5 A A A A X X A X V A A V X A A V A X
6 B1 A A X V V X A X X V A X X V A A A A
7 B2 A X X A V V V X X V X X A V X A A A
8 B3 X X A V A A V A A A A A A A A A X A
9 B4 X X A A A X V X X V X A A X A X X V
10 C1 X V A A A X A X V A V V A X A X X V
11 C2 A X V A X A V A V A V A X A V A X V
12 C3 X X V O A A X V A A X V X A A A A V
13 C4 X X V V A A V V V A X A X V X A A V
14 D1 V O X V X V V A A V O A V V X V X A
15 D2 O X X V X V V A V V A X X X X V X A
16 D3 O O O O O X V X X X A X V V X V X X
17 D4 V X X V A X A X X X A X V V X A X A
18 D5 V X O O O O O X V A A V V A A X V A
19 D6 V A X X V A X X V A A V V A A X V V
V, linkage from i to j but not in both directions; A, linkage from j to i but not in both directions; O,
bi-directional relationship; X, no relationship between j and i
payment) and C4 (ability to invest abroad) have the highest degree of independence
among critical success factors.
5.5 Conclusions and Policy Recommendations
In this research, we used TAM and ISM to determine the critical success factors of
green digital finance in Iran. To this end, we analyzed the opinions of 40 experts
from institutions related to the green digital finance market. The results show that
to motivate investors to enter the market of green digital finance, perceived ease of
use, perceived usefulness, attitude toward using, and intention to use a green digital
finance tool should be addressed by policymakers. Moreover, each aspect contains
different elements of success factors that have different impacts. Among all distin-
guished critical success factors, the policymakers in Iran should draw attention more
to accessibility and transparency in the green digital finance market, the profitability
of green projects, the responsibility of the issuer of a digital green finance tool,
104
Table 5.6 Reachability matrix for critical success factors of green digital finance in Iran
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 Driver
1 A1 1 1 1 0 0 1 1 1 1 0 0 0 1 1 1 1 1 1 1 14
2 A2 0 1 0 1 0 0 0 1 0 1 1 1 0 1 1 1 0 1 1 11
3 A3 1 0 1 1 0 0 0 1 0 1 0 1 0 1 1 1 0 1 1 11
4 A4 1 1 1 1 1 1 1 0 0 1 0 0 1 1 1 0 1 1 1 14
5 A5 0 0 0 0 1 1 1 0 1 1 0 0 1 1 0 0 1 0 1 9
6 B1 0 0 1 1 1 1 1 0 1 1 1 0 1 1 1 0 0 0 0 11
7 B2 0 1 1 0 1 1 1 1 1 1 1 1 1 0 1 1 0 0 0 13
8 B3 1 1 0 1 0 0 1 1 0 0 0 0 0 0 0 0 0 1 0 6
9 B4 1 1 0 0 0 1 1 1 1 1 1 1 0 0 1 0 1 1 1 13
10 C1 1 1 0 0 0 1 0 1 1 1 0 1 1 0 1 0 1 1 1 12
11 C2 0 1 1 0 1 0 1 0 1 0 1 1 0 1 0 1 0 1 1 11
12 C3 1 1 1 0 0 0 1 1 0 0 1 1 1 1 0 0 0 0 1 10
13 C4 1 1 1 1 0 0 1 1 1 0 1 0 1 1 1 1 0 0 1 13
14 D1 1 0 1 1 1 1 1 0 0 1 0 0 1 1 1 1 1 1 0 13
15 D2 0 1 1 1 1 1 1 0 1 1 0 1 1 1 1 1 1 1 0 15
16 D3 0 0 0 0 0 1 1 1 1 1 0 1 1 1 1 1 1 1 1 13
17 D4 1 1 1 1 0 1 0 1 1 1 0 1 1 1 1 0 1 1 0 14
18 D5 1 1 0 0 0 0 0 0 1 0 0 1 1 0 0 1 1 1 0 8
19 D6 1 0 1 1 1 0 1 1 1 0 0 1 1 0 0 1 1 1 1 13
Dependence 12 13 12 10 8 11 14 12 13 12 7 12 14 13 13 11 11 14 12 –
E. Rasoulinezhad and F. Taghizadeh-Hesary
Fig. 5.6 Classification of

critical success factors based
on dependence and driving Dependent Linkage criteria
powers criteria
Driving power
Independent
Weak criteria
criteria
Dependence power
19
18
17
16
15 D2
14 A4 D4 A1
13 D3 D6 B4, B2,C4
D1
12 C1
11 C2 B1 A3 A2
10 C3
9 A5
8 D5
7
6 B3
5
4
3
Driving power
2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
Dependence power
Fig. 5.7 Driving-dependence power of critical success factors of green digital finance in Iran
easing capital mobility, political stability, and regulatory quality in the field of green
digital finance. In addition to the findings of the TAM approach, the ISM approach
considered the relationship among all critical success factors and classified them
into four categories of linkage criteria, dependence criteria, independence criteria,
and weak criteria. Policymakers in Iran should promote the linkage criteria because
of their power of influence on other critical success factors. Furthermore, the weak
criteria (A5: the convenience of the IT-based system of green digital finance tool)
can be addressed as the critical success factor with a low priority for consideration.
Based on the major concluding remarks, the following practical policies are highly
recommended:
(i) Given that the transparency in the market of green digital finance is an impor-
tant critical success factor, governments and policymakers should seek to
harmonize and standardize the green digital financing market to make it more
reliable for private investors. To this end, using global patterns (e.g., OECD
Anti-Bribery Convention) would be fruitful and show the best way to go
forward to reach this goal.
(ii) Good governance indicators (e.g., regulation quality, political stability) can
play a major role in the success of digital green finance in a developing country
like Iran. Various geopolitical conflicts of the country with neighbors and
the West (e.g., Khodadadi 2016; Shimbar and Ebrahimi 2020) have created
potential and serious threats to digital green finance market development.
Therefore, finding the best solutions and a roadmap to lower the political
tensions would be an impressive policy implication for any government to
make a successful green digital financing market in developing nations.
(iii) Based on the concluding remark about the high driving force of tax exemption
on other critical success factors, a policy of subsidizing green financial tools
through tax spillover (Taghizadeh-Hesary et al. 2021) is highly recommended.
(iv) Despite several negative consequences of the COVID-19 pandemic, it has
forced countries to boost their digital culture and infrastructures (Beckers
et al. 2021). Therefore, it can be highlighted as an opportunity for Iran or other
nations to develop a green digital financing market. Public institutions like the
Ministry of ICT, the Ministry of Energy, and the Ministry of Economic Affairs
and Finance should make joint working groups to find the best solutions to
develop a green digital financing market in line with expansion of the digital
economy under the pandemic.
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Chapter 6
Developing FinTech Ecosystems
for Voluntary Carbon Markets Through
Nature-Based Solutions: Opportunities
and Barriers in ASEAN
Dharish David, Miyana Yoshino, and Joseph Pablo Varun
Abstract With more countries and companies setting net-zero targets, nature-based
solutions (NBS) provides a great opportunity for carbon sequestration through forest
and wetland preservation, recovery, and reforestation programs. The benefits also
extend to preserving biodiversity and providing social co-benefits and equity in
communities. This chapter considers the potential of natural assets convertible to
carbon credits in the Association of Southeast Asian Nations (ASEAN) region, which
is vulnerable to the impacts of climate change. Recent developments in establishing
a carbon offset market exchange have been based on regional NBS. There will be
significant need for FinTech such as financial instruments and associated technolog-
ical innovations to develop large-scale regional carbon credit markets or voluntary
carbon markets. In this chapter, Singapore’s Climate Impact X (CIX) is examined as
a case study. Marketplaces and exchanges allow producers and consumers to interact
on sustainability metrics and impacts, facilitating sales of carbon credits, biodiver-
sity offsets, and ethically sourced and labelled products. FinTech solutions emerging
in the areas of digital exchanges for carbon credits (biodiversity in the future) and
e-trading of natural capital-backed digital assets include technologies such as satel-
lite imagery, Internet-of-things data, application program interfaces, data tokens,
blockchain for climate impact reporting, and more. Currently, there is a huge oppor-
tunity to reduce emissions and conserve existing forestland and wetlands through
NBS. However, there remain barriers to making full use of FinTech solutions for
NBS and scaling a carbon market in ASEAN such as costs of technology, logistics,
MRV (measurement, reporting, and verification), and lack of regulation and regional
coordination.
D. David (B)
SIM-Global Education, Singapore, Singapore
M. Yoshino
Science Policy Research Unit, University of Sussex, Brighton, UK
J. P. Varun
MBA Fintech Programme, BITS Pilani, Pilani, Rajasthan, India
https://doi.org/10.1007/978-981-19-2662-4_6
112 D. David et al.
Keywords FinTech · Carbon market · ASEAN
6.1 Introduction
Climate action [sustainable development goal (SDG) 13] and life on land (SDG-
15) are two of the most important environment-related SDGs and two of the largest
global challenges: climate change and biodiversity loss. Addressing them has them by
carbon removal through nature-based solutions (NBS) provides a long-term carbon
sink, which will positively impact global warming, biodiversity, equity, and other
SDGs. While mitigation efforts to avoid potential emissions provide a huge oppor-
tunity to address climate change, NBS allows us to absorb and offset carbon while
avoiding emissions at a rate of 10 gigatons of CO2 per year (GtCO2 per year) by
2025 (Girardin et al. 2021).
According to a report by World Economic Forum & McKinsey & Company (2021)
natural climate solutions can provide a third of the climate mitigation required to
reach a 1.5- or 2-degree pathway by 2030 (~7 GtCO2 ). This would also be at lower
cost than other forms of carbon dioxide removal. Current technologies such as carbon
capture use and storage, storage technologies, and solar geoengineering are still quite
expensive, inaccessible, or unscalable. Planting trees and other “natural” climate
solutions provide a straightforward way to remove CO2 from air. Such methods are
simple and scalable, and provide other crucial benefits such as protecting existing
forests, reforestation, and social benefits for communities.
Furthermore, with countries and companies announcing their commitment to zero
emissions by 2050 (the race to net-zero emissions), NBS has a powerful role in
reducing temperatures in the long term. Although the mitigation potential of NBS
cannot solve the entire problem of reducing CO2 emissions, which can only be
achieved by decarbonizing the economy, if scaled appropriately, NBS can still offset
a considerable portion of the emissions and help address global warming.
To ensure that NBS are economically viable, a market must be developed to
monetize such nature-based assets for carbon sequestration or avoidance. This will
also provide direction to other economic policies and mechanisms such as carbon
pricing, carbon taxation, emissions trading systems (ETSs), offset mechanisms, and
results-based climate finance (RBCF) (Berg et al. 2019). Berg et al. (2019) suggest
that nature-based climate solutions will be valued at US $100 billion by 2030, based
on an illustrative price of US $20 per ton.
The merits of utilizing FinTech for a transition to a more sustainable society have
been recognized internationally (UNEP et al. 2021), and UNEP Inquiry published a
report titled “FinTech and Sustainable Development” (Menon 2020), which outlined
the potential usage of FinTech to achieve the SDGs for 2030. Particularly interesting
is the green FinTech that will provide solutions to environment, social, and gover-
nance (ESG)-related challenges through initiatives such as the Sustainable Digital
Finance Alliance (SDFA) providing solutions to niche areas such as financing for
conservation.
6 Developing FinTech Ecosystems for Voluntary Carbon Markets … 113
This chapter is crucial in understanding the developments that are happening

around innovation in sustainable finance, particularly in the development of carbon
markets for NBS, which require technologies that are different from mainstream
sustainable finance solutions. Based on processes that are required in developing NBS
through digital infrastructure for carbon exchanges, where transactions and digital
ownership of nature-based assets can occur, three major groups of technologies are
required:
1. Spatial data collection using satellite images [e.g., satellite monitoring of natural
assets, Internet of things (IoT) devices].
2. Carbon data and price forecasting using real-time data [e.g., machine learning,
artificial intelligence (AI), application program interfaces (APIs) for carbon
offsetting].
3. Business-to-business (B2B) transaction management [e.g., carbon exchanges
through blockchain technology, tech stacks, decentralized data hubs, non-
fungible tokens (NFTs), and blockchains].
To understand the potential of green FinTech for NBS, it is important to understand:
(1) the NBS offset potential and solutions in the Association of Southeast Asian
Nations (ASEAN) region; (2) how carbon offset marketplaces and exchanges operate,
including and current examples like Singapore’s CIX; (3) FinTech solutions emerging
in the areas of digital exchanges for carbon credits; (4) current examples of companies
operating in this space and the technologies they utilize; and (5) the challenges for
FinTech that provide NBS and products.
6.2 The Scope for Nature-Based Solutions in ASEAN
6.2.1 Nature-Based Solutions as a Tool to Mitigate

the Environmental Impact of Industrial Activities
International Union for Conservation of Nature (IUCN) defines NBS as “actions to

protect, sustainably manage, and restore natural or modified ecosystems, that address
societal challenges effectively and adaptively, simultaneously providing human well-
being and biodiversity benefits” (see https://www.iucn.org/commissions/commis
sion-ecosystem-management/our-work/nature-based-solutions). There is a growing
interest toward NBS, which utilizes natural capital and ecosystem services to resolve
environmental impacts caused by anthropogenic activities such as climate change,
food insecurity, water resource depletion, and environmental disasters (Kabisch et al.
2016).
The potential of NBS as a tool to help achieve climate change goals is substantial.
Studies have estimated NBS to contribute to around 30% of the greenhouse gas
(GHG) emission reductions needed by 2030 to keep the rise in temperature to less than
114 D. David et al.
2 °C relative to the pre-industrial level specified in the Paris Agreement (Girardin et al.
2021). Particularly in tropical forest regions where forestry and land use accounted
for 11% of global GHG emissions in 2010, the potential of NBS is high (Seddon et al.
2020). Tropical forest has higher carbon density and more land area than other forest
biomes, and studies estimate that it will provide around 50% of the GHG emission
reduction needed (Goodman and Herold 2014; Estoque et al. 2019).
Apart from being an emission reduction tool, NBS is expected to bring other co-
benefits to ASEAN. First, the region is vulnerable to climate change (Overland et al.
2021) and NBS can mitigate its environmental impacts. For example, restoring and
conserving coral reefs and mangrove belts could mitigate the risk of flood, creating
permeable vegetation to facilitate freshening groundwater in case of water scarcity,
and greening up-slope landscapes to help reduce the risk of floods (UNEP et al. 2021).
Second, it will prevent further loss of species in ASEAN, which has a huge ecological
implication. Given that ASEAN is one of the most biodiverse places in the world,
there are growing concerns over the rapid loss in species over recent decades (Lynam
et al. 2016). By buttressing local ecosystems, for example, by protecting native
species, could prevent further degradation (Vairavamoorthy et al. 2016; Hughes et al.
2020). Lastly, NBS will help maintain the quality of the environmental asset, which
is indispensable to societies in ASEAN, where economic growth is also a big concern
for most of the region. This is because productive activities are attributable to the
extraction and dependence on natural resources both for industrial activity (mining,
agriculture) as well as individual livelihoods (Carbon Market Institute 2021; Hughes
2017).
6.2.2 Carbon Credits Generated by Nature-Based Solution
Carbon markets are expected to play a substantial role for scaling up the potential
of NBS carbon projects and facilitate them as a tool to achieve the goals of the Paris
Agreement. The role of NBS in the overall carbon market is depicted in Fig. 6.1.
There are two types of global carbon exchange markets: a compliance market and
a voluntary carbon market (VCM). While the compliance market is operated at
a nation-state level according to the emission reduction amount set in the Kyoto
protocol framework, the VCM is a voluntarily transaction by any individuals or
entities (mainly private companies) that wants to offset their carbon footprint. VCM
is much smaller in size than the compliance market.
In 2019, the compliance market’s transaction volume was nearly 30 times that
of the VCM, more than 3.0 GtCO2e and 0.104 GtCO2e , respectively, with values of
US $48 billion and US $282.3 million each (Poolen and Ryszka 2021). However,
transactions on VCMs are set to scale and increase rapidly, given that the transaction
of carbon was 1.5 times higher in 2018 than that in 2016 (Donofrio et al. 2019). In
ASEAN, carbon markets grew more than 20 times in value between 2010 and 2020,
from US $5 million to US $100 million (Allied Offsets 2021).
Types of carbon market Types of carbon offsets Types of carbon offset projects
Compliance
Regulated Nature-based solu ons
marketplaces where Avoidance (e.g., avoided deforesta on)
carbon allowances Credits generated Renewable energy
are traded to meet from reducing or Energy efficiency
regulatory targets avoiding future
carbon emissions
Voluntary (VCM)
Unregulated
marketplaces where
carbon offsets are Nature-based solu ons (e.g.,
Removal
traded on a voluntary afforesta on/reforesta on)
Credits generated by
basis Carbon capture and storage
capturing and
removing carbon
present in the
Majority of the Nature-based atmosphere
credits are transacted in the
VCM
Fig. 6.1 Nature-based solution of carbon offset in the global carbon market (Sources developed
by authors from various sources including HSBC, ICAP, UNFCC, IMO, ICAO, SP Global)
Table 6.1 Transacted global

Project type Volume (MtC) Value (US $ million)
voluntary carbon offset
volume (value by project Forestry and land use 36.7 159.1
2019) Renewable energy 42.4 60.1
Household devices 6.4 24.8
Others 7.6 20.3
Source Donofrio et al. (2020)
The growth of VCMs has important implications for NBS because most of the
NBS carbon transacted in the carbon exchange market occurs through the VCM. In
2019, the type of carbon offset project that had the highest transaction volume was
“forestry and land use” (Table 6.1) and the transactions in this category have been
increasing in volume and value over the years. It has grown 2.64 times from 2016
to 2018. The majority of these projects were done under the “Reducing emissions
from deforestation and forest degradation” (REDD+) scheme. REDD+ is an emis-
sion reduction framework developed by the United Nations Framework Convention
on Climate Change (UNFCC) that offers developing countries result-based finan-
cial incentives to reduce emissions by undertaking projects that enable sustainable
management of forest NBS (Donofrio et al. 2019) that align with the approach of
NBS.
With more companies and organizations targeting net-zero emissions, many will
rely on carbon credits to offset emissions they cannot get rid of by other methods.
116 D. David et al.
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) has estimated that
the demand for carbon credits could grow 15 times or more reaching US $50 billion
by 2030 and will further grow by 100-fold by 2050 (TSVCM, 2021).
6.2.3 Potential Environmental Assets That Could Produce

Carbon Credit in the Region
ASEAN is the densest area in the world for potential investible NBS carbon with
ecosystems abundant in carbon such as tropical mountain forests, mangroves, and
peatlands (Sambhi 2021; Feng et al. 2021). ASEAN is also one of the regions in the
world that is most vulnerable to the effects of climate change (Beirne et al. 2021).
Griscom et al. (2020) estimated the annual amount of carbon generated from NBS
activities such as protection and restoration of forests and wetlands implemented in
a cost-effective manner will cost less than US $100 per MgCO2 e. This cost estimate
is under the assumption that countries are moving toward carbon neutrality. Among
79 tropical countries included in the analysis, five ASEAN countries (Indonesia,
Malaysia, Myanmar, Vietnam, and Thailand) were in the top 20 countries with large
carbon potential. Notably, it was reported that forest and wetlands offer the most NBS
opportunity in ASEAN countries, with Indonesia, Malaysia, and Myanmar holding
the largest potential. Furthermore, five of the ten ASEAN countries (Laos, Malaysia,
Cambodia, Indonesia, and Myanmar), had potential NBS carbon that would account
for more than half of their current total national GHG emissions (Griscom et al.
2020).
Although CO2 emission reductions by NBS in land use have been mainly imple-
mented in terrestrial forests, reductions can also be achieved by utilizing other ecosys-
tems. For example, “blue carbon,” which considers restoring and preserving carbon
sinks in marine vegetation ecosystems such as seagrass, mangroves, and saltmarsh,
has received increased attention (Thorhaug et al. 2020). In ASEAN, which holds
35.6% of the world’s mangroves (Gandhi and Jones 2019), the non-forest NBS
carbon potential is high (Table 6.2). Griscom et al. (2020) reported that amongst the
79 tropical countries, 76% of the cost-effective carbon from protection and restora-
tion of wetlands, including peatland and wetland will be generated in Indonesia.
Although the contribution of wetlands to the cost-effective NBS carbon portfolio
compared with other ecosystems is not large, it plays a relatively important role
in Indonesia and Malaysia, generating more than 10% of its national potential NBS
carbon (Griscom et al. 2020). Thorhaug et al. 2020 compared the sedimentary organic
blue carbon stock derived from mangroves and seagrasses in ASEAN with the Gulf
of Mexico, which is another tropical/subtropical area, and estimated the expected
amount of carbon to be 10 times higher in ASEAN (480.48 Tg Corg vs 4779.16 Tg
Corg ).
Table 6.2 Carbon stocks of

Country Carbon stocks
mangroves and seagrasses in
the Southeast Asia region Mangroves Seagrass
(teragrams) (teragrams)
Myanmar 87.2 0.04
Thailand 34.7 2.3
Vietnam 34.4 2.5
Cambodia 8.4 3.1
Brunei 0.1 0.03
Singapore 0.1 0.03
Indonesia 2573 753
Malaysia 137.5 4.1
Tropical China 33.8 0.6
Philippines 47.7 376.5
Papua New Guinea 136.5 233.8
Source Zeng (2020) adapted from Thorhaug et al. (2020)
6.3 Challenges and Opportunities with the ASEAN NBS

Carbon Market
6.3.1 Barriers to Unlock the Potential of ASEAN NBS

Carbon Market
The carbon market in ASEAN has grown substantially over the past decade (Fig. 6.2).
107.21
82.03
VALUE ($MILLION)
65.24
55.84
44.23
36.34
23.47
11.63
4.23 6.48
1.72
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
YEAR
Fig. 6.2 Cumulative carbon market size of all sectors (Source Allied Offsets 2021)
118 D. David et al.
In particular, the monetary value of ASEAN’s NBS carbon is substantial, the esti-
mated annualized net present value (NPV) over the next 30 years is US $9.8 billion,
while that of the Americas and Africa are US $19.1 billion and US $2.4 billion, respec-
tively (Koh et al. 2021). However, developing a NBS carbon market in ASEAN faces
several barriers to unlock its potential. First, operating NBS projects may not appear
financially sustainable to project developers. The financial investment required to
set up a NBS carbon project is substantial. For example, doubling the amount of
conserved land and national waters to offset up to 2.6 GtCO2e could require additional
operating expenditure of US $20–45 billion a year (Claes et al. 2020). ASEAN’s
potential carbon sequestration supply is reduced by 18–56% when financial sustain-
ability at a threshold of US $100 MgtCO2 e is taken into account (Raghav et al.
2020). Second, the opportunity cost of implementing NBS projects may appear high
to landholders because it has to compete with other existing prominent land use
in the region such as rice agriculture, aquaculture, and palm oil plantation, which
contributed to the large loss of both mangrove and terrestrial forests in the region in
the beginning of the twenty-first century (Gandhi and Jones 2019; Koh et al. 2021).
Another barrier is the crucial ability to maximize the potential of VCM where
most of the NBS-related carbon credits are transacted to overcome the issue of
oversupply and lack of demand. This suggests that of all the voluntary credits issued
since the inception of VCM, 44% still have not been purchased (Turner et al., 2021).
Although NBS carbon projects have the potential to offset around 7% of global
carbon emissions, which is equivalent to 2.6 GtCO2e per year on average between
2020 and 2050, it needs sufficient demand to make full use of this potential because
more than half the amount of this carbon, 1.4 GtCO2e per year, is investible only if
the cost is over US $50 per tCO2e (Koh et al. 2021).
To increase the demand, setting a clear regulatory framework where credits derived
from NBS will be counted through the National Determined Contributions (NDCs) of
the climate agreement is important. This could increase the demand by four to eight
times the level of demand in 2020, 0.090 GtCO2e per year. Another crucial aspect is
increasing the emission reduction demand from the business sector responsible for
84% of global GHG emissions. To achieve this, more companies need to proactively
adopt net-zero emission targets and supply chain and scope 3 emission reductions
by 2050 (Turner et al., 2021).
6.3.2 NBS Carbon Market Initiatives in ASEAN

and Singapore CIX
In ASEAN, countries have been making efforts to establish national-level compliance

markets and national emission trading systems (ETSs), but there is still no regional-
level VCM (Chang 2017). However, to increase the financial flow in NBS projects
for carbon capture, upscaling voluntary carbon credit markets has great potential for
increasing the transactions in NBS (Raghav et al. 2020). There is growing momentum
for creating a NBS-based carbon market in Southeast Asia, especially in Singapore

through its Green Plan and positioning of the nation as a regional sustainable finance
hub (Chang 2017).
Over the past few years, Singapore has developed a sustainability and sustainable
finance industry. Under the Emerging Stronger Together (EST) Task Force, 2020,
it has created the Sustainability Alliance for Action (AfA). Under this industry-led
coalition, the city-state is in the process of developing a high-quality carbon offset
market. According to Rosales et al. (2021) this will be developed through:
(I) Carbon verification—a technology-enabled verification system for NBS;
(II) Carbon market—a marketplace and exchange for carbon credits (carbon
market); and
(III) Green standards and a one-stop solution where companies can measure,
mitigate, and offset their carbon footprint.
There has been a new initiative in Singapore to launch a joint venture of private
sector partners to create a first-of-its-kind, world-class carbon exchange market called
Climate Impact X (CIX) (see https://www.dbs.com.sg/corporate/solutions/climateim
pactx). CIX aims to help scale the VCM around the world in line with the vision of the
Taskforce for Scaling the Voluntary Carbon Market. The CIX has been proposed to be
a marketplace for “high quality carbon credits,” which will be achieved by utilization
of technologies such as satellite monitoring, machine learning, AI, and blockchain
technology to enhance transparency and integrity. Developing an ecosystem for
carbon offsetting mechanisms and markets will require newer technological solu-
tions. For example, Project Greenprint, which is a project of the Monetary Authority
of Singapore (MAS), is a marketplace for green solutions that will allow for mobi-
lizing green finance, monitoring, and verification, and impart measurements within
its ecosystem (see https://www.mas.gov.sg/development/fintech/Green-FinTech).
MAS’s Project Greenprint technology platform aims to promote a green financial
ecosystem through green FinTech investment of US $50 million. This will require
technologies such as tech stacks, IoT devices, decentralized data hubs, coordination
across different jurisdictions, and developing APIs for the carbon offset market.
Making this data available and accessible will be a challenge. Interestingly, only
10–20% of all the data required rests within the finance sector, while most of the
data will be sitting in other sectors such as logistics, forestry, agriculture, and related
sectors. Among many offices, MAS has a FinTech Infrastructure Office (FIO) that
is responsible for the regulation and development of an efficient technology-enabled
infrastructure for the financial sector in areas such as cloud computing, big data,
and distributed ledgers. The FinTech Ecosystem Office (FEO) is responsible for
developing cutting-edge technologies for use in the financial industry. The FEO also
works with various stakeholders to test innovative new solutions and even provide
sandboxes for such cutting-edge technologies.
Singapore’s CIX is backed by the Singapore Stock Exchange (SGX), which aims
to eventually trade such products as futures and other derivatives on its exchange
(see https://www.sgx.com/climate-impact-x-cix). In the process, the products will be
developed using a rating system on existing frameworks such as the Gold Standard,
120 D. David et al.
which will require the integration of satellites, artificial intelligence, and blockchain
technologies to verify the integrity of projects (The Straits Times 2021). Project
baskets and contracts that are aligned and measured using comparable metrics (such
as Gold Standards) will allow for transparent price signals by using real-time market
data and making tradable, liquid carbon credit contracts. Interestingly large tech
companies such as Google, Microsoft, and Amazon are already in talks to collaborate
on developing the new carbon offset trading platform (The Straits Times 2021).
The CIX contains two platforms; an exchange and a project marketplace. The
former caters to large-scale carbon credit transactions mainly involving multinational
firms and institutional investors while the latter offers the opportunity to sell credits
per project and enables a broader range of companies with an objective of meeting
sustainability goals to participate in the VCM by supporting NBS projects that allow
them to meet their sustainability goals (Choudhury 2021).
The two dimensions of the CIX will serve the needs of large-scale buyers and
small-scale project developers and should help overcome the scale issue observed
with the current VCM.
6.3.3 Fintech Opportunities in Carbon Exchange Markets

and Providing NBS Offsetting Capacity
Utilizing FinTech to transition to a more sustainable society has been recognized

internationally, and in 2016 the UNEP Inquiry published the “FinTech and Sustain-
able Development Report,” which outlined the potential application of FinTech to
achieve the SDGs to reach 2030 targets (United Nations Environment Programme
2016). Sustainable and green FinTech will provide solutions to ESG-related chal-
lenges through initiatives such as the Sustainable Digital Finance Alliance (SDFA),
which provides solutions for niche areas such as financing for conservation (see
https://greendigitalfinancealliance.org/the-digits-2/) (Shackleton et al. 2019). With
green and climate finance gaining prominence through initiatives such as the Glasgow
Financial Alliance for Net Zero (GFANZ), there is a growing trend and need for
sustainable FinTech, given that the FinTech market hit US $120 billion in 2018 and
is expected to reach US $305 billion by 2025 (see https://www.marketdataforecast.
com/market-reports/fintech-market).
Asia is also catching up with global trends in positive impact financing and digital
innovations, and there are growing efforts to tap into the opportunity to raise invest-
ments and technologies to develop carbon credit markets to capture carbon and other
environmental benefits. The crucial aspect now will be how the market is developed
and monetized such as through nature-based assets, by synchronizing cross national
regulation, contracts, payments, and geo-tracking of these assets. All these develop-
ments will give direction to carbon pricing policy, especially in the Asia region, from
carbon taxes, ETSs, offset mechanisms, and RBCF (Berg et al. 2019).
FinTech is playing an increasingly important role in carbon credit market trans-

actions. FinTech encompasses any type of innovation to facilitate the provision of
financial services (Thakor 2020), but in essence FinTech uses technology to deliver
financial services through software, which then have knock-on effects that alter
business models, applications, processes, or products (Feyen et al. 2021). There-
fore, it is expected that FinTech will play a large role in filling the gap in tracking,
accounting, and trading of NBS carbon credits that will eventually provide investment
opportunities in this area.
FinTech firms operating in this space have a huge opportunity to fill the financing
gap, where NBS can provide at least 30% of the CO2 mitigation goals by 2030,
but currently only receive around 3% of the funding allocated to carbon capture
(see https://www.finextra.com/newsarticle/37573/fintechs-role-in-paris-agreement-
success-and-restoration-of-nature-at-scale). If this is not scaled up it will be a lost
opportunity for natural restoration, carbon sequestration, biodiversity protection,
and the prevention of further land degradation. However, this will require an innova-
tive financing mechanism to allow financial institutions to work with governments,
non-governmental organizations (NGOs), and landowners to unlock investment into
natural capital, which will protect and restore nature and provide livelihoods while
remaining profitable for investors.
6.4 Technology Landscape for Carbon Trading Exchanges

and Offsetting Mechanisms from NBS
6.4.1 Technology Utilization for Carbon Trading
To develop an NBS-based voluntary carbon exchange where carbon credits can be

traded, a diverse range of technological capabilities are required. At each stage of the
carbon credit transaction (Fig. 6.3), different technologies will be required. Satellite
monitoring, geospatial mapping, IoT, and other technologies will be required in the
protection and restoration of natural assets like mangroves or wetlands, and for veri-
fication of carbon offsets. For efficient price discovery of carbon, technologies such
as AI and machine learning will be required. To ensure transparency and verifiability
of the market, technologies such as blockchain, NFTs, and others will be required.
Finally, a supply and demand for carbon credits must emerge so that buyers and
sellers can actively participate on a VCM exchange.
After looking at the literature, there are three broad areas requiring different
technologies (Fig. 6.4). At each stage, different technologies and solutions will be
required to finally achieve carbon exchange based on NBS and monetizing natural
assets.
122 D. David et al.
Investors
Sponsors and finance
credit projects
• •
Companies
Companies
• •
Financial
Financial Voluntary carbon credit transac on flow
ins tuinsons
tu ons
• •
Academia
Academic
Carbon credits issued

Project developers Buyers/ resellers
Project developers Buy carbon credits to
Selects project type
Selects project type offset their own
and credit standards. It
and credit standards. emissions, or emissions
pays fee to both
Pays fee to verifying in their value chains.
verifying agencies and
agencies
rd and third-
3 party
party auditors
auditors for for Carbon credit verifying
valida on as well as agencies Carbon exchange
registera on and Set standards for carbon Carbon exchange place
issuance of credits. credit quality, cer fy and where the bid of buyers
• •Governments
Government issue carbon credits. and sellers are matched
• NGOss Tracks cer fied credit and offset is re rement
• •Companies
NGOs projects and credits of the purchased
• Companies issuance and re rement credits are done.
in its registry.
• Standard
organisa ons: Verra,
Carbon brokers/ retailers
Offers range of credits and
Third3rdparty
partyauditors
auditors services to reduce the cost
ValidaValida
on andon and of directly contac ng
verifica
verificaononof of
carbon
carbon project developers.
offset
offset before and during
both before and
projects.
during projects.
Fig. 6.3 Voluntary carbon credit transaction flow (Source Adopted from Paia Consulting 2021 and
Rosales et al. 2021)
Spatial data collection using Satellite images

Collect satellite images of forest Analyze spatial uncertainty of
Produce reliable carbon maps
inventory plots forest carbon
Forecasting Price using AI

Use econometrics and neural networks for
Identify potential features for pricing
forecasting pricing
B2B transaction management

Efficient carbon exchange where buyers and sellers Make transactions using blockchain in a secure
can transact and decentralized manner
Fig. 6.4 Technology roadmap for carbon trading (Source Developed by authors from various
sources)
6.4.2 Geospatial Analytics: Spatial Data Collection Using

Satellite Images
Although satellite monitoring of data seems straightforward, there are challenges,

and methodologies are still being developed and tweaked to improve the accuracy of
monitoring and evaluating carbon offset potentials. For example, current technologies
combine sample plot and image data from satellites to map NBS carbon density at
local, national, or regional levels (Yan et al. 2016).
A common issue is that multiple spatial resolution images are used at different
scales. These need to correspond with field observations that match the resolutions
of the image values or pixel sizes. This means that carbon observations are for much
smaller areas of a map unit. Furthermore, other challenges exist, such as the avail-
ability of reliable carbon maps from natural assets, because estimates of nature-based
carbon normally contain uncertainties. The second challenge is to accurately model
propagation of uncertainties from input data to output results. Scientists currently
use two methods to solve this problem: first, up-scaling the national forest inventory
plot data and satellite images from smaller sample plots and image pixels to larger
map units (Wang et al. 2009). The second method uses spatial uncertainty analysis
and the error budget method, which captures uncertainties through a geostatistical
mapping system. Figure 6.5 illustrates the broad processes of estimating carbon from
natural assets such as forests (Yan et al. 2016).
Fig. 6.5 Using satellite

images for forest carbon Produce reliable maps of carbon
estimation (Source Wang
et al. 2021)
Handle uncertainties in the estimates of forest carbon
Mapping and analyzing spatial uncertainty of forest

carbon
Use forest inventory plots to study spatial distribution

of forest carbon
Study the variance of the estimates
Quantify uncertainties from satellite images

124 D. David et al.
6.4.3 Green API and Open Data for Carbon Offset
Green application programming interfaces (APIs) are built to advance sustainability,

environment and climate, and specific initiatives. APIs are software intermediaries
that allow two applications to communicate. APIs serve to underpin platforms that can
reduce their carbon footprint, such as the Open Charge Map, a public registry of elec-
tric vehicle charging locations worldwide. The Walkscore app uses APIs to provide
transit scores that can be integrated into third-party apps. The Brighter Planet API
provides data to assess the environmental impact of a wide variety of activities and
transportation using a RESTful interface with JSON and XML outputs. In ASEAN,
both Grab and Gojek are offering a carbon offset features mobile app. Grab allows
customers to opt-in to paying less than US $0.10, and proceeds will be used toward
reforestation and conservation projects managed by local NGOs in the region.
In NBS and VCM development, companies can leverage on APIs that integrate
geospatial data and blockchain platforms to enable seamless transactions between
suppliers and corporates that buy carbon offsets in a decentralized way. Landscape
dynamics are assessed through land use analysis by way of remote sensing data,
acquired at different time periods, which can be made publicly accessible through
APIs. While it is important to develop green APIs for tracking forest resources,
nature-based assets, and carbon emissions, this also has to be scaled up to provide
access to markets, exchanges, and customers. Good examples of environment and
emissions related APIs include the Avoidance of Mass Extinctions Engine (AMEE),
which provides sustainability data for about 20 million companies that cover infor-
mation such as financial risk, carbon emissions, carbon efficiency ratings, company
contact information, and environmental ratings (see https://www.amee.com/api).
Other third-party apps can use this information for impact estimation.
6.4.4 Using AI for Carbon Pricing
One of the largest challenges is with the pricing of NBS credits, which has implica-
tions for the spot or forward market. Carbon prices are determined by various factors,
such as the supply and demand balance, government regulations, type of offsetting
projects, and resources required to maintain and monitor the offsets (Allied Offsets
2021). The pricing process is not smooth because there is a lag between development,
verification, and certification, and it could take between 3 and 5 years to be registered.
There will also be other challenges such as the quality of NBS-related data because,
unlike other commodities, the data relating to supply, volume, and quality are not
accurate.
Moreover, supply is still limited because the carbon offsets from NBS are still
limited, and its carbon market is still far from liquid. This means there would also
be issues where there are investors that buy credits at a low price in the primary
market not to offset their emissions but to sell it in the secondary market where
there is higher demand. Even the most mature carbon market, the European Union
Emissions Trading System (EU ETS), which was significantly reformed in 2017,
faces new challenges relating to carbon price forecasting.
Carbon price is forecast using computational intelligence, whereby historical
prices are used to forecast carbon prices. However, carbon price trends are diffi-
cult to predict because of a lack of historical data as well as its high volatility. Fuzzy
logic can be used to counter this insufficiency because it can use inexact and uncer-
tain information by applying “if–then” rules that model qualitative aspects of human
knowledge and reasoning processes without using quantitative data or analysis. A
hybrid approach that combines this function of fuzzy systems with other adaptive
neuro-fuzzy inference systems can enhance the precision of the prediction because
the fuzzy subsystem in a neuro-fuzzy system can automatically adjust the parame-
ters of the fuzzy rules using neural network learning algorithms, thereby training the
model to be more accurate (Atsalakis 2016).
The overview of the hybrid neuro fuzzy controller is shown in Fig. 6.6. In the
context of VCMs, the input time-series dataset will comprise daily carbon emission
futures prices for the past 3–4 years, which does not have determinable trends within
them. Then this price will enter two subsystems that form a closed-loop feedback
system, which has been applied in stock market pricing. The first subsystem (neuro
fuzzy controller) produces control actions for the second subsystem (process control),
which forecasts the carbon price trend one step ahead (the following day). A closed-
loop system will help cope with unexpected disturbances and uncertainties about
the system’s dynamic behavior. At any given time, the input carbon price is influ-
enced by perceived market conditions and past prices. The performance of this fore-
casting model is evaluated by assessing discrepancies between forecasts provided by
prediction models and real-world results via statistical techniques (Atsalakis 2016).
Historical U(k) Process Forecast

carbon prices Neuro fuzzy control and carbon price
Yk Y Y
controller forecas ng Y
k+1
Y Y carbon prices
Closed feedback
Inverse process dynamics to offset
Fig. 6.6 Hybrid machine learning pipeline (Source Atsalakis 2016)

126 D. David et al.
6.4.5 B2B Transaction Management by Establishing Carbon

Exchanges Through Blockchain Technology
and Others
Based on the rules decided in the Paris Agreement, the common currency for
accounting carbon is based on carbon dioxide equivalent (CO2e ), which stands for
a unit based on the global warming potential (GWP) of different greenhouse gases.
With the common unit of emission based on CO2e and the concept of emissions rights
and offsets, blockchain and AI technologies can ensure that a VCM based on NBS
are traceable, transparent, and cost effective while integrating the emissions markets
between countries and administrative zones (Kim and Huh 2020).
More startups are now using emerging technologies such as AI and blockchain for
NBS-related carbon credits markets. Although the traditional carbon trading mech-
anisms have so far relied heavily on government initiatives and centralized ETSs,
many countries that do not participate are left out. For these countries, blockchain
startups that convert carbon credits into tradable carbon asset classes allows them
to be traded like typical commodities like agricultural goods and crude oil on an
exchange architecture while also being decentralized.
To effectively incorporate identity management and risk control within the carbon
trading system, blockchain will be useful. As shown in Fig. 6.7, blockchain tech-
nology will provide a central control, monitoring, and safeguarding system based
on a three-tier organizational architecture for the hybrid blockchain system (Zhao
and Chan 2020). With this structure, the immutability and reliability of blockchain
technology are retained and risks are controlled:
Super node Risk management layer
Supervise
Organizers Super
node Safeguard
Report
Validators Create blocks

Full Blockchain
node
Maintain ledger
Authorize Validate Vote
transac on
Light Submit request

Users
node
Fig. 6.7 Role of blockchain in carbon trading (Source Zhao and Chan 2020)
• An organizing committee manages and regulates the market in terms of autho-

rization, access control, auditing, supervision, and dispute settlement.
• Transaction validators maintain the blockchain ledger for carbon traders. Ideally
these would be independent parties such as academic institutions or NGOs. Collec-
tive verification of data and transactions by all parties ensures that bad actors can
quickly be brought under control.
• Users will include businesses who are the buyers and sellers of carbon credits and
offsets. Although the market will initially cover B2B transactions, business-to-
consumer transactions will also be covered with increasing sophistication.
6.4.6 Startup and FinTech Business Models Operating

in VCMs Based on NBS
Over the past two decades and especially over the past few years, more startups
and organizations have entered the various processes and stages of VCMs that are
based on NBS. Table 6.3 highlights firms that are operating in this space and those
developing solutions for carbon offset markets and innovating in NBS carbon credits.
6.5 Policy Implications
Carbon trading and markets have the ability to provide a huge flow of funds to
developing countries, with estimates ranging from US $20 billion to US $120 billion
per year (United Nations 2010). It is still early days for many VCMs. Long-term
global regulatory frameworks between countries and regions will be required, along
with differentiated responsibilities and standards and comparable methodologies to
assess the value of natural capital and their offsetting potential. On the technology
and innovation side, new financial instruments and FinTech solutions are required
across various tracking, pricing, and trading stages.
VCMs face challenges such as the validity of credits to emissions reductions,
limited pricing information and transparency, unclear taxonomies and guidelines,
and a lack of liquidity. It would be easier to operate in a compliance market and
not necessarily operationalize Article 6 of the Paris Agreement to set clear rules
governing international carbon market mechanisms.
With the 2021 negotiations, VCMs are expected to include reporting and institu-
tional arrangements, including establishment of the new Article 6.4 crediting mecha-
nism, which can support the growth of the VCMs to obtain agreement between inter-
national accounting institutions on carbon finance accounting and harmonized prac-
tices for financial reporting. High-quality information is critical for capital markets
and carbon offsets to facilitate impact investment funds and credit enhancement
mechanisms in carbon farming (Rosales et al. 2021).
Table 6.3 FinTech operating in the carbon offset credit space
128
Company Year Inc. Location Overview of service Key solution provided

South Pole 2006 Switzerland South Pole is a global carbon finance Investment options on certified offset
consultancy, offering a wide range of projects
services from project and technology Geospatial analysis and AI for carbon
finance, data and advisory on sustainability. quantification
It also develops carbon and renewable
energy credits. South Pole provides
tailor-made environmental solutions by
integrating GIS, RS, and AI to entities
seeking to enhance sustainability
Soil Capital 2013 Belgium Soil Capital is a carbon payment program Investment options on certified offset
for farmers adopting regenerative practices projects
that absorb carbon. Soil Capital provides
peer-benchmarked analysis of a farm based
on operational data provided by farmers.
The company also provides third-party
verified ISO-compliant carbon certificates
that can be traded in VCM
Cloverly 2018 USA Cloverly provides API that calculates Investment options on certified offset
real-time carbon footprint of business projects
activities and connects the customers to
diverse carbon offset options
Wren 2019 USA Wren provides subscription-based offset Investment options on certified offset
products that are typically derived from projects
projects using regenerative agroforestry
and agricultural techniques. Other projects
include tree planting or protecting existing
forests
(continued)
D. David et al.
Table 6.3 (continued)
Pachama 2018 USA Pachama uses machine learning with Investment options on certified offset
satellite imaging to measure carbon projects
captured in forests. Carbon potential is Geospatial analysis for carbon
estimated by analyzing the tree crown sizes quantification
and shapes of LIDAR imaging, which
creates 3D representation of forests
supplemented by satellite high-resolution
imaging. This technology is used for
remote verification and monitoring.
Customers can access Pachama’s online
platform that offers a breadth of
forest-based carbon offsetting options
Sylvera 2020 UK Sylvera provides ‘rating’ solution for Carbon credit rating derived from machine
carbon offsets in VCM similar to that learning on geospatial data
produced by S&P for corporate debt.
Sylvera applies machine learning and data
analytics to diverse set of geospatial data it
collected to generate ratings based on
proprietary data sets
SDG exchange 2017 Global SDX exchange is a marketplace for carbon Carbon credits exchange market supported
6 Developing FinTech Ecosystems for Voluntary Carbon Markets …
credits. The SDG exchange platform uses by blockchain technology

blockchain technology to track carbon,
facilitate trading, and verify compliance. In
terms of security, the marketplace offers
seamless and secure blockchain asset
transactions on a global scale. For example,
carbon credits entering SDG’s marketplace
are first registered on the blockchain, thus
eliminating current carbon market
129
inefficiencies and increases security

(continued)
130

ClimateTrade 2017 Spain ClimateTrade is a leading blockchain Carbon credits exchange market supported
platform for carbon offsetting. by blockchain technology
ClimateTrade aims to offer governments,
project developers, and offset purchasers
access to a secure, traceable, and verified
climate registry, simplifying carbon credit
accounting while maximizing value and
impact. ClimateTrade’s ecosystem allows
companies to easily offset their climate
footprint by investing in verified
environmental projects through blockchain
technology
Viridios Capital 2019 Australia Viridios Capital develops and deploys AI to Carbon price assessment with AI
value, structure, and originate emissions
offsets and sustainable development assets,
facilitating the flow of investment into
sustainable development and investor
returns. Particularly their partnership with
S&P global creates a combination of robust
and trusted price assessment data insight
with proven environmental AI technology
to provide market participants with greater
transparency into the market value of
voluntary carbon credits and their
associated co-benefits
(continued)
D. David et al.
Opisnet 1977 USA Oil Price Information Service is a Carbon price assessment with AI
price-reporting agency, providing
information used for commercial contracts
and trade settlement related to petroleum
products. In 2020, they launched a
voluntary carbon price assessment tool to
help adhere to Paris Agreement. Opnis uses
its expertise in oil price assessment using
FinTech solutions to assess carbon prices
Refinitiv (carbon research/point carbon) 2018 USA Refinitiv carbon research leverage Carbon price prediction with FinTech
sophisticated proprietary forecasting
techniques and FinTech to understand the
supply and demand trends of emissions
allowances, and the related impact on
carbon and emissions pricing. It has
partnered with more than 2000 FinTech
companies to help them with this research
NCX 2010 USA NCX offers a carbon marketplace that uses Geospatial analysis and AI for carbon
satellite images and AI to assess forests. quantification
NCX uses Basemap’s high-resolution
satellite imagery inventory of every

American forest to power its carbon
exchange marketplace. To be concise, NCX
democratizes access to natural capital
markets by opening up participation to
landowners of all sizes
(continued)
131
132

Albo Climate 2019 Israel Albo analyzes satellite imagery using deep Geospatial analysis and AI for carbon
learning to map, measure and monitor quantification
carbon sequestration in nature-based Blockchain powered secure trading
projects. Albo Climate’s accurate and platform
transparent AI quantification of CO2
sequestration, partnering with XELS,
provides a secure carbon credits trading
that is powered by blockchain
Hexagon 1992 Sweden Hexagon provides digital reality solutions Geospatial analysis for blue carbon
worldwide. In 2021, it launched quantification
R-evolution, which leverages Hexagon’s
airborne bathymetric LiDAR technologies
that detect, map, and capture details about
vital habitat to protect and validate blue
carbon sinks
DHI 1990 USA DHI develops technologies to solve water Geospatial analysis for blue carbon
environment problems throughout the quantification
world. DHI Singapore has developed an
open-access science-based web tool ‘Blue
carbon compass’, which uses historic and
real-time satellite imagery and mapping to
track and identify at-risk mangrove,
seagrass, and salt marsh as sites for the
implementation of blue carbon offset and
conservation projects
(continued)
D. David et al.
Flyingcarpet 2018 UK Flyingcarpet (FCLA) is a platform of Geospatial analysis for carbon
geospatial insights and is working with quantification
Chainlink, a decentralized oracle network,
to provide a platform for decentralized,
cryptographically verifiable carbon offsets
that are generated from absorption of CO2
by reforestation
EcoMatcher 2016 Hong Kong EcoMatcher hosts a blockchain-enabled Geospatial analysis for carbon
digital tree-planting platform. EcoMatcher quantification
app utilizes satellite imaging so that Tree-planting platform
companies can plant trees and track the
growth of the tree as well as its carbon
impact
Nori 2017 USA Nori offers a cryptocurrency where one Tradeable credits/tokens
token equals 1 ton of carbon removed.
Once a carbon removal claim is verified by
an independent third party, Nori issues a
Carbon Removal Certificate. Then the
buyer of the token can sell it for cash or
another cryptocurrency
AirCarbon 2019 Singapore AirCarbon offers digital tokens derived by Tradeable credits/tokens
distributed ledger technology, which
securitizes carbon credits into tokens that
can be used as different types of carbon
assets. One of its assets is under one of the
world’s largest carbon trading schemes, the
AirCarbon Carbon Offset and Reduction
Scheme for International Aviation
(CORSIA)
133
(continued)
134

Carbon Block 2018 Canada Carbon Block is an environmental Tradeable credits/tokens
accounting technology that utilizes
proprietary hardware backed by blockchain
that verifies carbon emission reductions
and converts it into a token. Then the buyer
can trade its token on its platform
Puro.earth 2018 Finland Puro.earth offers a B2B carbon offset Tradeable credits/tokens
platform via sale of carbon dioxide removal
certificates (CORCs). CORCs are tradeable
representing a ton of carbon removed from
the atmosphere through biochar production
or the use of wooden building materials
Carbonex 2017 UK Carbonex is a blockchain-based carbon Tradeable credits/tokens
credit exchange platform. It has developed
CBN coins as cryptocurrency, which
allows entities to trade carbon credits on its
platform
Source Compiled by authors from company websites, and Shieber (2021) and Gupta (2020)
D. David et al.
This will highlight ASEAN’s potential with the highest rate of forest loss in the
tropics while it also includes at least 16% of the world’s biodiversity hotspots and
plays an important role in the global carbon balance (Estoque et al. 2019). Utilization
of FinTech to facilitate the creation of a global-scale carbon market on NBS originated
from the region will not only address critical environmental concerns but also help
the region to conserve their natural assets, increase regional decarbonization, protect
biodiversity, and bring other social sustainability benefits. In addition, NBS must
be designed for longevity because forests and wetlands have long-term carbon-sink
potential and positive impacts on biodiversity, equity, and SDGs (Girardin et al.
2021).
With NBS playing a critical role in supporting the future of both climate and
nature, FinTech will aid by scaling technologies such as remote sensor technologies
and proprietary algorithms for pricing and smooth market operations, and satel-
lite technology to identify high-quality projects and forecast natural capital returns.
Larger efforts will be required in the pooling of investment products and providing
financial institutions with a simple way to invest in sustainable projects, such as regen-
erative grazing or planting trees. Eventually, carbon offset markets and exchanges
will create a reliable long-term income stream for landowners and local communities,
who can sell carbon credits, providing a return to investors.
With many developed countries not meeting their climate-related aid commit-
ments, VCMs will aid the flow of finance to abatement activities in low- and middle-
income countries who are also rich in natural assets, like Indonesia, Myanmar, and
Laos. This will also help scale up and reduce the costs for emerging climate technolo-
gies, increasing their chances of adoption at scale and achieving greater decarboniza-
tion. The use of technology solutions such as blockchain can address information
and transparency issues; for example, enabling the effective tracing of internationally
transferred mitigation outcomes and preventing their double-counting.
6.5.1 Barriers: Creating an Ecosystem with the Right

Infrastructure, Regulation, Innovation, and Human
Resources
Economically, one of the main barriers to establishing forest carbon projects is

the competing interests and economic value of other economic sectors (e.g., agri-
culture, logging), which require more pricing mechanisms and regulations to halt
deforestation (Koh et al. 2021). Other governance and institutional constraints and
prohibitively high technical entry such as developing VCMs and exchanges further
limit the potential of forest protection as a nature-based climate solution. Many of
these barriers may be overcome if actionable information regarding both the financial
risks and return-on-investment of projects is available to incentivize solutions and
where investors can bank on such projects.
136 D. David et al.
It is still early days and current VCMs lack the scale, trust, and liquidity necessary
for efficient trading, because carbon credits are highly heterogeneous, and there needs
to be more transparency at each of the stages. Fundamentally, each credit will be
based on the offset potential of the underlying NBS project across regions, affecting
the price of the credit as the quality will vary. This will introduce nascent market
problems where the diversity of credits means that matching an individual buyer
and supplier will be time-consuming and inefficient until markets mature and trust
develops.
For trust to develop in these markets, quality criteria based on “core carbon prin-
ciples” for verification of carbon credits with emissions reductions, will need to be
clearly evident. Thereafter, standardization of carbon credits based on a common
taxonomy will be required. With small initial volumes of trade, the reliability of
daily price signals will be questionable, so making carbon credits more uniform will
promote more liquidity on exchanges.
In ASEAN, although Singapore has taken a lead in developing the first NBS-
based VCM, other countries and entities will also follow suit. Over time, there will
be consolidation and price stability of carbon assets. In the process, resilient, flexible
exchange infrastructure based on next-generation technologies will enable the VCM
to function effectively and allow high-volume listing and trading of NBS assets and
new structured finance products for project developers.
Once VCMs become mature and sophisticated, they will be similar to stock
exchanges with developed post-trade infrastructure, comprising clearing houses and
meta-registries. Clearing houses will enable the development of a futures market and
protection from defaults, while meta-registries will standardize transactions between
buyers and suppliers (similar to the International Securities Identification Number
in capital markets).
All this will be backed up by data infrastructure that will promote transparency
and real-time data, which are essentially akin to capital markets. Through APIs,
market players will be rewarded for better reporting and analytics services with open
and accessible reference data from multiple registries.
To ensure that these carbon markets become more reliable and efficient, more
harmonization of standards and verification practices are required to improve the
frequency and accuracy of project verification. As highlighted in earlier sections,
there is a lot of interest and many technology solutions being implemented with
several FinTech startups and NGOs using drones, AI, blockchain, and satellite tech-
nology to enhance verification of projects and smart contracts for trading these carbon
offsets.
Part of the challenge has also been to develop registry systems that are more
transparent and interoperable and automate processes relating to asset ownership
and ease of trading these assets. To achieve this, blockchain-powered registry has
been useful in providing asset owners the transparency of project information as well
as voluntary emission reduction (VER) transactions and ownership.
6.5.2 Pricing and Monetization Challenges
One of the major challenges has been that VERs are not all alike, because a VER
from a project in Africa will not be valued the same as another VER in Latin America
(Davies 2021). The projects in terms of the land required to sequester 1 ton CO2e may
vary based on the natural resources, requiring an IoT sensor to monitor and estimate.
In addition, plantation forestry, which is a form of monoculture that grows trees of
a limited age and species, does not have the same carbon benefits as maintaining an
intact forest ecosystem (Girardin et al. 2021). Interestingly, a VER generated from a
project that also supports local communities uses a more reputable carbon standard,
and supports local biodiversity will be valued more than a VER generated from a
project that just plants trees through a reforestation project (Davies 2021).
.
Interestingly, pledges by many corporates to reach net-zero GHG emissions are
driving up prices of carbon in places like Australia. Prices for Australian carbon units
have already reached US $20 per ton with analysts suggesting that it could reach US
$50 by the end of the decade (Readfearn 2021). In the European Union, the prices
doubled over 2020–2021 to US $85 per ton under emissions reduction deadlines. In
Australia, with 95% of the current voluntary carbon offsets going to international
projects, there is a rising need for more policy coordination within countries and
across nations. There is a huge demand for carbon offsets in places such as Australia,
because it would need to find about 4 billion tons of emissions reductions by 2050
to be aligned with a net-zero target (Readfearn 2021). Australian carbon credits are
highly reputable with the federal government buying credits directly from private
operators undertaking offset activity and undertaking its own verification (Foley
2021).
6.5.3 Technology and Cross-Nation Interoperability

Challenges
With the costs of obtaining accurate real-time geospatial data and quantifying carbon
capture potential of different sites and resources remaining challenging, FinTechs
are helping in the application of technical solutions such as real-time satellite data,
AI/machine learning, blockchain, and digital contracts. Interoperability of data has
also been a challenge and many FinTechs are working on APIs for carbon offsets
(e.g., cooler.dev, Pachama, and patch.io).
Adding to the costs of technology solutions are the cost and logistical challenges of
monitoring, reporting, and verification to avoid fraudulent behavior. Given the use and
pricing of VERs with differing targets for national governments in Asia, with different
regulations and multiple standards, harmonization is a great challenge. Adding to
that will be price coordination of carbon offsets and natural assets from national and
138 D. David et al.
Fig. 6.8 Proposal of future governance body to help standardize OTC (over the counter) and
exchange-traded contracts. Co-benefits can encompass ESG and social benefits (environmental,
social, community, gender equality, etc.) or tech catalyst benefits (Source Adopted from TSVCM
2021)
regional perspectives. Much work remains to avoid greenwashing, double counting,

and lax regulation in host countries (Miettinen et al. 2017).
Collaboration between national governments, including in ASEAN, is also needed
to work toward alignment on carbon pricing and pave the way toward a liquid market
for carbon credits. One possible area for international collaboration is in strength-
ening carbon certification schemes or creating new and better-recognized certification
systems (Fig. 6.8). Prior to the COVID-19 pandemic, Indonesia was working on new
government regulations on carbon trading as part of the nation’s goal to establish a
domestic carbon market (Tay and Gan 2021).
Synchronizing cross-national regulation, contracts, payments, and geo-tracking of
these assets all require more regional approaches. Furthermore, there are general risks
associated with carbon offset markets, including force majeure and the limitation of
liability in contracts, tax compliance, establishing dispute resolution and termination
of contracts, and the need for auditable cybersecurity logs for all data that will be
synced in the cloud (TSVCM 2021).
6.6 Conclusion
It is crucial to make nature investable through NBS solutions through carbon offset-
ting and developing carbon exchanges and incentivizing FinTechs to provide many
cutting-edge solutions in monitoring, protecting, monetizing, and transacting on the
value of these natural assets. To ensure that protection and restoration of forests,
wetlands, and blue carbon becomes marketable, pricing is crucial because it needs
to ensure that it is profitable and will discourage anthropogenic activities that
drive deforestation or pollution of these geographies. With countries and companies
committing to net-zero targets, NBS based carbon markets will help avoid natural
capital depletion, conserve biodiversity, and become carbon positive. NBS-based
markets have high potential in ASEAN, where deforestation has been rapid in the
past 20 years. How voluntary carbon offset exchange markets such as CIX and other
FinTech ecosystems emerge will affect other developing regions with huge natural
assets such as Latin America, Africa, and South Asia. Working closely with stake-
holders, government regulations and regional cooperation will be crucial to provide
an easily navigable experience for FinTechs to monetize such natural capital and
make them tradable on exchanges or through peer-to-peer apps.
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Chapter 7
Facilitating Green Digital Finance
in Bangladesh: Importance, Prospects,
and Implications for Meeting the SDGs
Sakib Bin Amin, Farhad Taghizadeh-Hesary, and Farhan Khan
Abstract This chapter provides a critical discussion of the factors influencing the
digitization of green finance in Bangladesh, a country located in the north-eastern part
of South Asia. Although Bangladesh has several green funds for financing renew-
able and other climate-related projects to achieve the sustainable development goals
(SDGs), the proportion is significantly low. Apart from the other identified barriers,
the absence of a solid policy framework is a significant loophole hindering the digiti-
zation of green finance in Bangladesh. Therefore, the chapter argues that the primary
objective for the government of Bangladesh is to focus on preparing a policy frame-
work for digitization side by side with establishing strong regulatory authority for
market regulation and stability. The chapter also highlights the importance of inter-
disciplinary research and development programs for acquiring new FinTech ideas for
facilitating green digital financing in Bangladesh for green transition and meeting
the SDGs.
Keywords Green finance · Digitization · Energy investment · Renewable energy ·

SDGs · Bangladesh
S. Bin Amin (B) · F. Khan

North South University, Dhaka, Bangladesh
F. Khan
https://doi.org/10.1007/978-981-19-2662-4_7
144 S. Amin et al.
7.1 Introduction
The increasingly globalized world constantly faces environmental problems like

natural hazards, climate change, loss of biodiversity, and changes in the ecosystem.
The root causes of all of these issues come back to the unsustainable practices of
people and their quest for increased economic growth. However, with many countries
focused on fossil energy investment, the growth rate of sustainable methods is low,
and the expansion into renewable sources is faltering (Wright et al. 2021; Zeppini and
van den Bergh 2020). This is primarily caused by a lack of investment in renewable
energy development, as Taghizadeh-Hesary and Yoshino (2019) highlight, providing
an imminent need for green finance for future energy security. According to the
United Nations Environmental Programme, green finance is defined as financial
services catering to environmentally sustainable development benefits. Green finance
has seen rapid growth in the past few years, particularly in developed and emerging
economies such as Bangladesh (UN Environment Programme 2015). One of the
many driving factors of this green finance is meeting the Paris Agreement goals
and achieving the sustainable development goals (SDGs). The idea of green finance
is still ambiguous, and, as a result, financial institutions, policymakers, and other
stakeholders are facing numerous problems, leading to slow progress in establishing
a proper green finance mechanism in many developed and developing countries
(Zheng et al. 2021). Essentially, green finance has not been mobilized sufficiently
throughout the facets of sustainable growth and renewable projects because of a lack
of digitization.
Green digital finance is a family of technologies that includes artificial intelligence
(AI), big data, web-based and mobile platforms, blockchain technologies, internet of
things (IoT), and other financial technology or FinTech to mobilize environmental
and sustainable projects (Cao et al. 2021; Sun et al. 2021). The UN Environment
Programme (2017) highlights that green digital finance has the potential to break
through restrictive barriers to open up private finance to the world of renewables
and sustainable growth, primarily by reducing supply cost and providing avenues of
creating profitable green savings and investment opportunities. Even on the demand
side, the convenience of pay-as-you-go access to clean energy provides opportunities
for new markets to evolve and providing ways to cater to poorer consumers (UN Envi-
ronment Programme 2015). Therefore, in many respects, green digital finance offers
faster, cheaper, and easier methods to finance the sustainable growth of developed
and developing countries such as Bangladesh.
Bangladesh, located in the north-eastern part of South Asia, is well known for
its recent world affairs. Bangladesh’s economy has experienced landmark success
over the past five decades. On average, the annual GDP growth of Bangladesh has
increased from about 3% in the 1970s to 7% in the 2010s and traversed 8% just
before the Covid-19 pandemic. According to the 2018 statistics of the Bangladesh
Bureau of Statistics, extreme poverty was reduced to 10.50% in 2018 from around
80% in the early 1970s. However, because of its geographical location, the negative
impacts of climate change are expected to be enormous for Bangladesh’s 160 million
7 Facilitating Green Digital Finance in Bangladesh … 145
citizens, with 1,115 people per square kilometer (Hossain 2018; Zheng et al. 2021).
On top of this scenario, the country also relies heavily on fossil fuels to meet the
current energy demands, putting extra pressure on the environment. Currently, only
2.90% of electricity generated in Bangladesh is from renewable sources (Amin et al.
2021a).
Against this backdrop, the government of Bangladesh has already taken initia-
tives to achieve green growth through green financing strategies. The government
has established two flagship green funds, namely the Bangladesh Climate Change
Trust Fund (BCCTF) and the Bangladesh Climate Change Resilience Fund (BCCRF).
These funds are considered the main sources of green finance in Bangladesh. Further-
more, Bangladesh Bank (BB) runs a refinancing scheme to finance renewable energy
generation and other green environmental projects. On the other hand, the Bangladesh
Delta Plan 2100 was adopted in 2018 to manage risks posed by climate change (GED
2018). Moreover, under the Perspective Plan 2041, the government plans to facilitate
more green finance by focusing on different financing options (GED 2020). These
options might include public and private financing on renewable energy projects,
diversion of fossil-fuel subsidies to renewable energy development, tapping the Green
Climate Fund (GCF), and attracting global green funds.
Even though Bangladesh, to its credit, has taken a number of different initiatives,
the outcomes have not been effective. Amin et al. (2018), Hossain (2018), and Khan
et al. (2018) highlight some critical issues of green finance such as the phenomenon
of investment irreversibility, high transaction costs, asymmetric information, risk and
vulnerability factors associated with renewable projects, and a lack of bank capacity
to promote green finance. While discussing the optimal output from green finance
to achieve environmental sustainability and a green growth regime, Yoshino et al.
(2020) point out that strengthening the digitization of green financing mechanisms
would provide a myriad of benefits.
Given the discussion and lack of study in the context of Bangladesh, the main aim
of this chapter is to critically discuss the factors that influence the digitization of green
finance in Bangladesh based on recent literature, statistical evidence, government
policy initiatives, and case studies. The chapter further contributes to the existing
literature by conceptualizing the role of Bangladesh’s government in initiating a way
forward for digitization in the existing green finance mechanisms to meet the 2041
development goals and beyond. This work also contributes to the discussion on other
developing countries similar to Bangladesh in terms of formulating their own tailored
policy framework for green finance digitization to facilitate green transition.
The rest of the chapter is structured as follows. Section 7.2 discusses the impor-
tance of green digital finance from the existing literature, followed by a brief discus-
sion of Bangladesh’s context. Section 7.3 summarizes the current situation of green
finance in Bangladesh. Section 7.4 illustrates some case studies of digitizing green
finance across the world and lessons learned. Section 7.5 discusses potential barriers
and respective solutions to initiate the green digital finance era in Bangladesh.
Section 7.6 concludes the chapter with some policy implications.
146 S. Amin et al.
7.2 Importance of Green Digital Finance
7.2.1 Existing Literature
The need to digitize green finance is imperative and urgent to achieve true envi-
ronmental and social sustainability (UN Environment Programme 2018). For green
digital finance to be properly implemented, the three facets of green finance-FinTech,
sustainable finance, and mainstream finance need to be synchronized (UN Environ-
ment Programme 2018). Even though mainstream green finance has been devel-
oped thoroughly over the years, the combination of sustainable finance and FinTech
with mainstream finance has been limited (UN Environment Programme 2018). The
possibilities for connecting these sectors are endless with the availability of advanced
technology, private investment, and proper planning and budgeting, paired with inno-
vation for the SDGs. According to Nakicenovic et al. (2019), the digital revolution is
more of an interconnected ecosystem, representing the convergence of many fields,
and requires continuous development. Hence, dynamic digitization of green finance
is necessary to boost environmentally sustainable development.
A big part of the digitization of green finance is the financial technolo-
gies of FinTech firms. According to the UN Environment Programme (2015),
FinTech increases access and decentralization of the financial system and increases
transparency, accountability, and collaboration across sectoral boundaries, making
FinTech a perfect tool to minimize inefficiency in green finance. Nassiry (2018)
believes FinTech, especially technology related to blockchain in green finance, will
drastically improve supply chain transparency, property rights, digital transparency,
and financial inclusion. Moreover, Nassiry (2018) mentions that digitizing green
finance would improve peer-to-peer (P2P) energy transactions, trade and exchange
of carbon credits, and climate finance. UN Environment Programme (2015) cites
examples such as Trine, a Swedish startup that lets people save and invest in solar
energy systems while making a substantial profit. More examples are M-Kopa and
M-Pesa in Kenya that facilitate easy-to-use mobile payment platforms to mobilize
clean energy to poorer communities.
The SDGs are also achieved faster with the inclusion of digital green finance.
According to a report compiled by the United Nations Secretary-General’s Special
Advocate (UNSGSA), the United Nations Capital Development Fund (UNCDF),
the Better than Cash Alliance, and the World Bank, achievement of SDG-6 (Clean
Water and Sanitation) is helped by using digital methods for billing and metering,
securing cash flow, minimizing cost, and ensuring access to safe water for rural
people. Micro-loans, layaway products, digital products, pay-as-you-go Automated
Teller Machines (ATMs), and smart meters reduce water waste and improve sanitation
upgrades in developing countries. The achievement of SDG-7 (Affordable and Clean
Energy) is boosted through digital finance by improving financial viability, reducing
cost, and expanding access to cleaner energy by removing barriers to investment in
projects. Similarly, SDG-11 (Sustainable Cities and Communities) can flourish with
digital fare collection, micro-mortgages in digital payments, effective congestion
pricing, and ride-sharing networks to reduce cost and make a living in cities more
accessible. Moreover, SDG-13 (Climate Change) is achieved by reducing carbon
footprints, creating avenues through digital finance for the poor to save for climate-
related disasters, and promoting more environmentally friendly investments.
7.2.2 Bangladesh Context
Among 170 countries, Bangladesh is at the highest risk of the adverse effects
of climate change according to the Climate Change Vulnerability Index (CCVI),
compiled by Maplecroft, with the highest risk of flooding and drought and a large
dependence on agriculture (Khan et al. 2018). Transitioning to green sustainable
development is a high priority for the Bangladesh government. While most of
the policy alignments are toward achieving the SDGs, the amounts received by
Bangladesh through international loans, grants, and investments are small relative
to its requirements (Khandker et al. 2018). One of the fastest accelerators of green
growth is renewable energy. According to Hossain (2018), grid-connected renew-
able technologies have been adopted slowly in Bangladesh despite their potential
to accelerate sustainable green growth. Hossain (2018) argues that these renewable
projects are developing slowly because of lack of a comprehensive legal and regula-
tory framework, paired with a lack of technological advances in financing renewable
energy and the disincentive of financial institutions to fund renewable energy because
of a lower rate of returns.
In Bangladesh, the current total renewable energy installed capacity is 730.62
megawatt (MW) (SREDA 2021). The allocation of solar energy is abundant, and the
statistics convey that about 4–7 kWh/m2 power is absorbed over the territories each
day. Moreover, it has been estimated that about 16,100 million tons of oil equivalent
(MTOE) of solar energy is available in Bangladesh. Among all the renewable energy
sources, photovoltaic cells have gained considerable momentum over the past few
years. Most importantly, this solar power has allowed people in rural areas to gain
access to power and electricity leading to their well-being and prosperity. Currently
in Bangladesh, there are 6,023,631 solar home systems and 296,061 solar streetlights
in use (Table 7.1).
Given its slower technological development, wind power has not been as feasible
as other renewable energy sources. The wind speed on the terrain of Bangladesh is
generally low and unpredictable; thus, devising wind projects to harness wind power
Table 7.1 Small solar energy

Technology Number Total capacity (MW)
projects in Bangladesh
Solar home system 6,023,631 262.55
Solar street light 296,061 16.7
Total 6,319,692 279.25
Data from SREDA (2021)
148 S. Amin et al.
Table 7.2 Wind energy

Location Technology Capacity Status
projects in Bangladesh
Cox’s Bazar Off-grid 1 MW Operating
Cox’s Bazar Off-grid 1 MW Operating
Feni On-grid 900 kW Operating
Sirajgonj On-grid 2 MW Implementing
Patuakhali On-grid 10 MW Planning
Cox’s Bazar On-grid 0 kW Planning
Cox’s Bazar On-grid 60 MW Planning
Data from SREDA (2021)
has been challenging. Both government and international organizations are wind-
mapping the country to denote potential locations for wind power projects. According
to recent statistics of the Energy and Mineral Resources Division, windmills have a
capacity of 2.9 MW along the country’s coastlines. They also predict that it is possible
to enact an additional capacity of 200 MW if the cost of production lowers in the
future. On the other hand, SREDA reports that including both completed and planned
projects, the total capacity of seven wind projects will stand at 74.9 MW, as shown in
Table 7.2. The Bangladesh Power Development Board has been involved in most of
these projects, and they are increasingly based on on-grid renewable technologies.
Although solar power and wind power have provided power to many rural areas, their
capacity is insufficient to meet full commercial needs. Overall, the high installation
cost and unreliable supply are deterrents to significant energy generated from these
renewable sources, which requires the intervention of digital green finance to reach
its full potential in Bangladesh.
Bangladesh has developed significantly in terms of green finance over the past
few years. As per Khan et al. (2018), the Bangladesh Climate Change Strategy
and Action Plan (BCCSAP) has identified 44 programs under six thematic areas to
cope with the incoming environmental challenges. In 2009–2010, Bangladesh set up
the Bangladesh Climate Change Trust Fund (BCCTF) and the Bangladesh Climate
Change Resilience Fund (BCCRF) to finance renewable projects and to adopt cleaner
and green technology (Khan et al. 2018). Moreover, Bangladesh has received total
grants worth US $143.59 million from the Global Environment Facility since 1991,
an organization administered by the World Bank that provides funding for green
growth. According to the UN Environment Programme (2015), 1 billion Bangladeshi
Taka (BDT) of green finance was disbursed during Fiscal Year (FY) 10. In FY14, 44
billion BDT was disbursed to green sectors. Furthermore, about 1,581 billion BDT
was disbursed as loans to high impact sectors with climate relevant actions.
7.3 Green Financing in Bangladesh: Some Stylized Facts
7.3.1 Total Direct Green Finance
Bangladesh has seen drastic improvements in the amounts of green finance that
are allocated by financial institutions. In FY14, the total direct green finance was
44,100 million BDT, whereas, in FY20, the total direct green finance was 111,215.4
million BDT, which is an increase of 152.19% from FY14. However, there have been
fluctuations in the total direct green finance over the years. As shown in Fig. 7.1, the
trend of total green finance from FY14 to FY16 decreased, and then it drastically
increased from 33,358.2 million BDT in FY16 to 139,088 million BDT in FY17, an
increase of about 317%. The total direct finance fell drastically in FY18 to 71,347.1
million BDT and then increased in FY19 and FY20.
To analyze these drastic changes, the role of financial institutions is noteworthy.
The contribution of the different financial institutions in direct green finance has
also been a big factor in the development of green finance. As shown in Fig. 7.2,
there have been changes in the amount of direct green finance that each financial
institution provided throughout the years. The private commercial banks (PCBs)
always have a significant role in direct green finance, except in FY17, where their
contribution was less than other years. However, their contribution did not affect
the total green contribution much, as we have seen a drastic increase in direct green
160000
139088
140000
120000
100000
MIllion BDT
71347.1
80000
60000
40000
20000
0
FY14 FY15 FY16 FY17 FY18 FY19 FY20
SCBs DFIs PCBs FCBs NBFIs Total
Fig. 7.1 Total direct green finance in Bangladesh for financial years 2014–2020. SCBs, State-
owned commercial banks; PCBs, private commercial banks; FCBs, foreign commercial banks;
NBFIs, non-bank financial institutions (Source Bangladesh Bank [2020])
150 S. Amin et al.
100%
90%
Share in Total Direct Green FInance (%)
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY14 FY15 FY16 FY17 FY18 FY19 FY20
SCBs DFIs PCBs FCBs NBFIs
Fig. 7.2 Contribution of different financial institutions in direct green finance (Source Bangladesh
Bank [2020])
finance in FY17. This can be explained by the Foreign Commercial Banks (FCBs)
and their contribution, as we can see a direct relationship between total direct green
finance and the contribution of FCBs. In FY17, FCBs accounted for 72.5% of the
total direct green finance, and thus there was a large increase in direct green finance.
Similarly, the FCBs had a much smaller contribution in FY18, with around 0.27%,
drastically decreasing the total direct green finance in FY18. However, the Non-Bank
Financial Institutions (NBFIs) have been reducing their contributions from FY14 to
FY20, with 20.86% of direct green finance coming from NBFIs in FY14 and only
4.76% of direct green finance coming from NBFIs in FY20. Similarly, State-Owned
Commercial Banks (SCB) also had very little impact on total green finance, with
only a 3.85% contribution in FY14 and a 1.72% contribution in FY20.
7.3.2 Bangladesh Bank Refinance Scheme
Bangladesh Bank (BB) runs a refinancing scheme to finance renewable energy gener-
ation and other environmentally green projects, like biogas, solar home systems, solar
irrigation pumps, effluent treatment plants, hybrid Hoffman Kiln technology in brick
making, and solar assembly plants. As illustrated in Fig. 7.3, the total utilization of
this refinance scheme has increased from 5 million BDT in FY10 to 506.1 million
BDT in FY13. The utilization was stable until it decreased drastically from 452.2
million BDT in FY16 to 70.5 million BDT in FY18.
600
500
452.2
400
Million BDT
300
200
70.5
100
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Bio Gas Solar Home System Solar Irriga on Pump

Effluent Treatment Plant HHK Technology in Brick Kiln Solar Assembly Plant
Total
Fig. 7.3 Utilization trend of Bangladesh Bank refinance scheme (Source Bangladesh Bank [2020])
Undoubtedly, utilization of the refinance scheme improved the different sectors

in green energy production. However, the relative importance of each sector was
different every year, as shown in Fig. 7.4. In FY10, most priorities were given to
solar irrigation pumps and biogas. The relative importance of biogas has dropped
over the years, from 38% of the refinance scheme in FY10 to 0.53% in FY20. In FY12,
solar assembly plants were prioritized, with 52.03% utilization, but their priority has
also declined over the years. Effluent treatment plants have seen increasing priority
from FY16 to FY20, from 12.82% in FY16 to 56.58% in FY20.
7.3.3 Share of Green Finance by Category
Green finance in Bangladesh was mainly used to boost the production of different
products in different categories. As shown in Fig. 7.5, the amount of green finance
used for renewable energy has declined from 4.7% in FY18 to 3.3% in FY20.
However, more of the finance was used to improve green establishment, increasing
from 15.8% in FY18 to 60% in FY20. This came at the cost of utilizing less green
finance in waste management, which fell from 49.6% of the green finance in FY18
to only 9% in FY20.
152 S. Amin et al.
100%
90%
Share in BB Refinance Scheme (%)
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Bio Gas Solar Home System

Solar Irriga on Pump Effluent Treatment Plant
HHK Technology in Brick Kiln Solar Assembly Plant
Fig. 7.4 Importance of different sectors in the utilization trend of BB refinance scheme (Source
Bangladesh Bank [2020])
70.0
60.0
60.0
49.6
50.0
Share in Percent
40.0
32.6
30.0 25.9
20.0 17.7
15.8 15.4
10.7 9.0
10.0 8.0 8.0 9.0
4.7 5.9 5.4 5.9
3.2 3.3 3.8 3.0 3.0
0.0 0.1 0.0
0.0
FY18 FY19 FY20
Renewable Energy Green Establishment Energy Efficiency

Alterna ve Energy Green Brick Manufacturing Recycling and Recyclable Product
Waste Management Miscellaneous
Fig. 7.5 Share of green finance in Bangladesh by category (Source Bangladesh Bank [2020])
7.4 Case Studies
7.4.1 Switzerland
From early 2016, Switzerland has constantly been supporting and exploring the
optimal pathway for sustainable green digital finance mechanisms. The first initia-
tive was taken by a company named MAVA that started to support conservation
and environmental sustainability. The UN Environment Inquiry then supported the
company for a study to determine the implications of digitization in green finance
schemes and its linkage with economic development. Since then, Switzerland has
shown considerable progress in digitizing green financing schemes. According to the
global green finance index, Zurich and Geneva are ranked 8th and 26th, respectively.
The strategic focus of Switzerland in terms of accelerating sustainable green digital
finance is mainly toward a market-led mechanism, where the government acts as
an intermediary and facilitator of different needs. Some examples of green digital
financing companies are listed as follows.
For climate-friendly investment, the Blockchain for Social Impact Coalition
(BSIC) innovates different types of blockchains and solutions associated with the
SDGs directly related to environmental quality assurance. BSIC mainly focuses on
four areas, namely inclusion of finance, energy and environment, vulnerable societies
or populations, and supply chains. With the help of the IXO Foundation, it builds
smart impact bonds. The transnational network provides an easy pathway for anyone
interested to create or support any environment related to the SDG projects. On the
other hand, with the help of publicly available data and computer modeling, Carbon
Delta determines the firm’s predicted portfolio value that can be affected by the risks
associated with climate change. Besides large firms, Carbon Delta also helps startups
and small firms in uncovering risks related to the financial system. The company also
supports investment markets by analyzing the risk of equity investment, focusing on
climate value at risk, and transitions in the investment decision. According to Carbon
Delta, four core aspects influence climate value at risk. These are: (i) technology,
(ii) climate trends, (iii) extreme weather, and (iv) the Paris Climate Agreement and
underlying regulations. In 2017, this Swiss company won the Risk, Intelligence, and
Security award at the European FinTech Awards for its contribution toward digitizing
green finance processes (Bayat-Renoux and van der Lugt 2018).
Switzerland is also focusing on different incentives to accelerate the efficient use of
resources for consumption purposes. For example, Climatecoin Foundation issues a
cryptocurrency known as Climatecoin. Through this currency, citizens can participate
in climate change mitigation and adaptation programs. Climatecoin Foundation is
based on an innovative token-as-a-service business model. This model allows citizens
to buy carbon credit tokens that can be used for purchasing or exchanging carbon
credits of a different nature (same functionalities and utilities) through its portal. The
token holders can easily reduce their carbon footprint through trading carbon credits
from a wide range of mitigation projects. SolarCoin is another cryptocurrency used
in Switzerland to provide incentives for solar production. Solar energy generating
154 S. Amin et al.
firms or individuals can earn one SolarCoin for generating 1 MWh of energy. This
earned currency can be used as a means of payment in different exchange markets.
Furthermore, the Energy Web Foundation acts as an open blockchain platform that
helps to facilitate the renewable energy market. It enhances incentives for renewable
energy generation with low transaction costs by tracking the green attributes of
different renewable projects.
7.4.2 Netherlands
In the Netherlands, Jouliette has introduced a transaction platform that runs on

blockchain and helps with private smart grids. Through this blockchain, local firms
and communities can easily trade renewable energy in a P2P process. This appli-
cation is equipped with machine learning features, allowing users to have real-time
information on the electricity flow map, and helps with initiating a hassle-free trans-
action. The company also has integrated different community-level activities, for
instance, car-sharing and local time banking. In contrast, a startup named Bundles
sells energy-efficient washing cycles rather than washing machines. With the help
of a leasing model, the startup provides other different energy-efficient appliances.
They also provide a device to monitor the energy consumption pattern of the appa-
ratus for the consumers’ convenience. The company offers incentives in terms of
lower monthly fees if consumers can save energy and use machines optimally.
7.4.3 Germany
An example of local distributed energy markets can be found in Germany. The

case of Lumenaza provides a clear picture regarding the possibilities of FinTech for
establishing a P2P regional energy market across the world as well as renewable
energy development. Lumenaza works with small-scale energy generators (such as
rooftop solar owners). It provides a platform through which consumers and all the
small-scale producers are connected in the same locality and can trade electricity. The
company also ensures a standard level of transparency to show where the electricity
is generated. The company’s platform to connect its users is known as “utility in
a box” software. For Lumenaza’s contribution in connecting small-scale renewable
electricity generators to consumers, the company won an award from the government
of Germany in 2013.
7.4.4 South Africa
A company named Sun Exchange has created a blockchain for solar electricity micro
leasing in South Africa. Through this blockchain, investors can buy solar cells through
the process of a crowd sale, which is a way of funding projects through cryptocur-
rency. After setting up solar cells in different areas, investors can earn real-time
income by selling solar-generated electricity. The process effectively makes solar
electricity more available for citizens, especially those in rural and semi-urban local-
ities. The users of such solar electricity can pay their bills through nearby banks or
other financial methods (like mobile banking) or even through cryptocurrency. The
funds are then collected by the Sun Exchange and are distributed to the investors. The
Sun Exchange charges about 5–25% for every successful project and loan annuity
of 2.5%. Moreover, the company is also expanding its projects to other countries
including Namibia and Zimbabwe.
7.4.5 China
Chen et al. (2017) and Nassiry (2018) have discussed the impact of the Ant Financial
Services Group in China. Collaborating with the UN Environment Programme, the
company has created a mobile-based service known as ANT Forest. It is currently
considered the world’s largest platform for accelerating green consumption and
production with the help of big data, social media, and mobile apps. This service helps
its users to reduce their carbon footprint by three approaches. First, it provides carbon-
saving data to the mobiles. Second, it connects the virtual identity of the users for their
green energy earnings, coming from the reduced carbon footprint. Third, it offers
rewards through a tree-planting program. Nassiry (2018) mentions that over the first
16 months, about 200 million people joined the program. Furthermore, carbon emis-
sions were lowered by about 150,000 tons through behavioral changes after using the
mobile-based service. In the transport sector, Mobike provides a bike share service
that operates through a mobile app. This company provides consumers/commuters
with the ability to undertake affordable short urban trips with the benefits of reduced
traffic congestion and reduced carbon footprint. However, along with Nassiry (2018),
Desouza et al. (2018) and Noonan (2018) have emphasized that services like ANT
Forest cannot thrive because of policy inefficiency and regulatory inconsistency in
many Asian countries outside of China.
156 S. Amin et al.
7.4.6 Kenya and Brazil
Kenya and Brazil have also initiated different green digital financing facilities. For
instance, in Kenya, M-Kopa uses Global System for Mobile Communications (GSM)
technology linked with solar power cells to allow users to pay installments without
using the conventional banking system. The company has also introduced a pay-as-
you-go scheme for the relatively poor users. M-Kopa has gathered US $45 million
in equity financing and debt funding from LGT Venture Philanthropy, the Bill and
Melinda Gates Foundation, the Netri Foundation, the Commercial Bank of Africa,
and many others. According to the UN Environment Programme (2018), M-Kopa has
successfully connected 600,000 customers to affordable solar energy. The projected
revenue would be about US $450 million over the next 4 years.
In Brazil, citizens can choose energy sources to charge their mobile phones
through a mobile app called Ziit. The app has created an innovative pathway for users
to use different types of renewable energy sources. The scheme provides renewable
energy certificates, ensuring the transferred energy from renewable sources like solar,
water, wind, and hydro. While using the app, the users also learn about different types
of renewable energies and the significance of renewable energies in the upcoming
civilization and environment (UN Environment Programme 2018). Furthermore,
at the national level, the Brazilian Banking Association is working with FinTech
communities and the banking sector to facilitate the large-scale digitization of green
finance for achieving the SDGs (Bayat-Renoux and van der Lugt 2018).
7.4.7 Lessons Learned
Further investigation reveals some key aspects behind the successful progression
of digitization of green finance in selected cases. Box 7.1 lists some of the lessons
learned. Based on the overall discussion of this section, the following discussion
turns the focus on Bangladesh’s standpoint regarding green digital finance.
Box 7.1 Lessons learned
• In all cases, there is evidence of a well-crafted policy framework for finance

digitization.
• Strong regulatory body with well-defined jurisdictions.
• A monetary policy maintained by the respective central banks that is well adjusted
for market stability.
• Promotion of smooth functioning of different digitized payment and investment
systems. Such activities have created immense awareness across societies.
• Arranging funds for FinTech industry development, especially for small and
medium FinTech enterprises.
• Strong collaboration with other countries (e.g., collaboration between Brazil and
Netherlands). This helps to develop the digitization of green funds in a more effective
manner because of spillover and positive externality effects.
• Transparency and efficiency within the industry plays a major role. Institutional
reforms are being implemented to ensure unnecessary hindrances.
• Collaboration of different banks and financial institutes to create a secure network
that is used for safer green finance transactions.
• Central banks as the front-line institutions for overseeing market stability and market
dynamics.
• Political willingness to introduce green digital finance for green transition.
• Large-scale surveys to identify concerns, expectations, potentials, etc.
• Engaging major companies from the financial industry to implement pilot projects,
given the government rules and regulations to find the optimal strategies for
facilitating green digital finance.
7.5 Facilitating Green Digital Finance in Bangladesh
This section discusses the process of accelerating the digitization of green finance in
Bangladesh. Given the current situation of the progress of green financing in different
renewable projects, we identify several barriers hindering the digitization of green
finance. It is believed that overcoming these barriers will facilitate digitization in
green finance in Bangladesh and lead the country on the path to achieving the green
growth target mentioned in the 2041 perspective plan (GED 2020).
7.5.1 Government and Governance
Bangladesh does not have any formal strategic policies for any type of digital green
financing mechanism. As a result, the country has not progressed in digitizing green
financing schemes, especially in renewable energy development and climate projects.
Most renewable energy and climate change-related green finances are typically medi-
ated by traditional banking systems, as discussed earlier. Therefore, the first and
foremost priority should be to formulate a strategic policy guideline for digitization
to thrive in the green financing industry. The government should include this policy
guideline into the existing policy framework through which green banking transac-
tions can occur in Bangladesh. In doing so, FinTech firms will enter the green finance
market and will be able to collaborate with different stakeholders in financing various
green projects.
Notably, Tapscott (2016) and Nassiry (2018) explicitly mention that one of the
major problems in developing and sustaining the digital green finance market is good
governance. The government has to play a key role in Bangladesh’s green finance
158 S. Amin et al.
market development in line with the SDGs. With the help of its different regula-
tory bodies, the government needs to maintain a competitive market environment
and ensure stability without distorting the innovation momentum and market-driven
initiatives. Given that the SDG financing framework is solely based on traditional
banking approaches, now is the time for the government to link digital green finance
with the targets of achieving SDGs, mainly SDG-7, SDG-11, SDG-12, and SDG-13.
This will hasten the digitization process.
7.5.2 Involuntary Penalties
Even though digital green financing positively impacts sustainability, several pieces
of literature argue that unintended consequences may arise if not handled carefully.
According to the UN Environmental Programme (2018), digital technology used
to facilitate the outreach of green finance can have an involuntary impact on the
environment when equipment is produced and disposed of without following rules
and regulations. For example, Hardware production requires the use of different
chemicals (like cobalt and lithium) that are harmful to the environment and ecosystem
when discarded inappropriately. Therefore, firms need to follow the environmental
regulations of international and local agencies. Once again, the government must
play a key role in this regard.
Another fact is that digitization comes with higher energy consumption when
energy efficiency management is absent. It has been found that data centers around
the globe have an equivalent carbon footprint to airline industries because of their
high reliance on energy. Given that blockchains and other potential digital tools for
green financing are strongly related to data-driven technology, there is a valid concern
regarding the hike of energy consumption, leading to increased environmental pollu-
tion in countries like Bangladesh, where fossil fuels dominate. The CO2 emissions
from fossil fuel combustion are the single most significant source of greenhouse gas
emissions into the atmosphere from human activities (Schwanitz et al. 2014). The
increased share of fossil fuels (oil and gas) in the electricity generation mix has led
to increased CO2 emissions in Bangladesh. According to the Global Carbon Project
(GCP) (2019), around 94.26 million tons of CO2 were emitted in Bangladesh in
2019, of which 23.11 million tons (~25%) came from oil combustion. Because of
the higher share of oil in electricity generation in the past 4 years, oil-based CO2 ,
on average, has increased by 12.09%, which is well above the average growth rate
(8.39%) of the past 11 years (2009–2019). Therefore, it is imperative that efficiency
in energy usage is maximized to keep emissions at tolerable levels during the green
transitional period. In this regard, the existing energy efficiency master plan approved
by the government needs to be implemented rigorously side by side with the adoption
of digitization in the green finance market. Otherwise, augmentation of digitization
in green finance may lead to a zero-sum game outcome or even worse.
7.5.3 Cyber Security
Cyber security is another barrier that can significantly create a downward spiral effect
on the process of green finance digitization in Bangladesh. There are two main aspects
that need to be addressed for effective green digital financing. The first is the hacking
of financial and customer databases, and the second is the possibility of fraudulent
financial activity and possible tax evasion. Given the need for transboundary oper-
ation across jurisdictions, the former aspect needs rigorous focus. Because when
the green finance market is digitized, it is open to everyone, and the probability of
valuable information being hacked is thus increased. Therefore, it is vital that strong
cyber security be in place for tackling such events while transactions take place in
the green finance market on regular basis (Taylor et al. 2020; Savelyev 2018). As a
defense mechanism, the central bank apart from the FinTechs needs to play a very
big role by formulating data protection regulations and introducing possible anti-
hacking mechanisms to safeguard personal and financial data. Also, there is a need
for a monitoring committee to monitor the direct and indirect transmission path of
the crypto assets to be vigilant against fraud activities while financing green projects.
This approach is widely used in the European Union (European Commission 2018).
To help different FinTech firms meet the compliance rules, the government needs
to adopt regulatory technology with the help of the central bank. Anti-money laun-
dering regulations can be digitized through this platform for slicing down the income
earned through illegal channels by using digital green finance tools. It can also help
firms to identify the financial backgrounds of agents or customers to avoid poten-
tially fraudulent activities. This approach is very popular in different countries like
the United Kingdom and Switzerland.
Taxation of crypto assets is another area of concern, and remains problematic
across the world. Because the assets are not found in physical form, the execution of
a taxation framework becomes difficult (Peláez-Repiso et al. 2021; Setyowati et al.
2020; OECD 2020; Ahmed 2017). Therefore, before initiating any crypto asset-based
green transaction, it is important to clarify the legal and regulatory frameworks for
taxation in Bangladesh. These can include appropriate tax guidance, level of taxation,
list of taxable assets (like exemption limits for small-scale trades), consistency with
other physical assets, and strengthening the national revenue board’s digital currency
analysis wing.
7.5.4 Microfinance Issue
Digital microfinance mechanisms for assisting community-wise small-scale renew-

able energy programs are attractive; however, such mechanisms need to be analyzed
carefully before any large-scale implementation. This is because microfinance
programs have been found to be associated with different issues that negatively
affect poor recipients (Hudon and Sandberg 2013). As a result, the central bank
160 S. Amin et al.
needs to develop a monitoring mechanism that can protect vulnerable customers

against predatory lending and discriminative behavior when small-scale FinTech
services are rolled out.
7.5.5 Collaboration Process
Collaboration among different stakeholders is crucial for advancing the development

of the digital green finance market. According to the Swiss Confederation (2016),
collaboration in the green finance market opens up opportunities for strengthening
digitization and a competitive financial market. Broadly, two groups can initiate
collaboration to advance the digitization process in the green finance market, and
these interactions may be: (i) public–private partnership (PPP), or (ii) collaboration
between financial institutes and FinTech.
Each type of collaboration faces different barriers in the context of Bangladesh.
However, for several reasons, the barriers are significantly higher in the PPP-type
collaboration. In South Asian countries like Bangladesh, the absence of the organi-
zational power of the decentralized institutions within a centralized system hampers
and interrupts the preparation of a proper policy framework for market development
(e.g., renewable energy) by which the private firms can make entry by themselves
or through PPP collaboration (Vijay et al. 2015; Ghafoor et al. 2016). In addition,
numerous bureaucratic matters further block the acceleration of future and operating
green energy-related climate programs. This certainly dispirits private initiatives to
collaborate with government organizations. Following the argument of Amin et al.
(2021b) and Jamasb et al. (2016), great emphasis should be placed on the synchro-
nization of institutional reforms through regulatory legitimacy to encourage PPP
collaboration for green digital financing in Bangladesh. It should be noted that the
dynamics in the public entity’s role can be described by three distinct legitimacies
(Markard et al. 2016; Deephouse and Suchman 2008). First, cognitive legitimacy
mainly describes the best use of resources within institutions and managerial activi-
ties. Second, normative legitimacy describes the link between prevailing social values
and intuitions’ roles in different activities. Third, regulatory legitimacy discusses the
structure of standard rules, policies, and effectiveness in the process of bureaucracy.
Given that the idea of digitization of green finance is a new concept in Bangladesh,
strategic collaborations between financial institutes (i.e., both conventional banks
and non-bank financial institutes) and FinTech may lead to some complications
throughout the collaboration journey. The difficulties that may arise are the lack
of a solid financial framework and the standards through which financial insti-
tutes can collaborate with FinTech (both local and international) when focusing
on green financing for renewable energy development and climate change programs.
Therefore, it would be wise to prepare action plans or standards before confirming
collaboration between financial institutes and FinTech in Bangladesh. Following
the successful partnerships and collaborative models used in other countries, like
Canada, Indonesia, and Spain, would be very effective. Apart from the points already
discussed, finding the right collaboration partner is not easy for both parties because
cultural factors and consumer awareness hamper the process mentioned in the UN
Environment Programme (2018).
This main aim of this chapter has been to critically discuss Bangladesh’s stand-
point on digitizing green financing, especially in relation to climate projects and
renewable energy development. Given the context, the present scenario of the green
finance market and financial scenarios have been discussed from different perspec-
tives. Although Bangladesh has several funds for green financing of renewable and
other climate-related projects to achieve the SDGs, the proportion is significantly low.
Furthermore, the effectiveness of green finance to date is not satisfactory because
of several uncertainties related to the nature of the conventional banking system, as
discussed by numerous previous studies (Amin et al. 2018; Hossain 2018; Khan et al.
2018; Yoshino et al. 2020). It has been further revealed that private financial insti-
tutions are ahead of their public counterparts in green fund disbursement. Because
the current situation of digitization of green finance is still trivial in Bangladesh, this
chapter also identifies potential barriers and associated remedies for accelerating
renewable energy development and climate actions to mitigate the adverse effects of
climate change.
This chapter has pointed out that there is no particular policy for digitizing the
green financing process in Bangladesh, and it is strongly suggested that the govern-
ment should take up a primary central role to accelerate the digitization process.
However, the question remains on the design of the policy framework. It can be
argued that the policy frameworks should be angled more toward medium to long-
term measures rather than focusing on the short term. This is because the process
itself is relatively new, and the policy design should be based on a learning-by-doing
approach. The formulation process should not be based solely on related public orga-
nizations or institutions but should encourage collaboration between all stakeholders.
Here, emphasis should be given to a national committee consisting of representa-
tives from the different areas directly related to the supply and demand sides of
the green finance market. Having such a national committee for policy formulation
will ensure Pareto optimality. Also, the committee should pay close attention to the
development of blockchains and FinTech across countries and policy standards of
the other countries (both developed and developing) used for smooth operations of
digital green finance to alter the policy framework needed. In addition, governance
is as important as adopting a policy for augmenting digitization. As mentioned by
the UN Environment Programme (2018), there is a need for a regulatory body for
impact measurement and ensuring market stability. Because the introduction of the
regulatory body and its degree of jurisdictions are vital to establish green finance
digitization, we highlight the importance of an autonomous regulatory body rather
162 S. Amin et al.
than a subsidiary institute of the mainstream regulatory bodies of energy and envi-
ronment ministries. The jurisdictions also need to be defined clearly to enforce the
regulatory rules to ensure market stability rather than link with regulatory bodies of
other ministries.
The imposition of penalties for involuntary environmental “offences” like waste
mismanagement and CO2 emissions needs to be considered with great caution.
Existing environmental regulations can be enforced to manage the waste generated
from the digitization process; however, we propose changing the existing regula-
tions to increase the legitimacy of the environmental protection entities. In addition,
there is a need for awareness and training programs so that newly emerged local
FinTech can avoid involuntary environmental pollution. On the other hand, to accel-
erate the implementation process of the energy efficiency master plan adopted by the
government of Bangladesh, it is strongly advocated that the Annual Development
Programme (ADP) budget for specific public entities be increased to accomplish
the targets within the specified period. It is noteworthy that Bangladesh is lagging
behind its target because the energy efficiency rate is currently not more than 8%;
however, according to the master plan, the efficiency rate should have been 15%
(SREDA 2015). Following the argument of Amin et al. (2021b), this discussion also
advocates the quick introduction of energy service companies (ESCOs) that will be
extremely helpful in providing necessary technical assistance to different FinTechs
and other energy-related companies to improve their energy efficiency scales.
To improve cyber security, it is essential to link the Information and Communi-
cation Technology (ICT) division of Bangladesh with the digitization process. The
central bank can collaborate with the ICT division to form a regulatory technology
wing to monitor illegal activities that could be performed through the digital plat-
form (Amin and Rahman 2019). For PPP, institutional reforms should come from
strengthening the regulatory legitimacy. It is worth noting that too many institu-
tional fragmentations within a centralized system are a general trait that can be
observed in most South Asian countries. Such characteristics spur countless insti-
tutional loopholes in South Asian countries, resulting in the slow progress of many
green development agendas. Reforms for establishing regulative legitimacy need
to start from the key public entities and then slowly transit toward private entities.
For instance, priority should be given to the reforming institutions affiliated with the
financial system, technology and infrastructure development, planning and diffusion,
and decision-making process. It is also imperative that political stability is ensured
for the intended green initiatives in Bangladesh.
Finally, there is an immense need for interdisciplinary research from Bangladeshi
academia and think tanks. Without sufficient research and development, there will
be no next stage of development in the process of digitization in the green finance
market after the initial stage is completed. Universities in Bangladesh can introduce
innovation hubs, incubators, startups, competitions, scholarships for innovations, and
interdisciplinary collaborations to form teaching curricula on digital green finance
market development. New technologies, in addition to innovative marketing and
FinTech entrepreneurial strategies, will evolve with the proper implementation of
these measures. To incentivize such activities, the government also needs to increase
the allocated funds, which are very limited at present. The private sector must come
forward in an alliance with the government.
A possible extension of this chapter is to analyze the impact of digitization
and development of front-line renewable energy sources for electricity generation
in Bangladesh to develop more intensive policy discussions individually. Another
avenue of the extension can be focusing on regional prospects and implications of
green finance digitization from the South Asian context. We believe that the policy
discussion from this chapter can help the developing countries like Bangladesh that
are focusing on green finance digitization in the coming years.
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Chapter 8
The Role of Green Digital Finance
in Achieving Sustainable Development
Goals in China’s Belt and Road Initiative
James F. Paradise
Abstract Green digital finance can contribute to sustainable development in coun-

tries participating in the China-led Belt and Road Initiative (BRI) by unlocking
investment, increasing financial inclusion, and lowering the cost of business trans-
actions. Spurred by the FinTech revolution in China, including the development
of a central bank digital currency, and a quest for leadership in global economic
governance by Beijing, green digital finance is gradually emerging as an important
tool of Chinese foreign policy. Contributing to this evolution is the development of
new technology platforms by Chinese companies in areas such as mobile payments
and peer-to-peer finance, and the creation of a greener financial system in China.
Highlighted in the chapter is the importance of moving beyond exhortatory state-
ments toward binding resolutions, increasing the rigorousness of environmental stan-
dards, embedding sustainability considerations in BRI projects, and helping increase
implementation capacity in developing countries.
Keywords Green digital finance · Sustainable development goals · Global

environmental governance · Belt and Road Initiative · China
JEL Classification F30 · F50 · G28
8.1 Introduction
There has been a lot of interest in China in recent years in environmental issues.
Concepts such as “green finance,” “sustainable development,” and “environmental,
social, and governance (ESG) investing” have permeated discussions of economic
development. China has joined the Paris Agreement on climate change, has hosted a
G20 summit in Hangzhou that produced an action plan for implementing the United
Nations 2030 Agenda for Sustainable Development, and has stated that it plans to
J. F. Paradise (B)
Asia Research Center, Seoul, Republic of Korea
https://doi.org/10.1007/978-981-19-2662-4_8
168 J. F. Paradise
peak carbon dioxide emissions by 2030 and to achieve carbon neutrality by 2060.
It has also co-created a new multilateral development bank, the Asian Infrastructure
Investment Bank, whose first president, a Chinese national, has stated it will be “lean,
clean, and green” in the way it governs (Fu 2016).
One infrastructure development project in which environmental issues are signif-
icant is the Belt and Road Initiative (BRI). Unveiled by Chinese President Xi Jinping
in a speech in Kazakhstan in 2013, the BRI is a major foreign policy initiative of
China that aims to “promote policy coordination, facilities connectivity, unimpeded
trade, financial integration and people-to-people bonds” along land and maritime
routes connecting countries in Asia, Europe, and Africa (National Development and
Reform Commission et al. 2015). In one of the major documents concerning its
development, mention is made of China’s commitment to a “green Silk Road” and
cooperation in areas of “ecological progress, environmental protection, pollution
prevention and control, ecological restoration, and circular economy” (Office of the
Leading Group for the Belt and Road Initiative 2017, 34–35). Others emphasize the
role the BRI can play in accelerating the achievement of Sustainable Development
Goals (SDGs) on matters such as clean energy and climate change.
Much discussion of the BRI has focused on physical aspects of projects in areas
such as port construction, railway modernization, energy development, highway
expansion, and creation of industrial zones. Now, however, there is more attention
on digital aspects of the BRI as reflected in articles such as “China is giving ancient
Silk Road trade routes a digital makeover” (Wedell 2020) and “China’s path to a
green economy is paved with FinTech” (Lehr 2021). Contributing to this has been
the publication of UN reports on digitalization, one dealing with its contribution to
financing sustainable development; the international expansion of Chinese financial
technology (FinTech) companies; and the COVID-19 pandemic. Seeds for this devel-
opment can be found in the BRI’s foundational document, which talks about creating
an “Information Silk Road” (National Development and Reform Commission et al.
2015) or what today is referred to as the “Digital Silk Road.”
The purpose of this chapter is to understand how China’s development of green
digital finance is contributing to the achievement of SDGs in the BRI, Xi Jinping’s
signature initiative. Questions posed here include:
• What synergies may exist between the BRI and SDGs?
• How is China’s “FinTech revolution” contributing to the emergence of a new
model of economic development?
• What are the obstacles to creating a more digitally networked BRI?
By examining Chinese government documents and reviewing the activities of
private Chinese companies such as Alibaba and Tencent, this chapter sheds light on
the nexus between the BRI, sustainable development, and digital finance.
Investigating these issues is important for academic and policy-related reasons.
On the academic side, one wants to know how the Chinese government is trying to
craft a fine balance between innovation and regulation, the ways in which Chinese
entities interact with BRI partners, and the larger foreign policy goals that China is
attempting to achieve with its modernized version of the BRI. On the policy side, it
8 The Role of Green Digital Finance … 169
is important to study the effects of digitalized finance in achieving SDGs because of

the lessons that may be learned from applying new technologies to developmental
activities. Such analysis is important because other countries may also be using
digital finance in pursuit of environmental objectives.
One of the main themes that emerges from this analysis is that China is trying to
play a larger role in global environmental governance as part of a broader strategy to
exercise greater control in world affairs. In aligning the BRI with sustainable devel-
opment objectives and using FinTech for payment, fundraising, and other purposes,
China is able to assume a leadership position and rebalance global governance in
its favor. Components of this strategy include public goods provision, increasing
financial inclusion in promoting economic development, and diffusion of Chinese
technology standards. Usage of a Chinese government digital currency could also
become more important over time.
Unique to this study is its attempt to connect the different issues of sustainable
development, digital finance, environmental policy, and China’s international order-
building. On each of these topics, much has been written. There has, for example,
been much discussion about the United Nations SDGs amid general recognition
that qualitative considerations need to play a greater role in the pursuit of economic
growth. There has also been a lot of discussion about digital finance as a disruptive
force that can have both positive and negative effects depending on how it is used and
the way in which it is regulated. What has not been attempted so much is the bringing
together of these different issues. This is mainly because the elements of such a task
are all fairly new: the SDGs succeeded the Millenium Development Goals only a
few years ago, the BRI has been in existence less than 10 years, China’s quest for
global environmental governance leadership has only recently gained momentum,
and the development of new digital payment and banking technologies is still in a
formative stage. None of this has prevented the accumulation of knowledge on these
issues, but the formation of connections between different parts of China’s foreign
policy on matters of digital innovation, financial needs, and environmental goals is
in its early stages.
The remainder of this chapter consists of eight sections. Section 8.2 examines the
role of global environmental governance considerations in understanding China’s
behavior. Section 8.3 investigates the relationship between the BRI and SDGs.
Section 8.4 provides detail on China’s green digital finance activities. Section 8.5
explores the role of China’s central bank digital currency (CBDC) in facilitating
environmental sustainability. Section 8.6 highlights the activities of Chinese busi-
nesses in the FinTech realm. Section 8.7 discusses whether the Chinese government
is fulfilling its policy goals. Section 8.8 makes recommendations for a greener Digital
Silk Road. Section 8.9 offers a conclusion.
170 J. F. Paradise
8.2 Global Environmental Governance
One way to think about China’s green digital finance activities in Belt and Road
countries is in terms of global environmental governance. On numerous occasions,
Xi Jinping has talked about the need to do more to deal with environmental problems
affecting the world. In a letter for World Environment Day activities in Pakistan, for
example, Xi indicated that “China stands ready to discuss and draw up plans together
with all parties for ecological conservation, inject new impetus into global environ-
mental governance, foster a community of life for man and nature, and jointly build
a clean and beautiful world” (Xinhua 2021b). Similar sentiments were expressed in a
statement by Xi at the United Nations Summit on Biodiversity in 2020 that there was
a “need to uphold multilateralism and build synergy for global governance on the
environment” (Xi 2020). Others outside the Chinese government have also framed
issues in international governance terms as indicated by phrases such as “China aims
for building new pattern of global environmental governance” (He 2021) and China
is determined “to move from a laggard towards a new leader in global environmental
governance” (Sun 2016, 50). Much research has focused on the BRI as a platform for
environmental cooperation, with projects dealing with the environmental governance
architecture of the BRI and the politics of environmental governance in the BRI.
Details of the Chinese government’s ambitions are contained in The Belt and
Road Ecological and Environmental Cooperation Plan. Among the components of the
plan are action-oriented parts that call for more environmental information sharing,
improvement of policy coordination, expansion of green finance, and an increase in
capacity building. As the plan puts it in a section on “overarching requirements,” “We
will deepen cooperation in key fields such as environmental pollution control, ecolog-
ical protection, nuclear and radiation safety, and technological innovation in environ-
mental protection; improve the comprehensive capacity in serving, supporting and
guaranteeing environmental protection, and build [a] green, prosperous and friendly
Belt and Road” (Ministry of Ecology and Environment 2017).
Participating in implementation activities are multiple actors. These include the
Chinese government, which offers guidance and plays an important regulatory role;
enterprises, which are drivers of technological development; industry associations
that can develop codes of conduct; and citizens. Other actors include international
organizations such as the International Monetary Fund, which has teamed up with the
People’s Bank of China (PBOC) for capacity development, and host country govern-
ments. Disagreement exists about who is in charge. The Chinese government empha-
sizes shared responsibility, diverse participation, and the need for “enterprises to play
the major role in environmental governance” (Ministry of Ecology and Environment
2017). Others argue that China’s approach amounts to “state-led authoritarian envi-
ronmentalism which concentrates political, economic, and discursive power within
the parameters of the state under the centralized leadership of the Communist Party”
(Li and Shapiro 2020, 10) and gives little power to citizen groups.
Already, China has made great strides in becoming an environmental leader even
though it is one of the biggest polluters in the world. Indications of this include China’s
development of renewable energy that has made it the world’s largest producer of
solar panels and wind turbines (Chiu 2017; Malcomson 2020), its willingness to
finance green projects in foreign countries, its facilitation of international coopera-
tion on environmental issues, and its statement that the Belt and Road Ecological and
Environmental Cooperation Plan is an “important measure to implement the 2030
Agenda for Sustainable Development” (Ministry of Ecology and Environment 2017).
Important to China is that global environmental governance be “fair and reasonable”
(Xinhua 2021b) and that developing countries are able to meaningfully contribute to
important decisions. Doing this may help to overcome global environmental gover-
nance gaps and achieve the “win–win” outcomes and reform of the global governance
system that China’s political leaders desire.
Involved in the pursuit of China’s goals are activities in the digital sphere. In a
document entitled “International Strategy of Cooperation on Cyberspace” released by
the Chinese government, familiar themes of multilateral cooperation, shared benefits,
and equal participation are sounded and a statement is made that “China will work
to achieve the goal set by World Summit on the Information Society to build a
people-centered, development-oriented and inclusive information society, as a way
to implement the 2030 Agenda on Sustainable Development” (Ministry of Foreign
Affairs of the People’s Republic of China 2017). Others have conceptualized the
Digital Silk Road in terms of international data governance having to do with the
ways in which information is managed and transferred between countries or as a
mechanism for helping Chinese companies expand globally (Shen 2018). How the
major parts of China’s environmental endeavors are connected and whether they
have been effective in producing sought-after outcomes is the subject of following
sections.
8.3 Sustainable Development Goals and the BRI
The Chinese government has put a lot of emphasis on achieving SDGs in the BRI
by playing up concepts such as “ecological civilization” and “sustainability gover-
nance” in public statements by government leaders and creating an infrastructure
for the implementation of policy objectives. Elements of this infrastructure include
documents such as Guidance on Promoting Green Belt and Road and The Belt
and Road Ecological and Environmental Cooperation Plan, the Green Silk Envoys
Program, the BRI Environmental Big Data Platform, and the BRI International Green
Development Coalition, which was jointly launched by The Ministry of Ecology and
Environment of China and partners from around the world.
Support has come from the United Nations whose Secretary-General António
Guterres has said that “United Nations country teams stand ready to support Member
States in capacity- and governance-building, and in achieving a harmonious and
sustainable integration of the Belt and Road projects in their own economies and soci-
eties in accordance with national development plans, anchored in the 2030 Agenda
for Sustainable Development” (Guterres 2019). Facilitating cooperation is United
172 J. F. Paradise
Nations Environment Programme (UNEP) participation in the BRI International

Green Development Coalition and United Nations Development Programme partic-
ipation in the Green Belt and Road Initiative Center of the Central University of
Finance and Economics in China. Other support is of a more political type, having
to do with linkage of the BRI and SDGs. As two scholars have written on this impor-
tant topic, “The alignment of BRI and SDGs lends China a powerful imprimatur of
international legitimacy, transforming the supposedly non-political UN into China’s
de facto advocate for Belt and Road projects” (Li and Shapiro 2020, 129).
Connecting the BRI and SDGs are principles of sustainability. The SDGs include
ones pertaining to poverty, hunger, health, education, gender equality, work, peace,
and the environment on matters such as climate change, “life below water,” and “life
on land.” The Chinese government has said that enabling developing countries to
pursue the SDGs is a “key goal” for it (The State Council Information Office 2021a)
and that it has sought to operationalize the BRI in a way that will help with the
implementation of the 2030 Agenda (Ministry of Foreign Affairs 2016). Out of this
commonality and the cooperation it has engendered have come synergies in which
the BRI has benefited from UN resources and support, and the UN has benefited
from China’s efforts to make sustainability a driving focus of development.
Achieving China’s ambitions will require overcoming many challenges. These
include coordinating development policies in countries along the Belt and Road,
each with their own history, culture, and level of economic development, which
makes regulatory standardization difficult; encouraging foreign investment in BRI
participants that is sustainable; and embedding BRI projects with environmental
safeguards. Also important is providing finance that is green and digital.
8.4 Green Digital Finance
Green digital finance has the potential to enable China to achieve SDGs in the BRI.
Such finance involves using digital technologies such as blockchain, big data, and
artificial intelligence to realize environmental objectives in areas such as pollution
control, new energy source development, and energy conservation. Areas in which
it plays out include mobile payments, management of investment funds, extension
of credit, issuance of bonds, provision of insurance, and the design of buildings and
transportation systems. Among its benefits are reduced transaction costs, increased
convenience, greater financial inclusion, lower levels of poverty, and facilitation of
sustainable development.
Creation of a green digital finance system in China has long been in the making
with some activities pertaining to the “green” component, others to the digital compo-
nent, and still others to both. Activities include the issuance of Green Credit Guide-
lines by the China Banking Regulatory Commission in 2012, establishment of the
Green Committee of the China Society of Finance and Banking in 2015, publication
of Guidelines for Establishing the Green Financial System by Chinese government
entities in 2016, issuance of Green Investment Guidelines by the Asset Management
Association in 2018, and the launch of the Green Finance Information Management
System by the People’s Bank of China in 2018. Other activities include the creation of
peer-to-peer lending platforms in China, the development of one of the world’s largest
green bond markets, and the joint creation of the Green Digital Finance Alliance by
Ant Financial Services and UNEP.
Developments have not occurred in a vacuum. At the United Nations, numerous
reports have been published including Financing Sustainable Development: Moving
from Momentum to Transformation in a Time of Turmoil (UNEP 2016a), FinTech
and Sustainable Development: Assessing the Implications (UNEP 2016b), People’s
Money: Harnessing Digitalization to Finance a Sustainable Future (Task Force on
Digital Financing 2020), and The Age of Digital Interdependence: Report of the
UN Secretary-General’s High-Level Panel on Digital Cooperation (The High-Level
Panel on Digital Cooperation). Ideas in these reports pertain to matters such as using
FinTech to reshape the global financial system, the need for new business models,
the importance of digitalization in achieving SDGs, and international cooperation. In
the report on digital cooperation, sentences in one paragraph state: “Effective digital
cooperation requires that multilateralism, despite current strains, be strengthened.
It also requires that multilateralism be complemented by multi-stakeholderism—
cooperation that involves not only governments but a far more diverse spectrum of
other stakeholders such as civil society, academics, technologists and the private
sector” (The High-Level Panel on Digital Cooperation, 4).
Charging ahead with international cooperation is China, which seeks to share its
experiences with green finance, digital technologies, and the merger of the two with
countries along the Belt and Road in its quest for leadership in global environmental
governance. Parts of this cooperation involve Guiding Principles on Financing the
Development of the Belt and Road, a statement on achieving BRI objectives by
finance ministers of China and 26 other countries that encourages financial innova-
tion and mentions “the important role of infrastructure in sustainable economic and
social development” (Ministry of Finance 2017); the Belt and Road International
Cooperation Initiative launched by China and other countries in 2017 that “includes
deeper collaboration to improve broadband access and quality, digital transformation
and e-commerce cooperation as well as to enable more support for Internet start-ups
and innovation” (Xinhua 2017); Green Investment Principle (GIP) for the Belt and
Road launched by China Society for Finance and Banking and the Green Finance
Initiative of the City of London in 2018; the Advisory Council of the Belt and Road
Forum for International Cooperation, which mentions the importance of “improving
global digital infrastructure connectivity” in a report (2019, 23) that has a chapter on
the relationship between the BRI and the 2030 Agenda for Sustainable Development;
and the Initiative for Belt and Road Partnership on Green Development that encour-
ages “national and international financial institutions to provide adequate, predictable
and sustainable financing for environment-friendly and low-carbon projects through
development of effective financial instruments” (Ministry of Foreign Affairs 2021).
This adds up to the BRI entering a new phase in which FinTech is playing a more
important role in the pursuit of SDGs. Driven not only by commercial considerations
but also by an ethic of supplying global public goods, the Digital Silk Road is
174 J. F. Paradise
seen as having been “elevated in importance” by the Chinese government (Eurasia

Group 2020, 3) and even amounting to a development model with its own Chinese
characteristics. These characteristics grow out of conditions in China such as a large
unbanked rural population, limited usage of credit cards, a powerful Chinese state,
innovative Chinese companies, and the need to mobilize large amounts of capital to
finance the BRI. Another factor of importance is China’s development of a central
bank digital currency that can be used to advance “green” goals in BRI countries.
8.5 Central Bank Digital Currency
China’s central bank digital currency has a wide range of applications that could
be used to accelerate progress on SDGs among BRI participants. These include
financing BRI projects, debt servicing, digitalizing the green bond market, settling
cross-border trade, and remitting funds internationally. Performing these functions
will take time because the currency is only being used on a trial basis in some
cities in China in 2021, no date has been set for its official domestic launch, and no
decision has been made on possible international usage. All the working group of
the People’s Bank of China would say in a report is that “though technically ready
for cross-border use, e-CNY [as it calls the currency] is still designed mainly for
domestic retail payments at present” and that “the PBOC will explore pilot cross-
border payment programs and will work with relevant central banks and monetary
authorities to set up exchange arrangements and regulatory cooperation mechanisms
on digital fiat currency” (Working Group on E-CNY Research and Development
of the People’s Bank of China 2021, 5). Other details, pertaining to operational
features of the currency, have to do with the two-tier nature of the system in which
the PBOC issues the e-CNY to commercial banks or authorized operators, which
circulate it to the public. Using the e-CNY in Belt and Road countries fits in well
with the Chinese government’s desire to internationalize the renminbi and financial
digitalization, which is said to have helped alleviate poverty in China. It also gives
China, as one of the early movers in developing a central bank digital currency, the
opportunity to shape norms and rules in this area (Duggal 2021).
Already, some things have happened. In March 2021, China presented ideas at
the Bank for International Settlements on the use of CBDCs concerning the need for
interoperability “between CBDC (central bank digital currency) systems of different
jurisdictions and exchange” (Mu Changchun, as quoted by Wilson and Jones 2021).
China has also performed technical tests of its digital yuan with Hong Kong on
cross-border usage and has joined the Multiple Central Bank Digital Currency Bridge
project, which also deals with cross-border payments. Impetus may have come from
Xi Jinping who said in 2020, “We need to take advantage of the momentum and
accelerate the digitalization of various fields including our economy, society and
government, as well as proactively participate in creating the international regulatory
framework on digital currency and digital tax” (Xi, as quoted by Pan 2020). Fears
that others could set the standards for CBDCs may also have engendered action—in
2020, the BIS issued a report with Bank of Canada, the European Central Bank, Bank
of Japan, Sveriges Risbank, Swiss National Bank, Bank of England, and Board of
Governors of the Federal Reserve System entitled “Central Bank Digital Currencies:
Foundational Principles and Core Features” (Bank of Canada et al. 2020). Some
ideas raised in the report, such as the importance of monetary and financial stability
and the need for efficiency, were also mentioned by China’s central bank. Later, in
October 2021, the Group of Seven issued its own guidelines for CBDCs that were
similar to those of the BIS and central banks.
Use of the e-CNY for cross-border purposes could facilitate the provision of
green digital finance in countries along the BRI. Among the possible benefits of
an e-CNY is a reduction in transaction costs, faster payments and greater conve-
nience compared to using cash. To realize these benefits, however, more needs to be
done. At a digital finance forum in 2021, the deputy governor of the PBOC, Fan Yifei,
stated in reference to the e-CNY in general, “[W]e are aware of problems that require
urgent solutions. The rules and system, the application environment, and the payment
system of E-CNY, among others, are yet to be improved” (Fan 2021). On the inter-
national side, more is also needed, including the development of a strong regulatory
framework and dealing with “complicated issues such as monetary sovereignty” and
“foreign exchange policies and arrangements” (Working Group on E-CNY Research
and Development of the People’s Bank of China 2021, 5). With progress in these
areas, a Chinese CBDC could expand opportunities for green financing along the
BRI.
Uncertainties remain. Would China’s BRI partners embrace an e-CNY? Who
exactly would use it and for what purposes? How committed is China, which decided
to increase coal production amid domestic energy shortages, to “matters green”? In
regard to the policies of BRI partner countries, considerations of RMB internation-
alization and authoritarian control are relevant. With the RMB already being used
for trade and investment purposes in “neighboring countries and countries along
the B&R,” an expression used in the 2020 RMB Internationalization Report by the
PBOC that notes a 24% yearly increase in cross-border RMB settlement in 2019,
usage of an e-CNY would seem to make sense for reasons of convenience, speed,
and cost (PBOC 2020). On the other hand, BRI partners might worry about privacy-
related matters. As a report entitled “The Flipside of China’s Central Bank Digital
Currency” puts it, “Centralized digital currencies have the potential to turn finan-
cial surveillance into a powerful tool that could be wielded by authoritarian states
inside, and potentially even outside, their own borders” (Hoffman et al. 2020, 7).
In regard to who would use the e-CNY, possibilities include banks making loans,
the Chinese government providing foreign aid, entities paying for infrastructure
projects, Chinese travelers making foreign purchases, and companies settling cross-
border trade. Whether the Chinese government would mandate the use of the e-CNY
for certain activities such as debt servicing of development bank loans is unclear.
In regard to “matters green,” the Chinese government has long indicated a strong
commitment to protecting the environment and dealing with climate change. In a
white paper issued during the month the Glasgow climate change conference began
entitled “Responding to Climate Change: China’s Policies and Action,” China talked
176 J. F. Paradise
about “increasing green finance support” (The State Council Information Office of
the People’s Republic of China 2021b). China has also joined the Network of Central
Banks and Supervisors for Greening the Financial System and the International Plat-
form on Sustainable Finance; “launched green action initiatives that encourage green
infrastructure, energy, transportation and finance under the Belt and Road Initiative
(BRI) framework” (Xinhua 2021c); and indicated it “will push the development of
green loans, bonds, and insurance, as well as derivatives as part of efforts to support
peaking carbon dioxide emissions and achieving carbon neutrality” (PBOC official
Xin statement, as characterized by Xinhua 2021a). If China lives up to its commit-
ments, there would be fertile ground for the use of its e-CNY in green digital finance
activities with BRI partners.
8.6 Role of Technology Companies and Banks
As important as the Chinese government has been in driving developments in finan-

cial and environmental areas, Chinese companies have also played an extremely
important role. Contributions they have made have included developing new finan-
cial technologies for matters such as e-commerce, mobile payments, and online
lending; contributing to the creation of an environmental ethic by embracing—at
least formally—principles such as “embedding sustainability into corporate gover-
nance,” “understanding environmental, social, and governance risks,” “disclosing
environmental information,” and “utilizing green financial instruments,” (see https://
green-bri.org/green-investment-principle-gip-belt-and-road-initiative/); and helping
formulate new international technology standards.
Leaders in the Chinese technology industry with a commitment to protecting the
environment with green finance or other means include Alibaba Group and Tencent.
Alibaba has a sustainable finance framework that links fundraising to International
Capital Market Association green and social bond principles and sustainability bond
guidelines and Green Loan Principles developed by a working group of financial
professionals, and its financial affiliate Ant Financial Services Group (now Ant
Group) launched an app that enables its users to “benchmark their carbon footprint,
generated through algorithms of their financial transaction history, and to earn ‘green
energy’ credits for reducing their footprint” (UNEP 2017). Tencent, a company well
known for its WeChat platform, established a partnership with the World Wildlife
Fund for Nature “to empower ecological conservation using digital technology”
(Tencent 2018).
Opportunities for China’s FinTech companies to expand along the Belt and Road
are abundant with a PBOC website article signaling that investment and financing of
the initiative “should be market-oriented and adhere to the principle of sustainability
and mutual benefit” (People’s Bank of China 2017). Already, numerous activities
have taken place, including Ant Financial’s development of digital payment platforms
in some Southeast Asian countries through joint ventures or investments and Tencent
launching WeChat Pay in Malaysia. Early on, much of the emphasis of the Chinese
government was on “hard” activities such as building “cross-border optical cables

and other communications trunk line networks” in creating an “Information Silk
Road” (National Development and Reform Commission et al. 2015). Now, however,
there is more talk about FinTech activities in what has been rebranded the Digital
Silk Road.
Much of this has occurred in an environment in which Chinese FinTech companies
have had a lot of leeway to pursue their ambitions—until recent years when the central
government has moved to regulate companies more forcefully in what is sometimes
described as a “crackdown.” Contributing to this have been major problems in the
peer-to-peer lending industry in China, which have resulted in company defaults,
losses by investors and exposés about Ponzi scheme activity, “fictional information
about borrowers”, and extension of credit by platforms “without having proper risk
assessment tools or processes in place” (Ngai 2018). On a more fundamental level,
the Chinese government is not trying to destroy the FinTech industry because it has
repeatedly said that enterprises would play a leading role in national informatiza-
tion development and pursuit of ecological and environmental objectives, including
pursuing a green Belt and Road. It appears that a “complex alliance” exists between
the state and Internet companies in which the two cooperate to create a more digital-
ized Silk Road (Shen 2018, 2683) amid general tensions between developmental and
regulatory forces. Such can be thought of as the latest stage in “innovation dynamics”
in which a hybrid model is emerging which is marked by “collaboration between
technology companies, traditional financial institutions, and regulatory agencies”
(World Economic Forum and Shanghai Advanced Institute of Finance 2021, 7).
To date, traditional financial institutions in the banking industry have made only
limited progress in embracing green digital finance. In some respects, this is anoma-
lous given that traditional banks have long used computers and digital processes in
their operations and the Chinese government has for many years been urging the
Chinese financial industry to become greener, including in 1995 “when the PBOC
first issued guidance on integrating environmental factors in lending decisions” (Choi
and Li 2021, 14). Part of the hesitancy may have been caused by investment in large
branch networks and limited competition due to “regulatory barriers to entry” (Saal
et al. 2017). Now, however, things are changing as traditional banks face new compe-
tition from technology companies that have entered the lending business through
online banks. Major ones include WeBank, a company backed by Tencent, MYBank,
a company that is affiliated with Alibaba, and CITIC Baixin Bank, a partnership
between commercial lender China CITIC Bank and Internet company Baidu. As one
report has stated about partnerships in general, “FinTechs have come to realize that
most will not reach scale without leveraging the customer base and capital that banks
have already accumulated, while banks now acknowledge that internal product inno-
vation processes do not always meet customer expectations in terms of time to market
or quality. Both can benefit from partnerships that reconfigure financial services value
chains” (Saal et al. 2017). Developments are occurring amid a growing literature on
the new reality of traditional banks as reflected in the titles of publications such as
“How Asia is reinventing banking for the digital age” (Dahl et al. 2020), “Digital
178 J. F. Paradise
transformation of traditional Chinese banks” (Shu et al. 2020), “Developing innova-

tive digital banking business models” (see https://content.11fs.com/reports/digital-
banking-business-model-innovation), and “Digital financial services: challenges and
opportunities for emerging market banks” (Saal et al. 2017). Adding to the literature
are the annual reports of Chinese banks that catalogue developments such as the
introduction of mobile banking, greater use of emerging technologies such as big
data and biological identification, and improvement of digital infrastructure (Bank of
China 2021; Industrial and Commercial Bank of China 2021). On the environmental
side, things also are changing. In its Annual Report 2020, China Construction Bank
said in language typical of the sensibility found in publications of other major banks:
The Bank continued to improve the long-term mechanism for green finance development,
gave full play to the advantage of FinTech and full-coverage financial licenses, and actively
explored new products, new services and new initiatives for the development of green finance.
With an array of financial instruments such as green loans, green bonds, green leasing, and
green trusts, the Bank aimed to provide extensive support and foster green industries by
increasing the funding to areas such as energy conservation and emission reduction, clean
energy, clean transportation, and pollution prevention. (China Construction Bank 2021, 95)
Positive though these statements may be, the situation for the broader banking
industry is mixed. On one hand, outstanding green loans at the end of 2019 “from 21
major Chinese banks were RMB 10.6 trillion (USD 1.5 trillion), more than double
the amount from [the] end of 2013” (Choi and Li 2021, 14). On the other hand, the
share of green credit in China’s total loan portfolio was only 7%, according to one
of the more recent estimates found in a report by June Choi and Weiting Li of 2021.
This suggests there is a lot of room for major Chinese banks to provide more green
finance in China. On the international side, more could also be done with BRI part-
ners by embedding green components in BRI projects, “establishing fossil exclusion
lists for financing institutions” (Choi and Li 2021, 31), and, for the digital delivery
of credit, strengthening FinTech ecosystems in places where they are weak.
8.7 Performance
There is a lot of skepticism that China will be able to achieve a green BRI. Commen-
taries indicative of this sentiment include “Greening or greenwashing the Belt and
Road Initiative?” (Nakano 2019), “The potential climate consequences of China’s
Belt and Road Initiative” (Spiegel 2020), and “China’s BRI negatively impacting
the environment” (ASEAN Post Team 2019). Concerns have to do with China’s
continued support for non-renewable energy, including coal-fired power, in BRI
countries, and possible damage that could result to ecosystems in the form of habitat
destruction, biodiversity loss, and pollution from transportation-related infrastructure
projects. Contributing to these concerns was a study that found that BRI corridors
“overlap with the range of 265 threatened species” and “1739 important bird areas or
key biodiversity areas and 46 biodiversity hotspots of Global 200 ecoregions” (World
Wildlife Fund 2017). Other concerns have to do with a lack of transparency in the
bidding process for BRI projects and the fact that a lot of the documents issued by the
Chinese government on environmental matters, alone or in cooperation with other
BRI country governments, contain provisions that are voluntary and non-binding.
Issues of policy effectiveness have been dealt with in a growing body of academic
literature. Yin (2019) found that the BRI has the potential to create a green sustain-
able development model, but that sustainability considerations have to become more
important in BRI projects, better communication is needed with stakeholders, and
more weight needs to be given to what happens on the development planning side
in partner countries. Another study (Xiao et al. 2018) found that the overall level
of sustainable development achieved by BRI countries was not great, with Central
and Eastern European countries doing better than South Asia, but that the BRI had
resulted in sustainable development improvement. A third study looking at the rela-
tionship between FinTech and sustainable development with evidence coming from
China related to peer-to-peer platforms found that there was a U-shaped relationship
between the variables such that “FinTech constrains sustainable development when
it is less than a critical value and promotes sustainable development once a threshold
is exceeded” (Deng et al. 2019). Other studies have noted the “dynamic synergies”
between the BRI and SDGs (Lewis et al. 2021) and the potential for China to provide
more public goods for sustainable development to BRI developing country partners
(Cao 2019).
Affecting the performance of China’s environmental pursuits in BRI countries
have been the creation of laws, regulations, and guidelines in China that have given
rise to an ecological consciousness, even if it is still developing among Chinese
citizens and only beginning to take root in the corporate sector; conditions in BRI
countries that China invests and does trade in; and green digital finance. The creation
of laws, regulations, and guidelines in China is a positive development in that it
is putting in place an institutional infrastructure that can produce better environ-
mental outcomes at home and help generate experience and knowledge that can be
shared with other BRI countries. Conditions in countries hosting Chinese invest-
ment matter because they may act as a constraint on what China can achieve because
environmental governance within them may be problematic. Green digital finance
is important because it can help unlock funds from private and public investors that
will be needed for the trillions of dollars in projects in the decades ahead.
One conclusion from this is that the BRI is very much a work in progress, slowed
by the COVID-19 crisis, but with the potential to serve as a platform for advancing
environmental causes connected with SDGs. Further progress is now needed to create
the appropriate sensibilities, mindsets, architectures, and incentives to bridge the gulf
between what Chinese leaders say they want to do and the sometimes toxic realities
on the ground and in the air and water.
180 J. F. Paradise
8.8 Policy Recommendations
Emerging from this analysis are policy recommendations. One is that there needs to
be an increase in transparency for BRI projects. Without information on the content
of BRI projects, it is difficult to determine their compliance with environmental
objectives. Possible actions might include creating a database of BRI projects that
is accessible to those not party to the agreements and increasing corporate disclo-
sure of project implementation. Doing so would go a long way to addressing one
of the long-standing criticisms of the BRI, which is that there is too little publicly
available information about the details of BRI projects. A second recommendation
is that the “hardness” of BRI law increase. Under the current situation, many aspi-
rational statements and exhortatory declarations come out of documents issued by
the Chinese government or agreements reached at international conferences. Activ-
ities of that sort are good in that they represent an important early step in trying to
create an environmental consciousness among those involved in energy conservation,
biodiversity protection, and pollution-reducing efforts. More, however, needs to be
done. One thing that could be done is making provisions in agreements of the future
binding rather than voluntary. Such a move would be attractive to investors concerned
with ESG considerations. A third recommendation is that corporations do more to
become responsible stewards of the environment. This might mean developing more
codes of conduct in industry associations or other collective arrangements. Already,
there has been progress in this area as seen, for example, with the GIP for the Belt
and Road, whose signatories include not only Chinese companies but non-Chinese
companies as well. Efforts of this sort should be seen as supplementary to action at
the state level and not as substitutes for it. A fourth recommendation is that capacity
be increased in the countries that are the location for BRI projects, which is espe-
cially important because many of them are developing countries. Activities to focus
on include strengthening the monitoring of projects and improving the environmental
standards within them. Without these measures, BRI projects may have a hard time
fulfilling environmentally-related SDGs because host countries play a critical role
in the environmental outcomes of projects. Regardless of how much China does as
a central organizer of the BRI, it will not be enough without the cooperation of its
BRI partners. A fifth recommendation is that a greater role be carved out for green
digital finance. This might mean using digital technology to facilitate the develop-
ment of green bonds. It might also mean aligning Chinese definitions of green finance
with international standards where those standards are rigorous. Activity of this sort
occurred in 2021 when the PBOC, the National Development and Reform Commis-
sion, and the China Securities Regulatory Commission issued a new catalog of rules
that excluded projects that used fossil fuels from issuing green bonds (Shi 2021).
8.9 Conclusion
Green digital finance can contribute to sustainable development in countries along

the Belt and Road. The digital component is important because it makes financial
payments easier, faster, and less expensive through applications such as Alibaba’s
Alipay and Tencent’s WeChat Pay, and it can help unlock funds for investment. One
of its new manifestations is the development of a central bank digital currency, which
was being used on a trial basis in some cities in China at a time the Federal Reserve
Bank of Boston was only engaged in a research project on a CBDC in cooperation
with the Massachusetts Institute of Technology in 2021. The green finance component
matters because some of the SDGs have to do with environmental issues, and China
needs a lot of funding for its BRI projects. Together, the two components create a
new type of finance that is disruptive to traditional banking, but which can promote
financial inclusion by bringing more people into the financial system.
Incentives for China to “green” the BRI are many. One of the most fundamental is
improving the quality of life for citizens in BRI countries, including China, which is
said to be suffering from an “environmental health crisis” (Huang 2020). Doing that
will help China increase its soft power and enable it to carve out a bigger role in global
environmental governance. Beyond that, China will be able to expand commercial
opportunities for new businesses in BRI countries as it develops new technologies
in areas such as telecommunications and financial products.
Achieving sustainable development objectives will require overcoming many
challenges. These include persuading BRI countries to prioritize environmental
issues and providing them with necessary resources for realizing the vision of a green
development model; designing BRI projects in a way that emphasizes sustainability;
and monitoring the implementation of projects to ensure that they are living up to
goals that may have been set for them on matters such as disclosure of information
or protection of the environment. It is also important to increase the rigorousness
of environmental standards in China and beyond, and to make them mandatory,
not voluntary, where appropriate. Multilateral gatherings such as the Belt and Road
Forum for International Cooperation can be venues for doing this.
One issue important to watch is the political implication of new technologies being
employed in the Digital Silk Road. Concerns have been expressed in the West that
some of China’s homegrown digital creations could be used for surveillance purposes
that invade privacy. Similar concerns could be expressed about digital technologies
in the West where both states and companies have enormous data collection power.
One thing that has been said about China is that the Chinese government is sensitive
to charges of privacy infringement as illustrated by the statement of the PBOC that
“E-CNY follows the principle of ‘anonymity for small value and traceable for high
value,’ and attaches great importance to protecting personal information and privacy”
(Working Group on E-CNY Research and Development of the People’s Bank of
China 2021, 7). That statement may not reassure all, but at least it indicates that
privacy is something Chinese officials are thinking about.
182 J. F. Paradise
Going forward, analysts will want to monitor new developments along the Belt
and Road. More research can be done on the activities of Chinese enterprises in BRI
partner countries and whether BRI partner countries are developing the institutions
for achieving environmental-related SDGs. Doing those things will help one judge
the extent to which China is able to realize its lofty environmental ambitions as
formally stated.
Efforts should also be made to put the BRI experience into a broader framework
in which the purpose is to understand the factors that influence the effectiveness
of green digital finance. Among the variables in that framework might be finance
provider variables such as the sources of funding and types of investments and host
country variables such as the level of financial literacy and digital infrastructure
development in a country, the importance attached to sustainable development, and
the impacts of projects that could “bring significant political and financial risks for
investors” (Hoare et al. 2018, 8) in the form of “social unrest and legal disputes”
(Hoare et al. 2018, 8). New ideas about policy may emerge from this research.
Among the elements of China’s policy are the desire for many kinds of entities to
finance Belt and Road projects, including development banks, commercial financial
institutions, equity investors and pension funds; bilateral and multilateral cooper-
ation; technological and human capacity development; and support for small and
medium-sized enterprises. As time passes, it may be possible to better analyze the
results of BRI projects and activities, provided there is sufficient transparency. Until
such analyses are done, one can simply note the findings of one report, which states:
The existing Chinese literature shows that the current investment in [information and commu-
nication technologies] as well as digital connectivity and digital economy has had some
positive influence on the implementation of the Sustainable Development Goals in recipient
countries. It has helped to facilitate economic growth of the least developed countries and
rural areas of middle-income countries, to promote development of small and medium-sized
enterprises, to encourage digital transformation of traditional industries and green growth,
to narrow down the digital gap, and to enhance digital inclusion. (Gong et al. 2019, 1)
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Chapter 9
Microenterprises, Financial Innovation
and Green Practices: Qualitative Case
Studies from Finland
Asif Ruman, Ahmad Arslan, Petri Sahlström, and Shlomo Tarba
Abstract This chapter is one of the first academic studies to highlight the critical
role of FinTech microenterprises in linking financial innovations and sustainability.
Based on the qualitative assessment of three Finnish microenterprises, we show
that FinTech can develop unique technology-based sustainable (green) offerings to
microenterprises. These offerings provide opportunities for other firms to engage
with sustainability-conscious consumers, allow consumers to invest in sustainable
firms at reasonable rates of return, and remove the need for paper receipts for credit
or debit card transactions. Despite the different fields of operation, the case studies
show that FinTech offers a unique market opportunity for the case firms to compete
with prominent financial service providers and companies in other service sectors,
which was not possible earlier. We found that the innovative offerings by these
microenterprises create value for a range of stakeholders, including their customers,
which sometimes also includes large financial sector players.
Keywords Green · FinTech · Finland · Microenterprises · Sustainability
A. Ruman (B) · A. Arslan · P. Sahlström

Oulu Business School, University of Oulu, Oulu, Finland
A. Arslan
P. Sahlström
A. Arslan
Business School, University of Aberdeen, Scotland, UK
S. Tarba
Birmingham Business School, University of Birmingham, Birmingham, UK
https://doi.org/10.1007/978-981-19-2662-4_9
188 A. Ruman et al.
9.1 Introduction
Financial innovation technologies (FinTech) have gained the interest of academics

from multiple disciplines in recent years because of their potential for significant
influence on all aspects of the economy, whether at micro or macro levels (Chishti
and Barberis 2016; Fischer 2021). At the same time, sustainability has become one of
the most important research topics in all social sciences because of visible environ-
mental degradation and increased emphasis on all stakeholders to do their part in this
concern (Heikkurinen and Ruuska 2021). To date, research on FinTech has focused
on contemporary issues like cryptocurrencies (Lee and Deng 2018), blockchain tech-
nology (Fosso Wamba et al. 2020), or relatively well-known FinTech startups like
Revolut or Transferwise (Arslanian and Fischer 2019; Pedersen 2020) and the poten-
tial of FinTech for sustainable development (Migliorelli and Dessertine 2019). It
needs to be further highlighted that micro-firms generally (Arslan et al. 2020) and
specifically in the FinTech context are less researched. At the same time, micro-
firms are very important in all sectors because, according to one estimate, around
93% of firms in Europe are microenterprises (EUSTAT 2019). Prior literature has
also established that microenterprises tend to have significantly different strategies
and operational dynamics because of their agility and resilience linked to small size,
entrepreneurial orientation, and relative lack of resources (Chan et al. 2019; Arslan
et al. 2020; Fazal et al. 2021).
Given that microenterprises are almost unresearched in the context of FinTech,
there is a theoretical gap that this chapter aims to fill. This chapter aims to undertake an
in-depth qualitative assessment of three micro-FinTech startups from Finland, where
their financial innovation and green practices will be described in depth with reference
to relevant literature, highlighting the uniqueness and novelty of the case firms in
the chosen context. The choice of Finland is justified given that it has been referred
to as one of the front runners of climate change awareness and sustainable business
practices along with its other Nordic counterparts (Bauer et al. 2018; Arslan et al.
2021). To the best of the authors’ knowledge, there are no specific empirical studies
(whether qualitative or quantitative) on Nordic FinTech microenterprises (startups)
and their operational dynamics. Hence, there is a visible contextual (empirical) gap
as well, which our chapter aims to fill. This chapter contributes to the extant literature
in two ways. First, it is one of the pioneering studies highlighting the operational
dynamics of sustainable micro-FinTech firms from the Nordic region. Second, it is
one of the few studies that also explain the value chain of micro-FinTech firms by
offering a descriptive explanation of use cases of a range of services offered by the
FinTech firms. This approach specifies to the readers (especially policy audience)
the larger role of FinTech for sustainability than merely focusing on technicalities
and analysis of immediate outcomes like a specific service (and its uses).
The rest of the chapter is organized so that the next section offers a brief discussion
on methodology and case overview. This is followed by an in-depth description of
case micro-FinTech firms and their operations, linked to prior literature wherever
applicable. The chapter concludes with a presentation of implications, limitations,
and future research directions.
9 Microenterprises, Financial Innovation and Green Practices … 189
Table 9.1 Case microenterprises overview

Name Industry Firm type Number of Inception year Business
classification employees description
Bankify oy Software Micro 10 2016 IT consulting,
design and IT services
development
Cooler Future Management Micro 10 2019 Management
oy consulting consulting and
investments
ReceiptHero oy Software Micro 3 2018 IT consulting,
design and IT services
development
9.2 Cases Studies
We gathered a sample of 30 FinTech startup firms based in Finland from different

relevant databases. After going through those 30 firms, we chose 3 startups that
fulfilled the criteria of being a microenterprise and having a visible green (sustainable)
outlook in their strategies and operations. We present their business focus, financial
innovation, value addition for existing firms, especially small businesses, and green
practices. Our analysis and case firms’ operations description are based on publicly
available information about the case microenterprises from their websites and other
relevant resources. Table 9.1 presents a summary overview of the case firms.
9.3 Bankify
Bankify is a technology microenterprise focused on software development that started

operations in 2016. It unlocks digital banking opportunities by providing services
driven by customers’ needs for personalization, social impact, and gamification.
Bankify believes in the courage to change and in intelligent financial choices today
for a better and sustainable tomorrow. The Bankify platform brings together every-
thing required to build sustainable finances for customers. It uses open banking and
artificial intelligence (AI) to improve the customer experience and increase revenues
through personalization and automation. The case firm believes that the world must
limit global warming to within 1.5 °C of pre-industrial levels to prevent severe and
irreversible damage to our planet. This can be achieved by reducing global annual
carbon emissions to net-zero by 2050. To achieve a net-zero carbon emission goal,
we must reduce our current emissions and extract out carbon that has already been
released into the environment (Bankify 2021a).
Financial markets could play an essential role in achieving the carbon emission
goal. There are over US $30 trillion worth of sustainable investment assets that are
190 A. Ruman et al.
available for investment in the next 2 years. Before 2030, investments toward sustain-
able projects worldwide to meet UN sustainable goals should total more than UD $ 90
trillion. About 81% of Millennials and Gen Z want their wealth to be invested respon-
sibly. In the past year, sustainable products worth more than US $500 billion were sold
and over US $10 trillion worth of sustainable products were produced. Even though
most consumers believe that their purchases should be sustainable, over 72% of
consumers want them to be affordable as well (KPMG 2019; Bankify 2021a). At the
same time, there is evidence in extant literature that a growing number of consumers
support sustainable business initiatives, which ultimately strengthens the legitimacy
of those businesses (Arslan et al. 2021). Bankify’s sustainable product offering
strives to help its customers enable sustainable transformation by providing person-
alized recommendations for greener products, daily actions, offset opportunities, and
sustainable investments to their end customers (Bankify 2021a).
9.3.1 Business Focus
Bankify provides data-driven recommendations of investment products based on user

preferences, demographics, and risk profiles while focusing on sustainable options
and utilizing open banking to analyze customer affordability metrics. Users can
automate their investments by setting up rules according to which Bankify initi-
ates payments through open banking. Bankify aims to make sustainable investing
effortless with personalized recommendations and automated rules while increasing
recurring sales. Bankify’s customers are companies that build successful end-user
solutions and accelerate the change toward innovative sustainable finances. Their
partners provide capabilities to enhance their offering and help create holistic end-to-
end solutions for Bankify’s customers. Bankify’s products aim to empower market-
places, FinTech, retail banks, and other financial institutions to drive user engagement
and increase revenues (Bankify 2021a).
9.3.2 Financial Innovation
Bankify creates a social and marketing channel for finance as an electronic space
where their customers can add posts, comments, and likes to build a community
and use it to bring more visibility to their corporate clients’ products and partners.
Moreover, clients do not need to manually enter expense claims because Bankify can
automatically extract the necessary information from receipts or other documents.
Through organizational open banking partners, the case firm aggregates the product
and customer data to provide actionable insights and personalized recommendations
that promote sustainable and financially healthy choices (Bankify 2021b). Hence,
this specific case firm has the attributes of environmental and financial sustainability,
both of which have been stressed by recent studies to be important in the context of
financial innovation and sustainability (Deng et al. 2019; Bogle et al. 2020).
9.3.3 Green Practices
Bankify’s green engine helps users switch to sustainable alternatives by providing

personalized evaluations of costs and environmental impact. It aims to engage the
emerging environmentally conscious customer segment. It further aims to increase
sales of sustainable vehicles and financial products by helping customers switch
to sustainable alternatives. Bankify brings together everything that is required to
build sustainable financial services and empower users to invest sustainably. For
example, “smart investments” empower customers with personalized recommenda-
tions of green investment opportunities and make regular investing effortless with
automated rules.
Bankify believes that carbon emissions are at the core of the issues that cause
global warming. Therefore, they have created a software application called “Lehti”
that allows its clients to track their carbon footprint. Lehti means leaf in the Finnish
language. This app allows users to see the impact of their investments on global
warming. Moreover, the app also offers suggestions about how clients can offset to
compensate for their carbon footprint. Clients can contribute to offsetting projects
or complete certain tasks that reduce their carbon footprint. The basic version of this
application is offered free to Bankify’s clients. Bankify aims to educate consumers
about their investment decisions. For example, once an individual owns shares of a
company that has a large carbon footprint, that individual owner should also take the
respective ownership in the carbon footprint of that company.
In addition, Lehti digs deep into so-called ESG-labeled funds and provides a
detailed carbon footprint for these green funds. This allows clients to figure out the
true “green-ness” of their investments. Overall, Bankify allows its clients to work on
their carbon footprint and make their investments 100% sustainable.
These specific green practices by the case firm to enhance the user’s knowledge
of green alternatives, including financial ones result in empowering them (Tan et al.
2020). Prior research has also highlighted that such a process develops a competitive
pressure for other firms in the same market or value chain that are not yet fully
focused on the sustainability dimension (Navaretti et al. 2018). Hence, despite being
a microenterprise, the case firm’s implications for sustainability can potentially be
very strong.
192 A. Ruman et al.
9.3.4 Services by Bankify
Bankify offers seven services and charges its business clients in three price brackets
ranging between 250 euros per month and 750 euros per month. The starter subscrip-
tion charges 50 cents per month per active user, whereas a scaled subscription that
charges 750 euros per month includes 1500 monthly active users. Lastly, Bankify
offers enterprise a customized solution that is fully customized in terms of active
users, price, and technical support services required (Bankify 2021d).
1. Financial Goals:
Bankify offers its clients a virtual vault that helps them make their personalized
financial goals. By setting clear financial goals, clients kick-start their saving or
investing journey. This service increases user motivation to save or invest by utilizing
gamified, educative, and social elements. It aims to empower users to save or invest
by decreasing the barrier to getting started (Bankify 2021d). The financial goals
service can be linked to various products, including savings accounts, investment
funds, term deposits, or loans.
2. Transaction Rules:
This service offers customizable automated rules enabling users to save or invest on
autopilot with customizable data-driven rules. These automated rules allow users to
invest with ease, make personalized rules, make saving effortless, and lower barriers
to investing (Bankify 2021d). Users can add multiple personalized rules, link savings
to their spending behavior, and fully automate their investments and savings. These
rules can be set to be periodical, transactional, or income based. Periodical rules
allow users to move money or execute transactions each period (e.g., each week or
month). Transactional rules allow users to execute a saving or investing transaction
with every purchase they make at selected merchants. For example, the consumers
can save the spare change by rounding up each transaction. Income-based rules allow
users to move a portion of their income to savings or investments. Transactions rules
service can be linked to financial products such as current accounts, savings accounts,
investment funds, or loans.
3. Daily Sustainable Actions:
This service encourages users to save money while helping the environment by
performing sustainable actions from a library of sustainable actions with estimations
of their financial impact. Moreover, clients can suggest their own sustainable actions
that can be shared with the community. Clients can keep a record of the progress
of those sustainable actions while marking the actions as completed each day. Daily
actions service enriches the Smart Savings use case and helps users reach their goals
by making sustainable actions (Bankify 2021d).
4. Financial Recommendations:
This service provides clients with personalized tips and offers of the best financial
products available. Financial recommendations help drive digital sales with data-
driven recommendations that match the client’s budget and financial and sustainable
goals. It brings more visibility to business products and helps increase revenues. This
service can improve digital sales efficiency for a wide range of financial products such
as exchange-traded funds, leasing, loans, credit cards, savings accounts, investments
funds, and subscriptions (Bankify 2021d).
5. Automotive Recommendations:
This service offered by Bankify provides personalized, sustainable alternatives for
vehicles. It helps increase sales of green and environmentally sustainable vehicles
with data-driven recommendations that match the client’s budget. This use case
engages a new environmentally conscious group of clients and thus helps increase
sales of green vehicles and sustainable financial products. It also provides recommen-
dations that help clients to switch to sustainable alternatives. Automotive recommen-
dation has an AI-powered recommendation engine that selects sustainable, person-
alized alternatives. It has a built-in calculator of total costs and environmental impact
evaluation that helps clients evaluate sustainable alternatives instead of non-green
alternatives. This use case supports sustainable alternatives for vehicles and can be
used for other durable goods.
6. Social Feed:
This service is an interactive peer-to-peer feed and marketing channel (Bankify
2021d). It drives customer engagement with a feed that enables clients to interact
with their peers, and it can also act as a tool for marketing. This service brings more
visibility to the products offered by the business, increases revenues, and builds trust
among clients and businesses.
7. Smart Scanner:
Bankify offers a smart scanner service using cloud-based optical character recogni-
tion (OCR). OCR technology is a business solution for automating data extraction
from printed or written text from a scanned document. It then converts the text into
a machine-readable form so that it can be used for data processing. Bankify’s smart
scanner detects all the required information from financial documents, increases the
speed and accuracy of data, and is highly customizable and scalable. This service
is used to build the expense management use case of Bankify. The smart scanner
has numerous features such as scanning, multiple export methods, detects multiple
formats and languages, and reads barcode, text, and multiple line detection (Bankify
2021d).
9.3.5 Use Cases of Bankify’s Services
The challenge for tech startups is to justify the uses of their platform. In this regard,
Bankify has four main use cases that are built on seven services described earlier.
These use cases are Smart Savings, Green Engine, Social Finance, and Expense
Management (Bankify 2021b). We briefly explain each use cases as follows.
194 A. Ruman et al.
Smart Savings: Businesses using Bankify’s smart savings platform can help their
clients reach their financial goals effortlessly with automated rules, sustainable
actions, and personalized recommendations. Moreover, businesses can keep their
customers engaged while helping them to reach their financial goals through data-
driven offers and tips. Using smart savings can empower users to reach their financial
goals in a sustainable way, increase revenues by cross-selling financial products, and
increase customer engagement by building habits with actions (Bankify 2021b).
Bankify uses four services to build the smart savings use case. (a) Financial goals:
helps the clients of a business to turn their dreams and wishes into real savings
goals. This is achieved by creating personalized financial goals. (b) Transaction rules:
clients can add data-driven automated transaction rules that clients can add to their
savings goals. (c) Daily actions: encourages clients to save by completing sustain-
able actions with positive social impact. (d) Financial recommendations: utilizes
transaction data from open banking to provide personalized tips and offers related to
financial products.
Green Engine: This use case of Bankify allows clients to help switch to sustain-
able alternatives (Bankify 2021c). The green engine offers a personalized, actionable
evaluation of total costs and environmental impact, helping clients shift to a finan-
cially viable sustainable vehicle. By doing this, the green engine increases sales
of sustainable vehicles apart from facilitating cross-selling of financial products.
Bankify uses automotive recommendations and financial recommendations to build
green engine use case. Automotive recommendations leverage vehicle and user data
to provide personalized recommendations of sustainable alternatives for vehicles.
Financial recommendations make the shift to sustainable vehicles easier by providing
viable financing options to the clients (Bankify 2021c).
Social Finance: Bankify uses social finance by creating a digital space where
clients can add posts, comments, likes to build a community, and use it as a marketing
channel that brings visibility to a company’s products and partners. This is done
by integrating an interactive peer-to-peer feed that acts as a marketing channel to
enable cross- and up-selling with personalized content. Bankify powers this use case
through the Social Feed Service that provides the backend functionality allowing
users to interact.
Expense Management: Clients can use this use case to claim expenses instantly
instead of having to manually enter expenses or extract the needed information from
receipts or other documents. Smart Scanner Service powers expense management and
it provides fast, accurate, and reliable scanning of financial documents and enables
users to extract data in preferred formats. The main uses of expense management
are no manual input, fast approvals, and a single solution to all kinds of expenses
(Bankify 2021b).
9.4 Cooler Future
Cooler Future is a management consulting and investment-focused microenterprise

that started operations in 2019. According to its financial statements, the company
reported an operating loss of 695,000 euros in 2020. The management of Cooler
Future believes in mixing sustainability and finance. It encourages investing in a
sustainable portfolio to drive returns and fight climate change at the same time
such that it is good for the client’s finances and the planet. The case firm views
investing as similar to a democratic process like voting. With each investment deci-
sion, clients either vote for or against the planet. According to the organizational
mission, everyone should be able to invest without having to harm the planet. The
mission of Cooler Future is to help clients generate positive climate impact while
earning fair financial returns. The case firm has an international and passionate team
of finance, sustainability, technology, marketing, and hyper-growth experts (Cooler
Future 2021a).
Many sustainable investment funds are fossil fuel-heavy or simply greenwashed,
as highlighted in prior relevant research (Yu et al. 2020). That is why Cooler Future
strives to do things differently. Pairing their investment know-how and climate change
expertise, the case firm plans to outvote carbon emitters and make it easy for clients
to invest in the “green options” that are committed to reducing their emissions and
are serious about fighting climate change. The core values of Cooler Future are posi-
tivity, responsibility, and honesty. By positivity, Cooler Future means that reversing
climate change is urgent, and believes this is still possible. They take responsibility
in ensuring visible impact and financial performance of the companies where they
invest. Another value is that they believe in being honest about what they can and
cannot do. Recognizing the complexity around investments and climate change, they
try to be transparent about their decisions and choices (Cooler Future 2021a).
Cooler Future is an investment fund that takes climate change as seriously as investing
(Cooler Future 2021a). They assure their clients to invest in companies that have
future-proof climate strategies and ambition to cut down greenhouse gas emissions.
The Cooler Future investment strategy is built on maximizing financial returns while
prioritizing Mother Earth. Their portfolio is made up of a diversified mix of invest-
ments chosen to help clients grow their money by investing in stocks and bonds that
contribute to reducing or avoiding greenhouse gas emissions (measured in carbon
dioxide emissions).
196 A. Ruman et al.
The Cooler Future global portfolio consists of public listed companies from all over
the world. They offer a unique mix of green bonds and large-, mid-, and small-cap
equities in a variety of sectors (Cooler Future 2021b). Their specialty lies in their
investment methodology, which is called, “Impact-first methodology.” It consists of
the following steps (Cooler Future 2021c):
• Impact analysis: Cooler Future screen, filter, and narrow down a list of thou-
sands of companies to select the strongest climate forerunners and future winners
with climate-aligned strategies and ambition to reduce emissions. Impact anal-
ysis implies that they sort investment options based on highest impact for the
climate. They choose the strongest climate forerunners and future winners with
climate-aligned strategies and plans. On the other hand, they ignore the companies
that would otherwise be a sound investment opportunity but have a bad climate
impact. In the financial analysis step, they choose investment options with the
best positive climate impact and sort them based on their financial fundamentals.
They conduct a detailed financial review to ensure returns are in line with asset
class-specific market expectations.
• Unique portfolio: The unique Cooler Future portfolio includes best-in-class
companies and securities regarding climate targets, ambition level, overall perfor-
mance, and competitive return. The portfolio is formed in line with the theoretical
and empirical understanding of modern portfolio theory. A unique portfolio is
formed from chosen investment options based on steps one and two and specific
weights are allocated to each qualified investment option. In the final step, they
monitor returns on the unique portfolio for a quarter and rebalance the port-
folio accordingly. This continuous monitoring ensures consistent progress and
performance in both climate metrics and financial variables.
• Financial analysis: Detailed financial review is performed to ensure that returns
are in line with asset class specific market expectations. Cooler Future perform
in-depth analysis because their model is built on rigorous multiple-step research to
ensure that clients will be able to grow their money and track the CO2 equivalent
(CO2e) emissions of companies they invest in. Potential investment selection
is based on multiple databases by creating a pool of thousands of companies
across sectors and geographies to form the starting investable universe, which
is then narrowed down by applying their risk appetite filters. Then they perform
screening for carbon disclosure using the data from the Carbon Disclosure Project
(CDP). They screen the companies that have a solid and transparent process set
up to report their climate impact. Next, they pick companies that have science-
based emission reduction targets that have already been approved. They also
assess companies that are in the process of validating targets with Science Based
Targets (SBT). In the next phase, companies that have passed SBT and CDP
screening are reviewed further to ensure their overall business model is aligned
with their climate targets. Moreover, to check the company’s reputation, they
review NGO reviews and media coverage from the past 5 years. As the next
step, they run carbon stress tests and economic scenario analyses to understand
how the company valuation changes when it executes its CO2e reduction plan.
This process is known as climate hedge analysis. Finally, to perform fundamental
analysis of selected firms, they assess the overall business model, capital structure,
earning quality and forecasts, and more, to ensure the financial return alongside
the CO2e reduction. Those organizations that successfully pass each step of the
process make it to the Cooler Future fund.
• Quarterly monitoring: Cooler Future continuously monitor each investment to
secure constant progress and performance in both climate and finance metrics.
This detailed methodology is unique to this case microenterprise and addresses the
challenges highlighted by prior scholars, including lack of specific climate impact
assessment in some cases (Newman et al. 2017), lack of continuous tracking (Marke
2018), and lack of clarity or transparency (Tuhkanen and Vulturius 2020) with green
investments including bonds.
The Cooler Future portfolio currently consists of public equity and green bond hold-
ings that are selected based on the impact-first investment approach. Every stock or
bond they invest in has a future-proof climate strategy to reduce emissions. Many
sustainable investment funds are fossil fuel-heavy or simply greenwashed. That is
their main motivation to use the impact-first methodology in investing (Cooler Future
2021c). Pairing their investment know-how and climate change expertise, they aim
to outvote carbon emitters and make it easy for clients to invest in the “good firms,”
which are committed to reducing their emissions and are serious about fighting
climate change.
Some examples of these firms are explained below. Moreover, Cooler Future
believes in transparency, and they are quite transparent by allowing their clients
to track the performance of companies in a portfolio in terms of CO2 emissions.
Their portfolio consists of public equity and green bond holdings, selected based on
the impact-first investment approach. With their global portfolio, listing companies
from all over the world, they offer a unique mix of green bonds and large-, mid-,
and small-cap equities in a variety of sectors. Every stock or bond has a future-proof
climate strategy to reduce emissions. They invest in best-in-class companies that
show their commitment to fighting climate change (Cooler Future 2021b). Some of
the examples are provided as follows.
Signify: is a world leader in lighting. The company provides professional
customers and consumers with quality products, systems, and services. Their
connected lighting offerings bring light and the data they collect to devices, places,
and people; redefining what light can do and how people use it. Signify serves
customers worldwide.
198 A. Ruman et al.
Ørsted A/S: provides utility services. The company engages in the development,
construction, and operation of offshore wind farms and generates power and heat
from power stations. Ørsted serves customers worldwide.
Verbund AG: provides integrated electric generation, transmission, and distribu-
tion services. The company produces power through the operation of hydro-electric,
thermal, and wind power generators. Verbund transmits and distributes power to
customers worldwide.
Schneider Electric SE: manufactures electrical power products, serving
customers worldwide. The company offers car chargers, home security goods,
light switches, access control, sensors, valves, circuit breakers, cables, accessories,
signaling devices, fuses, motor starters, and voltage transformers.
UPM-Kymmene Oyj: manufactures forest products. The company focuses on
magazine papers, newsprint, and fine and specialty papers, and also makes self-
adhesive labels, siliconized papers, industrial wrappings, and packaging papers. In
addition, its wood products division produces sawn products, plywood, and other
building materials.
Telefonica SA: operates as a telecommunications company and offers fixed
and mobile telephone, broadband, and subscription television services, as well
as cybersecurity, IOT, big data, and cloud solutions. Telefonica serves customers
worldwide.
Owens Corning: produces residential and commercial building materials, glass-
fiber reinforcements, and engineered materials for composite systems. The company
offers its products globally to various industries.
Apart from being thorough in their investment selection as explained earlier,
Cooler Future strives to be transparent. Their transparent approach allows clients
to track performance of companies in a portfolio in terms of CO2e. To highlight
the quality of their selection and investment approach, they compare what ESG
scoring firms offer and what Cooler Future offers. In terms of impact, six factors
are mentioned: carbon footprint, CO2e reduction pathways, assessment of bonds’
environmental impact, ESG analysis, continuous impact monitoring, and tracking
of climate performance. Out of these six, ESG covers only one factor and Cooler
Future covers all six impact factors. Moreover, in terms of investments, they mention
two factors, namely, diversification and transparent dialogue with the community.
ESG addresses neither of these factors while Cooler Future addresses both. For
example, Cooler Future performs diversification based on impact drivers and ESG
performs diversification based on financial drivers (Cooler Future 2021c). It has
been highlighted earlier as well that this transparency is very important, especially
in the context of sustainable (green) finance (Lee and Shin 2018; Marke 2018). In
addition, the classification of Cooler Future as a microenterprise is helpful because
there is evidence in prior literature that firms with small size, agility, and lack of
compartmentalization and bureaucratic structures tend to be more transparent as
well as innovative (Forssbaeck and Oxelheim 2014; Pompella and Matousek 2021).
These traits also provide such microenterprises with a competitive advantage against
large well-established players in the market (Munoz 2010; Arslan et al. 2020).
9.5 ReceiptHero
ReceiptHero is a software design and development firm that uses a marketing motto
of “rethink the receipt.” The firm started operations in 2018. The company reported a
loss of 571,000 euros in its financial statements for the 2020 financial year. It strives
to develop digital receipts that add value to client purchases and privacy, and at the
same time, helps businesses to master their customer experience and loyalty. It is a
digital and safe home for managing client purchase data and a next-level platform for
businesses to engage with their clients. The management of ReceiptHero considers
itself a small ingredient of the future of digital sustainable finance: a small team
comprised of entrepreneurs, tech visionaries, and coders turn data to a better func-
tioning tomorrow. Their business is sustainable because they are trying to minimize
the usage of paper receipts and replace paper receipts with digital ones (ReceiptHero
2021a).
ReceiptHero plans to rewrite the rules of the data economy and support the shift
to more sustainable and mindful consumption. It takes a high level of respect for
sustainable solutions from both consumers and businesses to choose a digital alter-
native to paper receipts. This step asks for bold solutions and powerful technology
capabilities. ReceiptHero provides a safe space for consumers, merchants, and banks
to turn traditional transactions into meaningful interactions (ReceiptHero 2021a).
The process of using ReceiptHero uses two steps. First, a customer can create
an account with ReceiptHero and shop at stores supported by the company. Second,
the customer pays with a personal payment card and receives a digital receipt auto-
matically, in real time and with full privacy. From the perspective of consumers, a
receipt is more than just a piece of paper. It represents data about the individual and
their consumption (patterns) of products and services. Furthermore, the receipt is a
form of private property that only the consumer should control. For example, one
individual user of ReceiptHero (Ville) shares his experience (ReceiptHero 2021b) as
follows: “Why is it that after making a contactless payment, we still have to wait for
a physical receipt to be printed? I signed up to ReceiptHero because I like having my
receipts digitally and in one place. More and more stores are now joining in thanks
to ReceiptHero.”
From the perspective of businesses, ReceiptHero presents an opportunity to utilize
unique individual consumer data and patterns efficiently. ReceiptHero believes that
the era of big data has kicked consumer privacy to the curb, with no regard for
how much data collection is too much. By taking ReceiptHero’s products into use,
a business can manage consumer data in a privacy-focused way and still have the
benefits of a direct marketing connection to a business’s customers (ReceiptHero
2021c). One business client of this firm, R-Kioski, shares their experience with
ReceiptHero. Maria Sjoroos, IT director of R-Kioski says that “Our customers visit
an R-Kioski location about 80 million times every year. This naturally generates a
large number of receipts, and so implementing modern digital receipt service with
ReceiptHero is (sustainable, efficient and) a natural next step for us” (ReceiptHero
2021c).
200 A. Ruman et al.
Similarly, Tomi Hakari, a senior business developer at Nordea Bank in Finland

believes that the ability to digitize clients’ receipts, as provided by ReceiptHero,
gives clients greater insight into their spending habits, and a less cluttered financial
life. Tomi believes that working with ReceiptHero to build this feature for Nordea
clients is an exciting step into the future of finance (ReceiptHero 2021c).
ReceiptHero works with banks, merchants, payment service providers (PSPs), and
app developers and delivers receipts automatically from merchants to customers’
banking and accounting apps. They are building a digital ecosystem for receipts
to be created and distributed across multiple channels. The case firm describes the
basic process in three steps: (1) the customer pays with a bankcard at over 500+
ReceiptHero activated locations globally, (2) the customer’s bankcard is matched
against the itemized transaction, and (3) the customer views the digital receipt within
one of the partner bank apps. Purchase data that is generated by customers’ purchase
patterns are valuable yet underutilized sources of trends and financial health. Banks
are building budgeting features without clear access to how their customers spend
their money. For business customers, filing expenses is still incredibly cumbersome
(ReceiptHero 2021a). ReceiptHero has developed solutions to address these issues.
ReceiptHero is building a fully digitalized receipt platform where merchants, banks,

and customers can use receipt data. They integrate into point-of-sale systems and
payment solutions to build digital receipts, which are then passed into accounting
software and banking apps. ReceiptHero delivers digital receipts automatically from
merchants to customers’ banking and accounting applications. The data sent via
ReceiptHero’s application programming interface includes the same information
seen on a paper receipt, the tax levels, the company information, and the product
level data. For banks and PSPs, ReceiptHero is one of the most advanced PCI DSS
(payment card industry data security standard) compliant partners for digital receipts.
Hence, it is obvious that ReceiptHero’s financial innovation offers benefits to both
businesses and individual consumers while maintaining the sustainability (no paper
usage) element. Hence, this case firm’s financial innovation includes value creation
for multiple stakeholders, the importance of which has been stressed in prior studies
on FinTech dynamics (Gozman et al. 2018; Gasmi 2020).
Table 9.2 Summary of operations and attributes of case firms examined in this study
Firm name Operational direction Sustainability/green emphasis
Bankify The firm augments the banking Provides green alternatives for
service needs of clients of consumer decisions. For example, green
businesses that utilize Bankify vehicle choices, and carbon impact of
services other consumer choices
Cooler Future The firm provides investment Green and sustainable investment
services to its clients methodology that prioritizes climate
impact over profitability of an
investment
ReceiptHero Digitizes and automates consumer Prioritizes sustainable actions by
receipts and utilizes individual encouraging consumers to use digital
consumer spending data efficiently receipts rather than paper receipts.
Donate specific dollar amounts to
OneTreePlanted, which plants one tree
per dollar donated
ReceiptHero’s mission is to eliminate the paper receipt. At least 50% of paper receipts
are made using bisphenol A, a substance classified as toxic to humans and wildlife
by the EU. Two out of every three paper receipts are eventually thrown away unused,
and at least 50% of paper receipts are almost impossible to recycle. ReceiptHero
also donates $1 to OneTreePlanted (a conservation charity) for every new merchant
that joins the digital receipt platform, setting a 5-year goal to plant one million
trees (ReceiptHero 2021d). Hence, this case firm is playing an important role in the
significant reduction of paper use (slowing deforestation), which is an aspect that
has been highlighted as a major sustainability concern (Shenoy and Aithal 2016).
A comparative summary of the operations of the three case firms is presented in
Table 9.2.
9.6 Conclusions and Policy Implications
This chapter has examined the roles of FinTech microenterprises in sustainability.

Based on qualitative assessments of three Finnish microenterprises, this chapter
shows that FinTech allows microenterprises to develop unique technology-based
offerings, including the ability to link other firms with sustainability conscious
consumers, investing in sustainable firms at good rates of return, and to remove
the need for paper receipts for credit or debit card transactions. Despite the different
fields of operations, the case studies showed that FinTech offers a unique market
opportunity for the case firms to compete with large players in the financial sector
and in other services, which was not possible earlier. This role of FinTech as a disrup-
tive innovation that changes the rules of the game in the financial sector is being
202 A. Ruman et al.
increasingly acknowledged by scholars (Palmié et al. 2020). It is apparent from the

case studies that the influences of FinTech go beyond the immediate stakeholders of
the firms and can have implications for the whole services ecosystem and business
models. Based on the analysis and findings, this chapter offers both theoretical and
managerial implications.
A major theoretical implication relates to the need for specific conceptual work to
develop relevant theoretical models explaining FinTech, sustainability, and microen-
terprise interrelationships at strategic and operational levels. Despite the emergence
of an increasing number of academic studies on FinTech, with some also focusing
on smaller firms (although rarely microenterprises), the lack of such frameworks is
a critical hindrance in conceptual development and enhancement. A key takeaway
for the managerial audience from this chapter is the importance of looking at the
entire value chain while thinking about designing a specific service because the
financial and sustainability-related outcomes go beyond immediate stakeholders. It
has been highlighted earlier that agility and lack of bureaucratic structure are key
strengths of microenterprises, which also foster innovation. Because of the changing
and increasingly tough competitive outlook of the FinTech sector, microenterprise
managers should continue with this innovative service offering approach and try to be
part of the value chain of large enterprises to drive change toward sustainability. The
findings of this study suggest that, as a policy, businesses should present a carbon
footprint of each consumer decision and place higher importance on sustainable
alternatives. Microenterprises, small to medium-sized enterprises, and large corpo-
rations can adopt small but powerful sustainable actions, such as reforestation using
profits, educating their customers about climate impact and green alternatives, and
realizing that every investment decision or consumer choice is a vote in favor of the
environment or against it.
Like any other academic study, this study has its limitations. The first limita-
tion relates to the reliance on published secondary data sources while presenting the
case firms. However, despite the lack of primary data (e.g., by interviews), we have
been able to highlight the financial innovations of microenterprises as well as how
they influence sustainability drive directly as well as indirectly in their larger value
chain. Finnish (Nordic) FinTech enterprises have not been prominent in the academic
discourse on FinTech and sustainability. This chapter has highlighted their impor-
tant roles. Future studies can build on this work and undertake primary research to
untangle the specific processes and strategies of FinTech microenterprises in relation
to sustainability by focusing on a specific function or stakeholder. Given that this
chapter is exploratory in nature with the goal of highlighting novel technologies used
by FinTech (startup) microenterprises, we presented the cases in a more descriptive
manner, which can be considered another limitation. However, future studies can
take a more analytical approach and highlight sectoral, size, or national differences
among the operations of FinTech firms in different contexts.
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Chapter 10
Analytical Assessment of Green Digital
Finance Progress in the Republic
of Georgia
Sarvar Gurbanov and Farahim Suleymanli
Abstract Estimations show that approximately US $23 billion is required for

Georgia to meet its climate and environmental targets up to 2030. As the current
Nationally Determined Contribution reveals, considering 1990 as a base year, the
Republic of Georgia plans a 35% decrease in greenhouse gas emissions by 2030.
If the country has financial and technical support, commitment to limit emissions
may rise as high as 50–57%. As part of the Paris Climate accord, developed nations
pledged to channel US $100 billion toward low-income countries between 2020
and 2025. Recent estimates by the OECD show that developed nations will be able
to reach their US $100 billion pledge only in 2023. Considering this lag for many
developing countries, including Georgia, mobilizing private finance via green digital
finance will be vital. The policymakers of the Republic of Georgia are very ambi-
tious about adopting green digital finance solutions. This initiative has potential to
fill the gap in public funding sources. Hence, this study analyzes the potential for
private sector financing through the digitization of green finance. The current study
illustrates the extent to which green finance and its digitization level are available in
the Republic of Georgia. The major policy implication is that the country faces unin-
tended consequences even though there is a robust regulatory attempt to mobilize
private financial sources. This case study is relevant for many developing countries
for drawing lessons on better policymaking.
Keywords Green digital finance · Sustainable finance · Regulatory sandbox ·

Sustainable development goals (SDGs)
JEL Classification G20 · G23 · Q01 · Q55
S. Gurbanov (B)
School of Public and International Affairs (SPIA), ADA University, 61 Ahmadbey Aghaoglu,
AZ1008 Baku, Azerbaijan
F. Suleymanli
School of Economics and Management (LUSEM), Lund University, Lund University, P.O.
Box 117, 221 00 Lund, Sweden
https://doi.org/10.1007/978-981-19-2662-4_10
206 S. Gurbanov and F. Suleymanli
10.1 Introduction
Like many other developing economies, Georgia is also vulnerable to the negative
impacts of climate change. Although 20% of the labor force is employed in the
agriculture sector, the country still imports 80–90% of its wheat consumption (WB
and ADB 2021). Average temperatures in Georgia show steady increases since the
1960s. Furthermore, the temperature is expected to rise more than the global average.
Roughly 80% of Georgia’s domestic electricity generation comes from hydropower.
Considerable falls in river flows in the summer months can bring about negative
effects for GDP and balance of payments by increasing the importation of electricity
and river-fed irrigation. The Prime Minister of the Republic of Georgia stressed one
important detail in his speech at the 26th UN Climate Change Conference of the
Parties (COP26): the Caucasus region has lost 40% of its glaciers due to climate
change (UNFCCC 2021a).
The gradually increasing impacts of climate change can cause rapid depletion of
hydropower electricity sources. “Irreversibility” is becoming a more visible conse-
quence of climate change and is now mentioned frequently in discussions of climate
change effects. In the Intergovernmental Panel on Climate Change (IPCC) Sixth
Assessment Report (AR 6), the terms “irreversibility” and “irreversible” are used
28 and 74 times respectively (IPCC 2021). The Georgian economy and people are
not immune to this undesirable pathway. About 23% of Georgian GDP is linked to
the tourism industry. As climate change continues to deliver higher temperatures, the
resultant declining snowpack and shortened winter, together with dissatisfied tourists
(WB and ADB 2021), can damage the tourism industry. The population ratio living
below the national poverty line was 19.5% in 2019 (WB 2021a). The unemployment
rate in 2020 was slightly over 12% (WB 2021b).
While Georgia continues to face economic difficulty and gradually increasing
environmental challenges, a turning point for global climate action occurred with
the 2015 Paris Agreement where nearly all nations gathered at the 21st Conference
of the Parties (COP21). There was complete unanimity to combat climate change by
setting a comprehensive goal that aimed to limit global temperature increase to 2 °C.
In changing the political outlook and priorities, the Paris agreement requires vast
levels of investment for countries to embark on the path of carbon neutrality. On one
hand, developed nations pledged US $100 billion for 2020–2025, but it appears
that they fell short of this mark by US $20 billion in 2019. This shortfall was
mainly attributed to a lack of private investment. The Organisation for Economic
Co-operation and Development (OECD) estimates that the US $100 billion target
will be achieved from 2023 onwards (OECD 2021a). On the other hand, according
to the estimations of OECD, the yearly investment volume to globally meet the Paris
Agreement goals is 6.35 trillion EUR (OECD 2017). Here, the major role is on the
shoulders of the public sector that has to support innovation and redirect private
capital to sustainable and green investment. In this respect, the required amount of
investment can be raised through digitizing green finance, such as blockchain-based
green bonds, sustainability bonds, sustainability-linked bonds, green loans, and social
10 Analytical Assessment of Green Digital Finance … 207
bonds. Innovations in green finance offer the potential to contribute to global goals
and reshape the economy in favor of access to services such as energy, poverty
reduction, and economic activity. Furthermore, they lower aggregate investment and
operating costs and help to improve the country‘s capacity to achieve sustainable
development goals (SDGs) (Nassiry 2018).
One of the major innovations that can be applied to the financial sector is
blockchain technology. According to Jones (2021), the sustainable debt market
(green, social, and sustainability bonds) reached a cumulative US $1.7 trillion at
the end of 2020, while as of August 2020, the International Capital Market Asso-
ciation estimated that the overall size of the global bond market was approximately
US $128.3 trillion notional outstanding (see https://www.icmagroup.org/Regulatory-
Policy-and-Market-Practice/Secondary-Markets/bond-market-size/). A rough calcu-
lation shows that the sustainable debt market comprises less than 2% of the total bond
market share, which introduces a wide corridor for the potential exponential increase
in the issuance of green, social, and sustainability bonds to meet the annual deficit
for funding SDGs. In this respect, blockchain presents cost-saving opportunities to
reduce the need for intermediaries by more than ten times. Also it enables smaller
projects to issue bonds, which would initiate a huge number of smaller sustainable
and green projects (Haahr et al. 2019).
According to the current and updated Nationally Determined Contribution (NDC)
unconditional commitment, by 2030, Georgian greenhouse gas (GHG) emissions
will not exceed 65% of 1990 levels. That is, the country has committed to a 35%
decrease in GHG emissions by 2030. Broadly, SDG-13 and, specifically, indicator
13.2.2 cover this crucial detail. Also, if the country has financial and technical support,
commitment to limit emissions may rise as high as 50–57% (UNFCCC 2021b). This
chapter analyzes the current and prospective contributions to green digital finance
for reaching this and other SDGs. The major finding of this study is that even though
the Republic of Georgia managed to create a favorable regulatory environment for
crypto mining, the blockchain ecosystem remains incomplete. As a result, channeling
domestically mined digital funds into the green projects has faced barriers. This book
provides a discussion of legal frameworks, the role of governments in accelerating
green digital finance trends, distributed ledger technology (DLT)–SDG relationships,
and challenges in this field, while this chapter provides a case study for a small
economy that is quite vulnerable to climate change and global warming.
10.2 Green Digital Finance in Georgia
The digitization of the banking industry in Georgia has been in progress since the
beginning of the last decade, and some banks have already offered good digital
banking services. In December of 2019, the European Bank for Reconstruction
and Development (EBRD) launched the Green Economy Financing Facility (GEFF)
program in Georgia to contribute to the development of the green economy in the
country. GEFF is co-financed by the EBRD, the Austrian Federal Ministry of Finance,
and the Green Climate Fund and received US $54 million to finance investments in
energy efficiency and climate mitigation via local partner commercial banks. GEFF
announced that 227,630 kWh of energy and more than 45,830 tons of CO2 emissions
per year have been saved through its investments in projects related to environment
and energy (GEFF 2021). This kind of outcome also creates additional gains for SDG
13.
The Republic of Georgia is very open to new technologies and supports inno-
vation in multiple ways. Currently, Georgia has a long way to go to achieve
complete digitization of the financial and banking industry. Starting from 2017,
BBVA Research conducts an annual study in which it calculates the Digitization
Index of 100 countries. In 2020, Georgia’s Digitization Index was 0.48 (1 is a
maximum value indicating complete digitization), which is an increase of 0.08
points since 2017 (Cámara 2020). The index evaluates six criteria: government adop-
tion, enterprise adoption, user adoption, regulation, infrastructure, and cost. More-
over, Georgia ranked 43rd in the world for Digital Readiness Index by Cisco in
2019 (see https://www.cisco.com/c/m/en_us/about/corporate-social-responsibility/
research-resources/digital-readiness-index.html#/country/GEO). Seven components
(basic needs, business and government investment, ease of doing business, human
capital, start-up environment, technology adoption, technology infrastructure) are
considered in evaluating the Digital Readiness Index, and Georgia stood at 55th in
the world for technology infrastructure, which indicates the availability of infras-
tructure for enabling activities and connecting users. This represents a large gap for
further improvement that the Government of Georgia must consider.
According to the OECD report on access to green finance for small and medium-
sized enterprises (SMEs) in Georgia (OECD 2019), there have been several estima-
tions on the level of financing to meet Georgia’s sustainable development and climate
change targets:
• US $8.3 billion for 2017–2030 for energy efficiency (National Energy Efficiency
Action Plan) (NEEAP Expert Team 2017);
• US $10.6 billion for 2017–2030 for energy efficiency, non-energy greenhouse gas
and land use, land-use change, and forestry emission reduction (Low Emission
Development Strategy) (Winrock 2017);
• US $2.4 billion for hydropower for 2017–2030 (Third National Communication
of Georgia to the United Nations Framework Convention on Climate Change)
(Government of Georgia 2015b);
• US $1.5–2.0 billion for climate change adaptation over 2021–2030 (Intended
National Contribution) (Government of Georgia 2015a).
In the Roadmap for Sustainable Finance in Georgia, sustainable finance is
mentioned as a comprehensive approach that brings together different strategies
for improving the social, economic, and environmental performance of the financial
system (National Bank of Georgia 2019). The roadmap takes two urgent imperatives
of sustainable finance into consideration in the report—“Financing a Sustainable
European Economy”—by the European Commission (2018):
1. Improving the contribution of finance to sustainable and inclusive growth by

funding society’s long-term needs;
2. Strengthening financial stability by incorporating environmental, social, and
governance (ESG) factors into investment decision-making.
Stemming from the second imperative, the National Bank of Georgia (NBG)
accepted the Supervisory Strategy for 2020–2022 (National Bank of Georgia 2020a)
in which several strategic priorities and vital activities for their execution were set
for the outlined period. To increase financial stability and inclusion and maintain
technological integration into the banking and financial system, the National Bank
of Georgia identified the development of ecosystems for sustainable financial tech-
nologies. This strategic priority has six directions, including (1) the development of
digital banking, (2) the development of open banking, and (3) the regulatory sandbox
(Box 10.1).
Following the introduction of the Supervisory Strategy, NBG released “Digital
Banking Principles” and “Principles on which the Rule of Engaging in Open Banking
will be Based” in 2020. These were the first steps in digital bank licensing and the
open banking revolution (open banking has already been piloted with traditional
banks). By that time, NBG had already established the Financial Innovation Office
and Regulatory Laboratory to support innovative business models. The Financial
Innovation Office promotes responsible innovations in the financial sector and helps
financial technology institutions and startups by providing direct communication
with NBG. The Regulatory Laboratory allows and assists the progress in testing
innovative services and products in a real environment under some control where
termination of this process could be done at any time.
Box 10.1: Abstract from Supervisory Strategy for 2020–2022
1. Development of digital banking

(a) The use of technological capabilities to increase access to financial services
and support the development of digital banking channels.
(b) Elaboration of the licensing framework for a digital bank.
(c) Support for the provision of banking services via electronic channels.
(d) Elaboration of the principles for cloud usage.
(e) Development of a modular banking model.
(f) Development of a cybersecurity framework for the digital bank.
2. Development of open banking
(a) Promote the opportunities to integrate the services of various financial insti-
tutions based on the needs of consumers of the financial sector. Increase the
opportunities for the use and control of private financial data by consumers.
(b) Support the use of Open Application Programming Interface (Open API)
within the banking space as well as outside of it.
(c) Dynamic standardization of financial information and services in the

electronic space.
(d) Development of machine-readable data.
3. Regulatory sandbox
(a) Creation of a controlled environment to study the unknown risks and the
use of a regulatory sandbox.
(b) Development of a risk examination framework for various technologies.
(c) The analysis of the experiment results, and upon necessity, a reflection of
them in the supervisory framework.
(d) Cooperation with the supervisors of other countries in the framework of an
initiative to create a global regulation laboratory.
By supporting the digital transformation of the banking and financial industry,

NBG aims to: promote the development of innovative business models and diversity
of financial products; make better use of big data; develop a customized, convenient,
fast, and affordable digital financial ecosystem utilizing the technological infrastruc-
ture close to the customer; use cloud services effectively; simplify integration with
technology companies and develop banking as a service business model; facilitate
entry of new technological players and increase competition in the financial sector
(National Bank of Georgia 2020b). To provide an in-depth analysis of the Geor-
gian experience on green digital finance, this section continues with the following
subsections: Green digital bonds and securities, E-money, and Cryptocurrencies.
10.2.1 Green Digital Bonds and Securities
In general, green bonds have some drawbacks that make investors reluctant to invest
in them. One of the biggest ones is the volume of emission, as investors most of
the time require a minimum size threshold due to some liquidity concerns (i.e., not
being able to sell green bonds later). Several studies state that the minimum size
of green bonds ranges from US $100 million to US $500 million (Jun et al. 2016;
Franklin 2016; Chiang 2016). This, in turn, creates a barrier against the SMEs to
finance their green projects not only in Georgia but also around the world. The
use of blockchain technology presents a solution by increasing investor confidence
while reducing several costs and risks associated with green bond emissions. A
security token offering (STO) via blockchain platform is a digital security asset that
can be used for green financing. Compliance with all laws and regulations related to
conventional bond emission combined with the transparency provided by blockchain
technology makes STOs attractive for investors. Countries like the USA, UK, Singa-
pore, and Hong Kong have already used a regulated STO market where tokenized
securities are traded on virtual asset trading platforms like Coinbase and Gemini.
An example of blockchain-based bonds is Bond-i in Australia (CommBank 2021),
the first publicly offered blockchain bond. It has been developed by the World Bank
in partnership with the Commonwealth Bank of Australia (CBA) Digital Innova-

tion Lab. Using blockchain, the CBA managed to eliminate costs associated with a
registry, issuing, clearing, and custodian processes while guaranteeing full visibility
of transactions and real-time reporting for regulatory bodies (Haahr et al. 2019).
Several financial institutions have experimented issuing blockchain bonds, but BBVA
issued the world’s first blockchain green bond in 2019 in the volume of 35 million
EUR. According to the Green Digital Finance Alliance, Luxembourg, Germany,
Switzerland, Seychelles, Mauritius, China, Japan, Singapore, and the Philippines are
the countries with the strongest state of regulatory readiness for blockchain green
bonds (Haahr et al. 2019).
In November 2021, the BIS Innovation Hub and the Hong Kong Monetary
Authority (HKMA) (BIS 2021) introduced two accomplished prototype digital plat-
forms as part of Project Genesis to enable trading of digital green securities. The
platforms enable investors not only to track accrued interest over the bond’s lifetime
but also to observe their green impact, which includes (but is not limited to) the
amount of green energy generated and CO2 emissions reduction linked to the invest-
ment. In addition, full transparency and high security, ease of ownership, and resale
procedures are aimed to increase public participation in green project financing.
In this respect, Georgia can vastly benefit from adopting the STO approach and
raising the funds required to finance its environmental goals. Adoption of current
best practices and experience in green bond issuance combined with already present
blockchain technology applications within the country puts Georgia in an advanta-
geous position for further digitization of the financial sector. Regulatory sandboxes
can be very crucial in creating digital platforms and testing them in real-time. More-
over, the use of already established platforms, such as Green Asset Wallet, may
be a supplementary option for Georgia to raise required funds to meet SDG goals.
Green Asset Wallet is an initiative by Stockholm Green Digital Finance, which aims
to amplify the market for green and sustainable investments using technological
advancements to support SDGs and the Paris Agreement objectives. The key benefits
of Green Asset Wallet are (1) increased trust, transparency, and immutable history;
(2) efficient and quantifiable impact data reports; and (3) validation of green bond
market commitments (Patel 2020). All these factors might provide good grounds to
build trust in investors and make digital green securities more attractive.
10.2.2 E-Money
According to the Law of Georgia on Payment Systems and Payment Services, the
National Bank of Georgia, by granting Payment Services Provider License, allows
the issuance of electronic money (ICO, token sales), exchange of cryptocurrencies
to and from fiat money, execution of payment transactions using e-money through
a mobile phone, Internet, or any other electronic device. Currently, a few electronic
money organizations are operating in the country. They offer their customers making
payment transactions (buy services and goods, transfer money to another customer’s
e-money account) via the Internet using their e-money account.
Furthermore, in May of 2021, NBG announced a Digital GEL (GEL, Georgian
Lari) project in which it is considering launching a publicly available central bank
digital currency (CBDC) to use new technologies to maximum advantage, embel-
lish efficiencies of the domestic payment system, and promote financial inclusion
(National Bank of Georgia 2021). The CBDC is going to be developed in accordance
with the technical standards of the Bank for International Settlements. Turning legal
tender into computer code with Digital GEL, Georgian policymakers will be able to
benefit from it in terms of providing a better environment for fulfilling the indicators
of SDGs. Considering Target 13.1 (strengthening resilience and adaptive capacity
to climate-related hazards and natural disasters in all countries), the digital national
currency will allow NBG, as a lender of last resort, to provide direct and speedy
relief to disaster victims. Digital currency also may have an expiration date. It will
be especially useful in addressing SDG-1, ending poverty in all forms. There are more
than 140,000 people in Georgia suffering from extreme poverty. By 2019, 19.5% of
the Georgian people lived under the national poverty line (WB 2021a). With the
wide application of Digital GEL, Georgian policymakers can directly reach the poor
without any intermediary institution.
In addition, business-to-government and person-to-government payment plat-
forms via digital currency are related to SDG-16 and are specific to Target 16.5:
to substantially reduce corruption and bribery in all their forms. The proliferation
of digital money may also have hidden environmental costs, and because of this
reason, central banks are supposed to keep environmental sustainability in their
policy prescription (IMF 2021a).
10.2.3 Cryptocurrencies
The abundance of cheap energy and tax exemptions in Georgia played a crucial
role in the country becoming one of the favorite destinations for crypto miners.
The Georgian Ministry of Finance published a public decision on 28 June 2019
(the decision) regarding the taxation of cryptocurrency in Georgia (Barshovi 2019).
According to the decision:
• individuals in Georgia are exempted from income tax on any profit received from
selling cryptocurrency;
• selling cryptocurrency (exchanging it into Georgian or other national curren-
cies) is not taxable by value-added tax (VAT) (applies to both corporations and
individuals);
• selling computing (hash) power from Georgia abroad is not taxable by VAT.
Moreover, right on input VAT on these types of operations is preserved (applies
for both individuals and corporations);
• selling computing (hash) power in Georgian territory (from a Georgian resident

to a Georgian resident) is a VAT taxable operation;
• purchasing computing (hash) power by a Georgian resident from abroad is subject
to reverse VAT in Georgia.
Consequently, all these factors affected the crypto industry in the country, and
cryptocurrency mining has become even more popular in recent years in Georgia.
Nearly 5% of households are either mining, have joined pools, or have invested in
mining through local data centers like the ones built by Fulcrum Mining (Fulcrum
Mining 2018). Bitcoin, Ethereum, Litecoin, Dash, Monero, and Zcash are among
the most mined cryptocurrencies in Georgia. However, the Bitcoin boom starting
from 2017 attracted a lot of attention, so that in 2019 an estimated 200,000 people
in villages across Georgia secured mining computers to set up in basements and
garages (Alderman 2019). Despite the popularity of Bitcoin mining, Independent
Commodity Intelligence Services report that legal cryptocurrency mining accounts
for around 5% of Georgia’s total electricity consumption (Sabadus 2021).
Bitfury, one of the world’s largest Bitcoin miners, built a 20-MW data center in
Gori and a 40-MW mining facility in Tbilisi with funding from the Georgian Co-
Investment Fund. Afterward, the country ranked third in the world for Bitcoin mining
(WB 2018). Bitfury itself, with its all facilities in Canada, Iceland, Norway, and
Georgia, controls about 10–15% of global mining. The government even expanded
an entire power station next to the Bitfury facility to pump in electricity at no extra
cost (charging only 5–6 cents per kWh). According to BBC Sounds podcast Busi-
ness Daily, a Bitfury-owned mining farm is consuming around 4% of the country’s
hydroelectric power energy, and this consumption is equal to 389 GWh. According
to the World Bank, Bitfury’s daily revenue from mining activities in Georgia is US
$250,000–$400,000 (WB 2018). Overall, mining companies in the country bought
785.5 GWh in 2019, and this amounted to 6.15% of Georgian electricity consump-
tion. Moreover, one can find cryptocurrency ATMs in malls, vape shops, and casinos.
There are 34 cryptocurrency ATMs/Tellers in Georgia. However, not all countries
welcome the crypto-related financial industry, given that in 75 countries, there are
only 24,268 crypto ATMs (see https://coinatmradar.com/countries/). Considering all
this information, the environmental damage and CO2 emission volume stemming
from mining and other cryptocurrency-related activities have never been tracked in
Georgia, while it is well known that cryptocurrency mining produces a significant
amount of CO2 worldwide.
Cryptocurrency mining requires energy mainly for two purposes:
1. To maintain the operation of mining devices;
2. To maintain optimal operation of these devices by thermal regulation.
The required amount of electricity depends on the characteristics of mining and
cooling/thermal devices. Devices with higher hashrate consume more energy and
require more intense cooling. From 2014 to 2018, global power requirement estimates
for the Bitcoin network have rocketed by around 50 times (Clark and Greenley 2019).
Consumption of a vast amount of electricity causes vast emissions of CO2 . Carbon
footprint and energy consumption by the global Bitcoin network have reached levels
that are comparable at country levels. Digiconomist (see https://digiconomist.net/bit
coin-energy-consumption) illustrates this comparison:
• Annualized total Bitcoin carbon footprint is equal to 64.18 Mt CO2 , which can
be compared to the carbon footprint of Serbia and Montenegro.
• Annualized total electricity usage by the Bitcoin network is equal to 135.12 TWh,
and it is comparable to the power consumption of Sweden.
• Annualized total electronic waste of the Bitcoin network is 6.47 kt, which is
comparable to the e-waste generation of Luxembourg.
• A single Bitcoin transaction produces 813.29 kg CO2 , which is equivalent to
the carbon footprint of 1,802,525 VISA transactions or 135,548 h of watching
YouTube.
• A single Bitcoin transaction consumes electrical energy equal to 1712.18 kWh,
which is equivalent to the power consumption of an average US household over
58.69 days. This amount of energy could power 1,151,975 VISA transactions.
• Electronic waste from a single Bitcoin transaction is equal to 82 g, which is
equivalent to the weight of 1.26 size C batteries or approximately two golf balls.
Even though the above-presented numbers are up to date, those were shocking a
couple of years ago and raised some concerns, which led to a number of studies on
whether future growth of Bitcoin mining will adversely affect energy consumption
and subsequent CO2 emission levels. Mora et al. (2018) found that the associated
energy consumption of Bitcoin usage could potentially produce enough CO2 emis-
sions to lead to an increase of 2 °C in the global mean temperature within 30 years.
Another study on continuously increasing demand for energy and future consump-
tion levels of electricity by Bitcoin resulted in a call for reform in the cryptocurrency
industry (Foteinis 2018). On the contrary, several studies have asserted that cryp-
tocurrency mining will not significantly contribute to the global CO2 emission levels
because the main mining centers are located in areas with plentiful and affordable
renewable energy. Masanet et al. (2019) argue that there are some flaws in the calcu-
lations by Mora et al. (2018), and results of CO2 emissions leading to an increase in
global temperature are not that catastrophic. Furthermore, a new report from financial
services company Square Bitcoin Clean Energy Initiative (2021) claims that Bitcoin
miners are unique energy buyers who require cheap and abundant energy sources.
In this regard, as society starts deploying more solar and wind, the levelized cost of
energy will fall and potentially unlock profitable new use cases for that electricity,
like desalinating water, removing CO2 from the atmosphere, or producing green
hydrogen.
By May of 2021, the total number of debit and credit card transactions in Georgia
was 6,734,270 (requires 10,009.14 kWh of electricity of which 2001.83 kWh was
produced by non-renewable energy sources). If we assume that only one transaction
was made through each crypto ATM in Georgia during May of 2021, then its total
electricity consumption equaled 56,501.94 kWh, which was 5.64 times higher than
the total electricity consumption of all card transactions in the country. Considering
the fact that the renewable energy share in total electricity production in Georgia
is approximately 80%, then one can roughly estimate that 11,300.39 kWh (20% of
56,501.94 kWh) of this electricity was generated by non-renewable energy sources.
Accordingly, this amount of produced electricity left 5530.37 kg CO2 , which was
approximately 9.1 times higher than the total amount of CO2 emissions produced by
all card transactions powered by non-renewable energy sources (which is 607.69 kg
CO2 ).
According to Invest, the government sustainable development group in Georgia,
the country enjoys an energy surplus. Today, only 25% of the Republic of Georgia’s
renewable energy production potential is exploited. Liberalization and deregulation
of the energy market in Georgia started in 2008 and the Build-Own-Operate (BOO)
principle is applied to all new renewable energy projects. Investors enjoy freedom of
choosing buyers and negotiating prices on the open market while connection to the
transmission grid is free. There is no license requirement for electricity export and
for all hydro power plants that are smaller than 13 MW. Also there is no requirement
for an environmental impact assessment for hydro power plants smaller than 2 MW.
This favorable regulatory environment incentivizes investment in the energy sector.
VAT exemption of electricity generation and export also creates appropriate grounds
for new investments.
Currently, most of Georgia is actually powered by renewable energy. According
to statistics from the International Energy Agency (IEA), hydropower is responsible
for the supply of more than 80% of the country’s electricity (see https://www.iea.org/
countries/georgia#data-browser). Moreover, in the framework of SDGs, Georgia set
certain goals to achieve by 2030 that are directly related to SDG-7:
• By 2030, Georgia intends to achieve considerable progress in ensuring nationwide
access to affordable, durable, and modern energy services. The target is to provide
access to electricity to 100% of the population (SDG-7; Target 7.1; Indicator
7.1.1).
• Renewable energy share (hydro, geothermal and solar, biofuels and waste) in the
energy mix will equal approximately 30% by 2030 (SDG-7; Target 7.2; Indicator
7.2.1).
• Energy intensity will equal 5.787 MJ per Purchasing Power Parity (PPP) of GDP
(according to prices in 2014 and baseline energy consumption intensity minus
10%) (SDG-7; Target 7.3; Indicator 7.3.1).
Considering the abovementioned contrast between cryptocurrency mining and
targets for renewable and sustainable energy resources, our analysis shows that the
blockchain ecosystem in the Georgian case is incomplete. Nassiry (2018) suggests
that blockchain has the potential to accelerate the flow of capital. It seems that in
the Georgian case, this potential is almost untapped. Georgia designed a permissive
regulatory environment for cryptocurrency mining, but the lack of relevant poli-
cies to retain domestically mined cryptocurrencies and channel digital funds into
green projects are unaddressed to date. Especially in the energy sector, blockchain
technology can provide dis-intermediation of utility business models of centralized
generation and grid distribution; that is, it can provide peer-to-peer energy trading.
Taghizadeh-Hesary and Yoshino (2020) show that compared to fossil fuel projects,
green energy projects face two primary barriers: lower rate of return and high risk
of investment. Taghizadeh-Hesary and Yoshino (2019) find that DLT-based green
funds will have a relatively low risk of investment and a high rate of return. Given
that DLT technology will increase the transparency, traceability, and auditability of
green funds, it will induce private sector participation in green projects. The impli-
cations and findings of Taghizadeh-Hesary and Yoshino (2019) are mainly related
to small green energy projects, which means that their suggestions are quite relevant
for the Georgian case. Their study is about the enhancement of Japanese-originated
Hometown Investment Trust (HIT) Fund with DLT technology. The HIT fund is a
successful community-based approach that is designed to connect local investors
with projects in their own neighborhood. Liu et al. (2021) describe NRG coin as
an example of green energy cryptocurrency blockchain. When a prosumer produces
1 kWh of environmentally friendly energy and infuses it into the network, a return
of 1 NGR coin is generated. That is, regardless of retail power prices, NRG coin
costs 1 kWh of renewable energy used from the grid. NRG coin generates afford-
ability for prosumers. To illustrate blending green energy projects with digital solu-
tions, we suggest the above example use two different approaches to utilize the
potential of blockchain and cryptocurrencies. With such an approach, Georgia will
be able to retain domestically mined cryptocurrencies. In particular, public or open
access blockchains can grab the attention of small investors. Furthermore, in January
2021, electricity tariffs increased considerably for commercial use, and it undermined
Georgia‘s competitive edge on crypto mining (Girardot 2021).
This study illustrates the level of available green finance in Georgia and to what
extent it has been digitized. The country made notable progress in developing several
important strategies and policies to meet the goals set by the Paris Agreement and
SDGs. This study considers the importance of green finance and how digitization
can help to raise required funds to meet the country’s climate and environmental
goals and targets. For example, digital currency can be related to SDG-1, SDG-13,
and SDG-16. However, Georgia needs to regulate new digital financing channels
because some undesirable consequences have already emerged. In addition, the
crypto-mining industry has to be under more scrutiny to avoid serious environmental
and social problems because it is not well regulated. Also, the findings and policy
implications of this study are important for countries in which the share of renewable
sources in electricity production is relatively high (WB 2021d). To avoid facing
the same unintended consequences and negative externalities, the Georgian case
can provide insightful lessons for: Costa Rica, El Salvador, Estonia, Guatemala,
Honduras, Iceland, Kenya, Lithuania, Nicaragua, Romania, and Uruguay.
GHG emissions in Georgia mainly take place in the energy sector, which is respon-
sible for 62% of the total. Energy projects account for 50.4% of planned or ongoing
infrastructure projects, which equates to US $23.1 billion. Investment planned for
energy infrastructure or under construction totals US $11.6 billion. Electricity gener-

ation projects make up 89% of this value and 98% of these electricity generation
projects fall into the category of renewables: hydropower, wind power, and solar
photovoltaic (OECD 2021b). There are ongoing and planned renewable investments
worth more than US $10 billion. Furthermore, the country has a very favorable busi-
ness environment for cryptocurrency mining. The primary policy recommendation
of this study is that domestically mined cryptocurrencies can be channeled into these
renewable projects with very favorable tax incentives and regulatory frameworks.
The rise of public and private digital money has prompted the IMF to propose new
policies and explore options for reform (IMF 2021b). The same flexibility should
also be adopted by national regulatory bodies. The tax modernization program, which
adopted digital tax payments between 2005 and 2011, generated US $4 billion in
additional revenue for public finance (UNDESA 2021). It is a good sign that there
is a political will to adopt digital solutions with green components.
The digital finance industry benefits from a very favorable environment in the
Republic of Georgia as depicted earlier in this study. A certain share of this digital
finance falls into the category of “green.” To fully utilize green finance, Georgia has
the potential to attract US $10 billion in planned or ongoing investment in the renew-
able energy industry. A favorable business environment only for digital finance is
not sustainable considering the increasing impact of climate change in the country.
By early March 2021, after the first year of the COVID-19 pandemic, 3553 lives
were lost. To provide contrast, in 2018, 4056 lives were lost due to air pollution,
and corresponding welfare loss of air pollution has been in the magnitude of 3%
of GDP (WB 2020b). Between 1993 and 2020, Georgia‘s population declined by
almost 1.2 million (WB 2021c). Land degradation brings about a widening poverty
gap. The main reason behind this relationship is the low productivity in the agricul-
ture sector. Agriculture and forest-based economic activities make up 7% of GDP
while providing 39% of total employment (WB 2020b). As mentioned in the main
body of this chapter, by utilizing digital finance more into the green category, specif-
ically Georgia will most likely see improvements in the following SDG targets and
indicators:
• Target 13.1: Strengthening resilience and adaptive capacity to climate-related
hazards and natural disasters.
• Target 16.5: Substantially reduce corruption and bribery in all their forms.
• Indicator 1.2.1: Proportion of population living below the national poverty line.
• Indicator 3.9.1: Mortality rate attributed to household and ambient air pollution.
• Indicator 7.2.1: Renewable energy share in the total final energy consumption.
• Indicator 13.2.2: Total greenhouse gas emissions per year.
Given that Georgia generates only 0.03% of global GHG emissions (OECD
2021b), commitments and goals are easily achievable. The country’s SDG indi-
cators set a target of 30% for the share of Georgia’s energy consumption derived
from renewables. By 2018, the share of renewables in the total energy mix was
28%. However, successful official commitments do not provide an exemption for
Georgia from climate change. The capital city of Georgia, Tbilisi, with its popu-
lation of more than 1 million is considered to be an urban heat island (UHI) (WB
2021a, b, c, d). In 2001, total GHG emissions in Georgia, excluding land use, land-
use change, and forestry activities, were 21% of the 1990 level. That is based on
1990 levels, the country achieved a better result in 2001 than the targeted 65%.
Since then, GHG emissions have shown an increasing trend and reached 39% of
1990 levels (UNFCCC 2021b). Therefore, Georgia does not feel great constraints
stemming from NDC commitments. Goals and commitments are extremely easy to
achieve and this creates a misperception as the country has room for additional envi-
ronmental degradation. This is a pitfall for policymakers as well as citizens. There
is a considerable discrepancy between ongoing climate change and climate change
mitigation policies. Landslides, heat waves, air pollution, floods, coastline deteriora-
tion, declining river flows, and lax climate mitigation commitments are not in tandem
with each other. Poverty and unemployment, together with external sector fragility,
still require long-lasting remedies. In 2020, the current account deficit was 12% of
GDP, with an unemployment rate around the same figure of 12%. By 2019, before
any COVID-19 ripple effects, 19.5% of the population was living under the national
poverty line.
The experience in green financing and some progress in digitizing their activ-
ities pose great promise for future development and digitization of green finance
in Georgia. Additionally, forming a legal and regulatory base and the availability
of regulatory sandboxes can push the digitization process even further. Georgia’s
openness for innovations and new technologies is another plus, which can speed up
the development of green digital finance. For example, Georgia has already been
implementing blockchain technology since 2016. Georgia’s National Agency of
Public Registry signed a memorandum of understanding with Bitfury, and in 2018
the country registered more than 1.3 million land titles on their blockchain-based
system, which is jointly developed with Bitfury (ADB 2019). Moreover, the govern-
ment, together with the Norwegian blockchain trading platform WiV Technology, put
some of its 94 billion bottles of wine exports on the blockchain (see https://www.nas
daq.com/articles/georgia-to-put-its-wine-on-the-blockchain-2021-07-20). However,
there are some points that Georgia needs to consider to make a smooth and quick
transition to full digitization of green finance available in the country:
1. Georgia has already had experience in the issuance of green bonds and has
already started exploiting blockchain technology, even though in different
spheres. It indicates that the country has the potential to develop blockchain
bonds or STOs. For this purpose, Georgia needs to make some investment in
research and consulting from international organizations, such as the World
Bank, BIS, or other countries that have already issued blockchain bonds. More-
over, a regulatory sandbox will enable Georgia to transfer gained knowledge
from best experiences into practice and eliminate any possibilities of encoun-
tering problems or issues in the exploitation of digital green bonds. Adoption of
several security protocols and vital technological advancements or alternatively,
use of external platforms, such as the Green Asset Wallet, will serve to build
and increase investor confidence and trust in digital securities as well as amplify
public participation in green project financing.
2. Even though cryptocurrency mining is mainly powered by electricity produced
from renewable energy, Georgia still needs to track its environmental damage.
The country is currently experiencing some problems due to legal and illegal
crypto-mining activities. Abkhazia, where the population is about 240,000, is a
home for approximately 625 crypto farms. During the winter of 2020, Abkhazia
faced energy collapse as electricity lines became overloaded and some power
stations caught fire (Bacchi 2021). Then the government asked crypto miners
to stop mining for some time, and banned cryptocurrency mining in the region
until June of 2021 (Bacchi 2021). Hence, Georgia needs to keep track of the
environmental damage of crypto-mining farms and individuals and introduce a
policy or regulation that will take control of the current crypto-mining boom.
This will not be a major obstacle in achieving the goals set by the Paris Agree-
ment and SDGs. Also, Georgia can cooperate with the Crypto Climate Accord
initiative, which aims to make the cryptocurrency industry carbon-free, and
channel finance flow within this industry into renewable projects.
3. Georgia ranks very low in cybersecurity in Europe and Central Asia. According
to Kaspersky Lab research, in 2018, Georgia ranked in the top five countries
for phishing scams in the region (WB 2020a). Moreover, in 2020 according to
World Bank data, Georgia had only 3505.6 secure internet servers per 1 million
people, which was around three times lower than the world average of 11,515.5.
Hence, digitization of financial services and the banking industry brings serious
risks, and Georgia needs to put a lot of resources and effort into overcoming
cybersecurity issues.
4. Georgia itself has to be interested in the development of green digital finance.
All the relevant policy documents and regulations that exist to date are results of
“enforcement” by the international treaties that Georgia signed or international
organizations with which Georgia is associated. Georgia needs to take some
initiative and develop comprehensive strategies and regulations and needs to
set up more challenging goals related to climate and environmental issues. For
example, the country’s target to unconditionally reduce its GHG emissions by
35% below the business-as-usual scenario for the year 2030 was achieved in
1993, according to World Bank data. In 2019, GHG emissions were about 63%
below the business-as-usual scenario. Hence, setting challenging but achievable
goals related to Paris Agreement and SDGs will push the development and
digitization of green finance in Georgia.
5. Currently, international financial organizations are the main finance sources of
green finance in the forms of loans and credit lines. In this respect, Georgia needs
to reduce its dependence on financial support from international financial orga-
nizations and should form a fund to provide cheaper financial means for green
projects. Domestically mined cryptocurrencies can be channeled into green
investments with another favorable regulatory framework or tax incentives.
Acknowledgements This research was supported by the COMPASS project [ES/P010849/1]

funded by the Global Challenges Research Fund (GCRF) and the UK Research Councils (UKRI).
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Chapter 11
Mapping the Current Practices
and Patterns of Green Digital Finance
in India and the Way Forward
Vijeta Singh, Nandita Mishra, and Farhad Taghizadeh-Hesary
Abstract The investment required to achieve the commitments of the 2015 Paris
Agreement and the available finance leaves a huge gap that needs to be filled. Notably,
the COVID-19 pandemic has accentuated this finance gap. The cost of financing
green projects is another very important factor. To deal with these problems, green
digital financing offers a cost-effective and transparent option. Technologies like
artificial intelligence, blockchain, Internet of things, and big data can help boost green
financing. This chapter highlights the investment requirement in India to achieve the
sustainable development goals (SDGs) and also outlines the steps taken by India
toward green digital financing. This chapter also underlines the challenges faced by
India in the field of green digital financing and draws some initial recommendations
for policymakers in harnessing green digital financing to achieve the SDGs.
Keywords Green digital financing · India · SDGs · Blockchain · Artificial

intelligence
JEL Code Q01 · D25 · G1 · G2
V. Singh
School of Management-PG, MIT—World Peace University, Pune, India
N. Mishra (B)
Department of Management and Engineering (IEI), Linköping University, Linköping, Sweden
e-mail: [email protected]; [email protected]
https://doi.org/10.1007/978-981-19-2662-4_11
224 V. Singh et al.
11.1 Introduction
The Securities and Exchange Board of India (SEBI) defines green finance as the
financing of environmentally sustainable project. Projects that are defined as sustain-
able under the disclosure requirement for green debt securities are those that include
sustainable waste management or those related to climate change adoption, forestry,
agriculture, or biodiversity (SEBI 2017). Green finance is the fuel for sustainable
development and the biggest disappointment in the world economy today is the low
rate of investment (Sachs et al. 2019). After the 2008 financial crisis, different central
banks attempted to stimulate the economy by slashing interest rates. There is a huge
gap in the financing of green projects and private sector has not shown much interest
in this area (Yoshino and Taghizadeh-Hesary 2018). It is suggested that the use of
digital financing in green financing will lead to increased finance to boost sustainable
growth.
Green finance flow in India was US $17 billion in the financial year 2017 and
US $21 billion in 2018, which is far below the required levels (CPI 2020). The
Economic Survey 2019–2020 indicates that India is the second-largest emerging
market after China for green bonds. Despite this, the report also concludes that India
has “scarce financial resources” to meet its commitments under the Paris Agreement.
Furthermore, it is very important to study international policies and India’s policies
toward green digital financing. Especially post-pandemic, there is a need to analyze
the current scenario of policy and status of green digital financing in India and
the role of green digital finance in accomplishing sustainable development goals
(SDGs). India, as a prominent country in developing Asia, is the base country for our
study. In 2019, the Indian government announced a target of 450 GW of renewable
energy generation capacity by 2030, which is one of the most ambitious targets
globally (Prasad and Gupta 2019). Meeting this goal will not be an easy task amid
the slowdown because of the COVID-19 pandemic, changing priorities, and slow
participation rate from the private sector. This chapter focuses on the status of green
digital financing toward sustainable growth in the developing economy of India, and
seeks to provide a granular insight into the patterns and structure of green digital
financing in India. Focusing on India provides an important perspective because it is
one of the important emerging economies and its position is crucial for attaining the
2030 SDGs. One-sixth of the earth’s humanity comes from India and this country
also contributes about 8% of the global GDP. Therefore, the status of India is very
important for analyzing the overall status of attaining the SDGs.
Indian regulators like SEBI and the Reserve Bank of India (RBI) are planning
frameworks to encourage green digital finance in India (RBI 2018). SEBI is also
working toward launching a social stock exchange to give momentum to green digital
financing. Green digital finance is expected to deliver in terms of better monitoring
and supervision, cost efficiency, and asymmetry of information pertaining to green
projects. As one of the most popular instruments of green financing, green bonds
can benefit immensely from digital finance as a compliance mechanism because
it requires an enhanced level of monitoring and intense auditing. Digital finance
11 Mapping the Current Practices and Patterns … 225
platforms can ease the task with minimal costs through standardization and mitigating
duplication of tasks. India has a robust financial technology sector that can contribute
to sustainable and green digital finance. When compared with advanced economies,
India is still a nascent player in the green digital finance area but has taken some baby
steps. For example, the Digidhan dashboard provides a platform to monitor digital
payments in India and hosts the RBI and 111 other banks. Similarly, Datamatics is
an Indian firm that uses a blockchain platform to lower energy costs in India.
Given that few studies of the green digital finance scenario in India have been
reported, this chapter will be a significant contribution to the current literature. The
objectives of the study are outlined as:
I. To study the role of green digital finance in bridging the investment gap in
India;
II. To identify the status and challenges concerning green digital financing in
India;
III. To study the role of digital finance on green growth indicators.
The study concludes that green digital financing extends the possibility to contribute
to SDGs and to the country’s economy. This not only helps in fulfilling the commit-
ment to the Paris Agreement but also helps the economy by lowering the operating
cost of financing. However, India faces challenges of reliability of data, governance,
and security in the implementation of green digital finance. This chapter has many
theoretical and practical implications and suggests ways to overcome the current
challenges.
11.2 Status of Green Digital Finance in India
11.2.1 Investment Requirements
Estimates of the green investment requirement in India have increased because of the
COVID-19 pandemic, which has further increased the financing gap. Green digital
financing requires multilevel participation from both the public and private sectors.
In India, green digital financing mainly occurs through public domestic sources
that are not adequate to achieve the 2030 agenda. OECD countries collect 34% of
their gross domestic product (GDP) from taxes and therefore are in a better position
regarding financing. However, in India, the tax/GDP ratio was 11.97% in 2014 and
has reduced to 9.88% in 2020, which is the lowest in 10 years (CPI 2020). Therefore,
public funding is not adequate in India and even private funding may not be able
to meet the gap for sustainable growth, investment in climate response, and natural
resources.
India must build 80% of its requirement by 2030 (PwC 2020). This requires
an increase in power generation to meet increased industrial development, which
will eventually increase carbon emissions. Therefore, Goal 7 (affordable and clean
226 V. Singh et al.
energy) is closely linked with the choice of infrastructure (Goals 9 and 11) and
impacts the achievement of sustainable production (Goal 12). These goals are closely
interlinked with greenhouse gas emissions and hence Goal 13. The financial require-
ments of all these goals accumulate to the green digital financing requirements in
India.
India’s National Action Plan on Climate Change recommended 10% of its energy
sources come from renewable sources by 2015 and 15% by 2020. The sanctioned
budget by the Ministry of New and Renewable Energy (MNRE) does not fulfill the
funding requirements for renewable energy targets, so participation by the private
sector is inevitable. Some of the measures taken by the Indian government include
clean energy cess on coal of 50 INR per tonne and the scope of the operations for the
National Clean Energy Fund (NCEF) has been expanded. Other initiatives include
the creation of the solar army, venture capital funding, and the creation of solar parks.
11.2.2 Green Digital Finance Infrastructure in India
In the past decade, India has seen a massive surge in the use of digital finance. Digital
finance is key to accelerating the pace of financial inclusion in India. India’s banking
system regulator, the RBI, and the Ministry of Finance (MoF) and the Ministry of
Electronics and Information Technology (MeitY) have been actively working toward
promoting the use and adoption of green digital finance in India. In addition to this,
the robust information technology (IT) industry and financial technology (FinTech)
startups have provided the necessary boost to digital finance in India. In India, the
building blocks for digital finance mainly come from digital financial infrastructure
system built by the Indian government, which includes a payment systems network,
unique identification database, mobile applications, artificial intelligence, and the use
of blockchain technologies. There are three key aspects of digital finance infrastruc-
ture in India: payment and settlements infrastructure, know-your-customer require-
ment (KYC) norms (unique identification), and supervision by regulatory authorities.
A brief overview of such digital finance infrastructure is provided in Fig. 11.1.
The building blocks for digital finance in India, which also provide an overar-
ching framework for green digital finance in India, primarily rest upon four key
elements: payment and settlements infrastructure, KYC identification requirements,
financial institutions (banks and other financial intermediaries), and supervision and
monitoring. The existence of payment/settlement infrastructure is a key mechanism
to deliver digital finance operations in India. The National Payment Corporation of
India (NPCI) was incorporated as a not-for-profit company under Section 25 of the
Companies Act 1956 in India (NPCI Website). It was an initiative of the RBI and
Indian Banks Association (IBA) under the provisions of the Payment and Settlement
Systems Act 2007. The aim of the NPCI was to provide the necessary infrastructure
for creating a robust payment and settlement infrastructure in India. Before NPCI was
conceptualized, several problems were encountered such as separate payment and
reporting systems, validation enforcement, multiple data capture and control points,
Payment and Settlement

Infrastructure Unique
Monitoring
Identification
AADHAR
NPCI Digidhan Dashboard
AEPS Payment Platform for AADHAR

Linked with the Bank Account
NACH NFS UPI
Direct Bank Payments and
BHIM-UPI Requesting Money Using UPI
Interconnected ID
Network of ATMs
Mobile Application for Money
Automated Multiple Electronic Transfer and Micro Payments
Clearing System
Fig. 11.1 Overview of green digital financing infrastructure in India (NPCI, National Payments
Corporation of India; NACH, National Automated Clearing House; UPI, Unified Payment Interface;
NFS, National Financial Switch; AEPS, Aadhar Enabled Payment Systems; BHIM, Bharat Interface
for Money)
long payment process life cycle from Drawing and Disbursing Officer (DDO) to Pay
and Accounts Officer (PAO), delayed payment to beneficiaries, and payments through
cheque crossing 13 stages (Sengupta and Shastri 2019). These problems were effec-
tively addressed by the implementation of NPCI in India. An important component
of NPCI was the National Financial Switch (NFS), which comprised an intercon-
nected network of automatic teller machines (ATMs) to facilitate cash withdrawal
and other banking services in India (Mundra 2015). NFS has also simplified the use of
ATMs across India, which has solved liquidity issues for residents, especially in far-
flung areas. The conduct of digital finance transactions requires clearance at multiple
levels. The National Automated Clearing House (NACH) is a centralized system that
was conceptualized to consolidate the multiple electronic clearing systems in India.
Krishnamoorthy (2020) emphasized that asset management in companies primarily
rests upon the NPCI, a sponsor bank, and scheduled commercial banks. A seamless
process between them needs standardization that starts with NPCI. The mutual fund
industry had been utilizing the services of PayTech that enable systematic investment
plans (SIPs) to be operational in India, which was made possible with the help of
NPCI and NACH.
Digital finance transactions in India received a further boost from AADHAR Act
2007, which provides a unique biometric identity to all Indian citizens. AADHAR
provides a unique 12-digit identification number that has solved many problems
for Indian administrators by linking the identity with demographics and biometrics
covering Indian residents on a real-time basis with reduced KYC costs. The idea
228 V. Singh et al.
behind AADHAR is to reduce cash transactions and harness the technology for the
benefit of the poor (Subbarao 2010). The AADHAR database works on a three-
tier system wherein the back-end support mechanism allows linking with a bank
account while the front-end mechanism works with a biometric-enabled device and
between the two streams, providing data transmission through the network (Sengupta
and Shastri 2019). As of June 2021, accounts seeded with AADHAR were 121.95
million out of a total number of 139.81 million (87.23%) while mobile seeding stood
at 118.73 million out of 146.50 million (81.04%). An extension of AADHAR use
has been the Aadhar Enabled Payment Systems (AEPS) based on the architecture
of the unified payments interface (UPI). As a digital payment platform, it requires
an AADHAR number to be linked with the bank account of the user along with
the mobile number to be linked with the bank account (Shrimali 2018). There has
been extensive use of the AADHAR database by Indian firms, especially for credit
facilitation. CapitalFloat is an Indian company that provides credit to small and
medium enterprises (SMEs) by including additional information for the underwriting
of loans by effectively employing information available from the Government of India
(GOI) for AADHAR and Goods and Services Tax (GST) compliance. Money View
and Bank Bazaar allow for aggregation of consumers’ financial and non-financial
data from various sources and offers them suitable loan products. The model adopted
by Bank Bazar combines the benefit of better analytics, transparency, and choice
(Patwardhan et al. 2018).
India has been reaping the benefits of low-cost mobile connections and a huge
mobile subscriber base in the world. To extract the benefits of mobile technology to
further digital payments in India, especially to the lower strata of society, Unified
Payments Interface (UPI) conceptualized by NPCI was formed in 2016 to boost
digital micro-payments in India. It is a real-time payment system that facilitates
transactions across various financial intermediaries, mobile wallets, and traders using
a single mobile application. In July 2019, the value of UPI transactions rose to US
$21 billion (Kumar 2020). UPI transaction data in India shows a slow nascent start
of 0.09 billion INR in 2016, but reaching 2662 billion INR in May 2021, with an
average month-over-month growth of 26.9%. The number of banking institutions
on the UPI platform has also increased from 21 banks in July 2016 to 224 in May
2021. It also indicates enhanced synchronization between banking institutions and
UPI platforms in boosting digital finance in India and banks have been benefitting
from this. The cost of UPI transactions and payment systems of India is less than
1% per transaction (Patwardhan et al. 2018). An important initiative that makes use
of the UPI platform has been Bharat Interface for Money (BHIM), an initiative from
NPCI and a payment application that enables direct bank payments and requesting
money using UPI ID. Figure 11.2 shows the shares of the different modes of payment
for 2020–2021.
Credit Card Debit Card

4.13% 9.63%
IMPS
7.67%
BHIM UPI Internet Banking

54% 4.77% Mobile Banking
2.33%
NACH
8.48%
NEFT
7.24%
BHIM Aadhaar
0.04%
Fig. 11.2 Modes of digital payment in India for 2020–2021 (The component-wise breakdown of
NPCI-based financial transactions [including UPI] is provided in Annexure I. Source Digidhan
Dashboard)
11.2.2.1 Digidhan Dashboard
The Digidhan dashboard developed by the National Informatics Centre (NIC) was
launched in 2018 by MeitY as a central platform for the promotion and monitoring of
digital payments in India. This platform consolidates and analyzes the data from 110
banks, 100 smart city corporations, and captures digital transactions from 16 digital
payment modes (Shrimali 2018). It provides access at two levels: general access
that gives all details about the growth of digital payments and its related infrastruc-
ture; and privileged access that is primarily meant for stakeholders to monitor data
from various channels. Herein, a composite scorecard is being developed to track the
performance of banks for the assigned targets and parameters set and to create healthy
competition among them. The Digidhan dashboard is also being used to provide
digital payment data to the GOI and its related portals like e-Taal (e-Transaction
aggregation and analysis layer) through application programming interfaces (APIs).
Furthermore, Digidhan also provides BHIM transactions and its decline analysis,
AADHAR mobile seeding analysis, Bharat Bill Payment Systems (BBPS) transac-
tion analysis, closed-loop transaction analysis- point of sales (POS) deployment, and
correlation analysis (Sengupta and Shastri 2019).
The India Stack is the set of APIs that allows governments, businesses, and star-
tups to use the digital financial infrastructure. It works on four dimensions: pres-
enceless layer, paperless layer, cashless layer, and consent layer (NITI Aayog 2020).
The India Stack gives wings to the idea of open banking or an account aggregation
system. This aims at not only enabling payments but also facilitating lending activ-
ities with a proven credit history of the users. RBI is already deliberating upon
who will be working as an account aggregator, thus enabling the creation of a
new FinTech ecosystem. India Stack works on all these payments, credits, personal
230 V. Singh et al.
finance, wealth management, and insurance. To make this work, NPCI is also rolling
out the Open Credit Enablement Network (OCEN) to connect leaders, marketplaces,
and lenders. The issue that it could be facing is integration with global payment
systems (NITI Aayog 2020). The Open API team at iSPIRIT has been a pro-bono
partner in developing, evolving, and evangelizing these APIs and systems.
11.2.2.2 Blockchain Technology
Blockchain technology has the potential to transform organizational and interorga-

nizational business processes (Al-Jaroodi and Mohamed 2019). Blockchain tech-
nology can find wide application in the financial sector, including digital payments
(English and Nezhadian 2017), cryptocurrency exchange (Rizzo 2014), loan manage-
ment (Gazali et al. 2017). Banks have been using blockchain technology for many
purposes, including updates to contracts. Management of financial assets also uses
blockchain technology such as fiat money, securities, derivatives contracts (Fanning
and Centers 2016), and capital markets (Cappa and Pinelli 2020). Blockchain is
widely used in supply chain management (Saberi et al. 2019).
India Innovation Lab for Green Finance is a public–private partnership for
innovating financial instruments for renewable energy in India. Using credit scoring
models, they identify and value the risk status of borrowers and users list their
credit requirements on the Loans4SME platform. Kim et al. (2017) proposed a
billing system based on a lightweight blockchain for e-vehicle charging that creates
evidence of the time sequence of transactions without third-party engagement.
Digital Service Twin Configurator is an orchestrator that is being developed by Atos.
It aligns mapping of sensors with physical asset and virtual assets, ERP system, and
document management to set up a digital thread. In India, TATA AIA life insurance
has created a blockchain consortium to reduce data breach issues, money laundering,
and fraud, while its cross-company data sharing with Bitcoin applications reduces
turnaround time and improves efficiency and record keeping (TATA AIA Life
Insurance 2021). R3CEV is another financial services blockchain used by 11 banks
that provides blockchain connectivity by simulating exchange value (TCS 2016).
In a global example, the Estonian Health Information System uses blockchain
technology for e-health records and seamless exchange of health documents, thus
helping the insurance industry. InsPeer, launched in 2015, is a peer-to-peer insurance
scheme that enables a group of people to share deductions when a claim is paid. The
SolarCoin foundation has a reward system based on blockchain technology wherein
one SolarCoin is provided as a reward for each MWh of solar energy produced.
These digital coins can be traded for government currencies.
11.2.2.3 Artificial Intelligence
Artificial intelligence (AI) is an absolute necessity for organizational transformation

(Aloini et al. 2018). In India, the use of AI is still at its nascent stage. The Ministry of
Commerce and Industry of GOI set up an AI task force in August 2017 to achieve the
objective of embedding AI in the economic, political, and legal thought processes,
thereby India to become a leader of AI-rich economic management. NITI Aayog
used 7500 crore INR to fund the creation of a cloud platform called AIRAWAT as
an AI framework for India. AI may act as an enabler to all 134 targets for all SDGs.
Agyekum et al. (2016) found that mobile phone penetration has a huge impact on
financial inclusion. AI can be instrumental in financing green projects in terms of
monitoring user behavior/tracking credit history, projection and estimation of cash
flows, managing risks, and processing of financial instruments. There are many exam-
ples of AI use in the Indian banking industry. SBI has been using AI-powered SBI
Intelligent Assistant (chat assistant developed by Payjo) to meet customer queries.
ICICI, a leading private bank in India, has deployed software robotics in its 200
business processes across various activities of the company. This initiative with 750
software robotics handles nearly 2 million transactions on a daily basis (20% of the
total transaction volume) (Kumar 2021). Similarly, YES bank uses a bot platform
called YES mPower as a banking chatbot for its loan products, and also started
chatbot-based banking called YES TAG in 2016 (Agarwal 2018).
11.3 Practical Applications of Green Digital Finance

in India
Green digital finance comprises a range of mechanisms that offer sustainable solu-
tions to the ever-growing financing needs to meet SDG goals. India ranks sixth
in terms of blockchain patent adoptions and according to Dappros, India has the
second-largest number of blockchain developers in the world. In India, blockchain
technology is being used in multiple fields, the most prominent being the National
Land Record Modernization Programme launched by GOI in 2008 for automa-
tion and updating of land records (later revamped as Digital India-Land Records
Modernization Programme in 2014). This initiative required real-time updated land
records with title guarantees (Thakur et al. 2020). In India, private firms can employ
blockchain technology because the prevailing architecture is already available. The
IDRBT in India enables blockchain for domestic trade that combines banks and
private companies and its management is enabled by NITI Aayog. India is moving
toward cashless and decentralized banking transactions for which blockchain is quite
useful, with some early adopters in the fertilizer and drug industries (Rathore et al.
2019). In India, HSBC and Reliance Industries executed financial transactions using
blockchain technology. In the case of Reliance Industries, the letter of credit transac-
tion was blockchain-enabled and helped the consignment between Reliance Indus-
tries and Tricon Energy. Similarly, HSBC India and ING Bank Brussels performed
blockchain trade finance with respect to the Bill of Lading; this allowed for fully digi-
tized core trade using one platform (Rathore et al. 2019). The Merchant Discount
Reimbursement (MDR) system in India is now enabled with blockchain technology.
232 V. Singh et al.
In a country like India, which is dominated by an unorganized sector, digital payments

carry a huge relevance. Under this MDR blockchain-enabled system, a scan and pay
facility is being provided, and MDR charges for all transactions less than 2000 INR
are waived. With the help of the blockchain, firms can raise finance using peer-to-
peer platforms using globally distributed ledger offerings. In India, Loans4SME is
an initiative that offers lending solutions to SMEs using electronic platforms in the
peer-to-peer lending marketplace.
Some of the initiatives in startups like ZTRIC, ThingsCloud, and Solar Labs have
been actively engaged themselves in providing AI-based solutions to the renewable
energy sector in India. Other examples are Adani Solar and BSES Rajdhani Power
Limited (in partnership with Australia’s Power Ledger) (Business World 2021).
The use of AI technologies optimizes the use of the information for credit scoring
purposes. A firm called Square Capital that uses their gateway to gather information
about the SMEs to whom it lends and then accordingly make policies and claim
repayments too. One of the IoT applications has been to serve poor communities in
remote locations. Sarvajal is an Indian mission that provides sustainable develop-
ment on a user-pays system. Such applications favor the use of pre-paid cards and
mobile payments.
11.4 Green Digital Financing in India Challenges

and Barriers
The challenges and barriers to green digital finance are many and of various dimen-
sions. There are multiple barriers affecting the adoption of green digital finance in
India, including cost (Ojha 2018), network externalities (Parmar 2016), trust (Singh
2018), limitations on human and environmental capabilities (Musa 2006), and high
digital illiteracy (Sood 2017).
The security of digital financial transactions has been a contentious issue. Security
is paramount to facilitate the use of electronic finance and insecurity breeds the feeling
of vagueness when using the technology. Saridakis et al. (2016) argue that transaction
insecurity leads to doubt in the mind of the users and has been identified as the major
issue in the adoption of green digital financing. Many research studies in the past
have discussed how security issues impede the adoption of technologies, especially
leading to the adoption of financial technology platforms (Cheng et al. 2006; Chen
2008). Ahlstrom et al. (2018) clearly mentioned the perils of FinTech marketplace
developments and the related risks of financial fraud. Furthermore, Krisnanto (2018)
posited that digital banking is a sort of window dressing to attract customers without
any security. Some of the key barriers to the adoption of green digital finance are
related to systemic risks and consumer protection (Dodd-Frank, Wall Street Reform
and Customer Protection Act, 2010, KYC Norms and AML regulations).
With the use of green digital finance, the issues of the usage of data and safe-
guarding the right to privacy will arise. The European Union’s General Data Protec-
tion Regulation (GDPR) explicitly requires safeguarding the right to privacy as a
fundamental right. With respect to this, the Indian telecom sector regulator Telecom
Regulatory Authority of India (TRAI) has already clarified that users are the owners
of the data and entities processing the data are mere custodians. With respect to AI,
the applicable law in India is the IT Act 2000, which covers cyber offenses and AI,
although domains like education, health, employment, and e-commerce are yet to be
brought within the purview of the IT Act 2000.
Regulation is an important factor that is impacting the adoption of green digital
finance. Digital financial assets that are not registered with the regulatory authorities
but promise substantial returns lack credibility because they are not registered with
any regulatory authorities nor securitized by firms. One of the key barriers concerning
the use of FinTech including blockchain has concerned ownership rights and titles,
which are completely dependent upon the prevailing regulations. A lack of standard-
ized regulations in any jurisdiction adversely impacts green growth (Darius 2018).
Within the specific context of India, there is no specific provision with respect to the
use of blockchain in the IT Act; in addition, government regulation is not clear in
terms of KYC requirements.
Clements (2019) discussed the regulatory uncertainty concerning different crypto
assets distinct from digital assets, which are well within the boundaries of the laws
and regulations. There are issues with the use of cryptocurrencies in India after
the use of GainBitCoin, which guaranteed its investors monthly returns of 10%
using a multi-level marketing scheme in the form of another cryptocurrency (MCAP)
that had negligible value in the market. As a result, the founder of GainBitCoin
was arrested for financial fraud (Anupam 2018). Another issue regarding the use
of cryptocurrencies has been market manipulation, given that laws and regulations
are not clear on this topic. Similarly, issues concerning cyber security fraud in use
of cryptocurrencies have been studied in detail because crypto-wallets and crypto-
exchanges are vulnerable to fraud and lack regulatory oversight (FINRA Staff and
BBB Institute 2018). Similarly, exchange hacks are also an issue concerning the
use of cryptocurrencies. In January 2018, the then finance minister of GOI declared
Bitcoins to be non-legal tender and prohibitions regarding its use were introduced
(Nupur 2018). Conversion of Indian currency to cryptocurrency is prohibited in India,
although conversion between different initial coin offerings is allowed. With respect
to benefits accruing from trading in Bitcoins, the MoF and SEBI cleared that benefit
accruing from Bitcoin trades would fall under capital gains and details have been
sought from various crypto-exchanges in India (Jain and Kumar 2018).
Further bureaucratic inefficiencies hamper the effective implementation and
development of policies concerning blockchain in India (Murali 2018). India has
some of the toughest regulations concerning blockchain startups and developers,
which likely drives developers away to other countries for access or finance (Pitti
2018).
The digital divide that India faces is an important barrier in scaling up green
digital finance. The high illiteracy rate of India, including high financial illiteracy,
234 V. Singh et al.
further makes the task complex and deprives users of benefitting from advanced
technologies like blockchain. Kaushik (2018) posited that the use of sophisticated
technologies like blockchain requires expertise that India is lacking at present. More
use of green digital finance requires skill and expertise. Agarwal (2018) argued that
India has 2 million software developers of which about only 5000 have blockchain
skills.
11.5 Solution to Challenges
The solutions to challenges to the adoption of green digital finance in India constitute
multiple options. The first issue concerns the integration of green digital finance with
the traditional financial system. As a banking system regulator, the RBI constituted
an Inter-Regulatory Working Group on FinTech and Digital Banking in 2017 to
study the regulatory issues relating to FinTech and Digital Banking in India. This
was followed by a Report of the Steering Committee on FinTech-Related Issues
from the MoF in 2019. This committee wanted to take stock of the developments
in the FinTech industry across the globe in terms of regulation, application areas,
and institutional regulatory upgrades. With specific reference to digital lending, in
January 2021, the RBI constituted a working group on digital lending including
lending through online platforms and mobile apps. This is a substantial step given
the pace at which the adoption of digital finance and mobile apps has occurred in
India. Cryptocurrencies and Bitcoin are facing regulatory issues in India. In this
context, the Cryptocurrency and Regulation of Official Digital Currency Bill, 2021,
has been drafted but has not been tabled in the Indian parliament. With emerging
technologies, the issues of regulation and monitoring are manifold; AI has been one
such area. In this context, the GOI set up four committees on AI: Committee on
Platforms and Data for AI; Committee on Leveraging AI for Identifying National
Mission in Key Sectors; Committee on Mapping Technological Capabilities, Key
Policy Enablers required Across Sectors, Skilling and Re-Skilling, and Research
and Development; and Committee on Cyber Security, Safety, Legal, and Ethical
Issues (MeitY 2021). These committees provide an overarching framework for the
regulation and implementation of AI policies in India. The provision of robust digital
finance infrastructure is key to the healthy growth of green digital finance in India.
As a solution, some of the recent developments in terms of technology stacking,
biometric identification (e-KYCs), interoperability, and data sharing infrastructure
will ease the access to green digital finance in India (D’Silva et al. 2019). Institute
for Development and Research in Banking Technology (IDRBT), an arm of RBI, is
building National Digital Financial Infrastructure (NADI) that will act as a roadmap
and framework for future digital financial services growth in India. Furthermore, RBI
has been proactively involved in various consumer awareness and financial literacy
programs across India executed via a network of commercial banks. These are initial
steps taken by the policymakers whose long-term impact is yet to be realized and that
also requires active participation from various stakeholders (including the private
sector) in providing sustainable solutions to the challenges faced by green digital

finance in India.
11.6 Role of Green Digital Financing on Green Growth

Indicators
Green growth emerged as an important concept at the Rio + 20 conference on

Sustainable Development in 2012 (UN 2012). The phrase green growth argues that
economic progress and environment preservation go hand in hand and have been a
primary concern for international organizations (OECD 2011). Green digital finance
is an important consideration to pursue the agenda of the SDGs and FinTech is the
result of companies combining financial services with innovative modern technology.
Innovative financing focuses upon long- and medium-term investment mechanisms
while focusing on environmental performance. Good examples are energy-saving
companies that provide energy efficiency services.
Another issue in the rollout of green digital finance relates to information asym-
metry and transactions costs. Unavailable and imperfect information distorts the
markets and their functionality and may lead to credit restrictions that can drive
eligible borrowers from the market. The use of green digital finance may help in
reducing or mitigating interaction costs, scaling up and expanding the markets,
and expanding information flows for market participants (Waverman et al. 2005).
Norton (1992) argued that the use of digital finance can increase the efficiency of
the investment market and accelerate the sustainable development of the nation.
Jack and Suri (2014) gave the example of Kenya where the use of digital financial
services reduced the cost of financial services. Digital financial services can drive the
country toward a cashless economy, and ICT is the main factor in expanding financial
inclusion (Kpodar and Andrianaivo 2011). Green digital finance can contribute to
green growth in terms of channeling domestic savings into development financing,
enhanced financing for SMEs, digitization of public financing and making public
budgets more transparent, the inclusion of SDGs into capital and financial markets,
and improved consumption decisions through information and choice architecture
(Green Finance Platform 2020). Green digital finance improves information avail-
ability, and can process and analyze large volumes of complex data, thereby reducing
the costs of information while providing increased transparency required to track the
regulatory aspects of sustainable development (Bayat-Renoux et al. 2019). Zheng
et al. (2020) used a distributed lag model and concluded that green finance promotes
smart city construction and green credit. The study conducted by SDFA (2018) argued
that green digital finance can clearly find its most dominant application in the area
of business model innovation to bring about efficiency improvement and alterna-
tive products and services. The study discussed the product-as-service model that is
being enabled by mobile payment platforms, digital and IoT embedded assets, and
has been widely used by the renewable energy sector most prominently in emerging
236 V. Singh et al.
Table 11.1 Correlation analysis-green growth and digital finance indicators

Green growth indicators Digital finance indicators Correlation value
Petrol end-user prices (per liter) Number of mobile and Internet −0.5038
banking transactions
Renewable electricity, % total Number of mobile and Internet 0.9034
electricity generation banking transactions
Production-based CO2 productivity, Number of mobile and Internet 0.7243
GDP per unit of energy-related CO2 banking transactions
emissions
Petrol end-user prices (per liter) Value of mobile and Internet banking −0.6145
transactions (% of GDP)
Renewable electricity, % total Value of mobile and Internet banking 0.8953
electricity generation transactions (% of GDP)
Production-based CO2 productivity, Value of mobile and Internet banking 0.8762
GDP per unit of energy-related CO2 transactions (% of GDP)
emissions
Source OECD Statistics and FAS, IMF
markets. Sustainable finance that is combined technological innovation and digi-

talization in banking will be instrumental in transitioning from a carbon-intensive
economy (Oertli 2020). India, which aims to reduce its carbon emissions by 33–35%
by 2030 to meet its NDC goals, must look for sustainable sources of funds to finance
its green transition. Green digital finance can be a facilitator for the same (Business
World 2021).
Digital finance platforms can help in facilitating green capital issuance through
increased levels of audit and reporting and standardized reports. An example is Green
Assets Wallet, a blockchain-based platform that offers validation of green commit-
ments and providers framework to issuers to report on impact with reduced informa-
tion asymmetry and increased efficiency (Business Line 2020). Krogstrup and Oman
(2019) stated that the financial sector can be an important factor in fighting climate
change-related risks and green finance can be that mechanism because it strategi-
cally allocates capital to climate mitigation and adaptation measures. The time-series
data taken for India with reference to green growth indicators (2012–2019) reveal
that green growth indicators (except petrol end-user prices) are positively related to
digital finance indicators (see Table 11.1).
11.7 Green Digital Financing—A Step Toward Sustainable

Development Goals
Green digital financing will act as a keystone in handling the pandemic and achieving
the SGDs. Green digital financing will open the possibilities of improving the
economy with less environmental harm, decreased cost, and increased access. The
gap in green financing does not arise from a lack of finance, but from a lack of mobile
finance and uncertainty. Financing is not aligned with SDGs because of a lack of
standard and reliable data. Green digital financing provides better data with lesser
cost and more widely accessible financial services. Availability of investor-related
data on SDGs will provide a much-needed push to financing. The launch of the new
BRSR (Business Responsibility Sustainability Reporting) by the Security Exchange
Board of India is a step in the right direction that will allow all corporates to report
on ESG- and SDG-related data. Big data and blockchain are also used in India to
support simpler and cheaper measuring, reporting, and verification of carbon credit.
Digital platforms also connect users and producers of energy, which allows crowd
funding. Most important is the reduced intermediation and transaction cost broadens
access to green digital finance. SDGs such as sustainable energy, water, infrastruc-
ture, and transport are more easily financed because of green digital financing. It will
help existing public and private investments by empowering individuals to invest in
SDGs.
11.8 Conclusion and Policy Implications
The adoption of green digital financing offers a systemic transformation that will
accelerate financing toward comprehensive and sustainable development. Green
digital financing is at the very initial stage in India. The GOI has introduced a few
policies that give an initial thrust to green digital financing in India but these steps
do not seem sufficient given the investment requirements and the financing gap. The
challenges of reliability, governance, and security are huge hurdles in the imple-
mentation of green digital finance in India. The initiatives in India are preliminary
stages and if supported by appropriate policies and regulations have the capability
to develop into a business model.
11.8.1 Policy Implications
The present study highlights a number of prospective opportunities to speed up

green digital financing in India. The chapter carries potential policy implications on
government institutions, regulators, market players, academicians, and innovation
centers. The study provides an insight into international standards and hence provides
a clear direction to the government institutions and regulators to work toward the
development of information platforms for sustainable and green digital finance. This
will promote investment and market transparency, which will eventually minimize
risk. The regulators should make policies that support sustainable business models.
They should simplify and standardize the process to secure green finance. Such
support may include greater regulatory clarity around the definition and use of digital
assets that support green financing and SDGs. This standardization will allow a
238 V. Singh et al.
greater inflow of investment, especially from unregulated sectors and pension funds.
The government should support green digital solutions by applying such solutions
in government operations and services. Greater use of green digital financing in
government projects cannot only improve efficiency but also help in reducing costs.
Furthermore, a new collaborative approach between big financial institutions and
new green FinTech entrants should be developed. This study also highlights an area
of multi-disciplinary research around green digital finance. New training programs
and courses should be launched by the academic world to support this new initiative.
An innovative ecosystem that is promoted by incubators and innovation hubs should
be promoted to attain the global sustainable development goals. This study carries
both practical and theoretical implications, which promote green digital financing in
attaining environmental and sustainable development goals.
11.9 Annexure
See Table 11.2.

Table 11.2 Usage of NPCI platform in India based on NPCI-based financial transactions
Financial transaction Volume (millions) Value (billion INR)
NFS—National financial switch 838.71 3572.32
NFS—ATM cash withdrawala 838.41 3568.82
NFS—Cash deposit transactions 0.30 3.50
NACH—National automated clearinghouse 943.15 5166.27
APBS credit (disbursement based on UIDAI no.) 344.69 296.75
ACH debit 167.09 1733.22
ACH credit 431.33 3134.27
NACH credit 0.04 2.02
CTS cheque clearing (processed volume) 1436.72 12,123.88
IMPS 906.53 8498.02
RuPay card usage at (POS) 158.59 281.68
RuPay card usage at (eCom) 160.48 282.16
AEPS (Inter Bank) Txn over micro ATM (e.g., cash 245.84 714.25
withdrawal/cash deposit)
BBPS (bill payment passing through BBPCU) 119.83 194.07
UPI—Unified payments interface 7988.14 15,316.75
BHIM 51.59 177.16
USSD 2.0 0.30 0.47
UPI excluding BHIM and USSD 7936.25 15,139.12
NETC 438.67 74.78
Total financial transactions 13,236.66 46,224.19
a NFS—ATM cash withdrawal includes card + PIN transactions on micro-ATMs and does not
include card-to-card fund transfer transactions
Source https://www.npci.org.in/statistic
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Chapter 12
Current Status and Challenges of Green
Digital Finance in Korea
Suk Hyun
Abstract The digitalization of economic activities, especially financial activities,

has resulted in various advantages in terms of cost reductions. When both digital
finance and green finance are combined, Green Digital Finance allows economic
actors to take advantage of innovative technologies to analyze data, inform investment
decisions, and create more jobs to support a transition to a low-carbon and sustainable
economy. The Korean New Deal policy suggests a direction for transition to a digital
economy and a green economy. The Korean New Deal Fund provides funding support
for the New Deal projects and channels market liquidity to productive and innovative
sectors. However, as presented, the New Deal policy has limitations because it exists
as various separate projects under the Digital New Deal and the Green New Deal. To
successfully implement the Korean New Deal Policy, the nexus between the Digital
New Deal and the Green New Deal is explored. After this exploration, it is clear that
Green Digital Finance can help maximize the effectiveness of these environmentally
driven reforms.
Keywords Digital finance · Green finance · Green digital finance · Sustainability ·

Korean New Deal
JEL Codes G · G1 · H · H5
12.1 Introduction
Both social and economic infrastructure are developed at the expense of the Earth’s
natural environment. However, continued human development activities are overbur-
dening the natural environment, and, globally, the severe environmental problems
caused by economic activity are increasingly recognized. Against these backdrops,
many economies have declared their commitment to “2050 carbon neutral” to reduce
greenhouse gas (GHG) emissions to net-zero by 2050. Looking at the movement and
S. Hyun (B)
Graduate School of Environment Finance, Yonsei University, Wonju, Republic of Korea
https://doi.org/10.1007/978-981-19-2662-4_12
244 S. Hyun
strategies of major countries, they are encouraging investment and financing for the
technologies needed to achieve carbon neutrality. However, investing in the sustain-
ability of the economy is an enormous undertaking and is far more complex than
simply trying to allocate investments and loans.
The critical point is that it is an efficient mechanism that utilizes the functions
of financial markets. Various mechanisms incentivize environmentally conscious
behavior, such as regulations and the provision of economic incentives. However,
the method of environmental finance reflects various factors, including medium- to
long-term risks and returns in prices. As part of the function of the financial market,
the environmental factor is also reflected in the price, which has the advantage that
efficient resource allocation can be expected. It can be said that their own long-
term profit growth is the direct motivation of financial institutions and institutional
investors to engage in such environmental finance. Therefore, it is very significant
to utilize financial markets for environmental finance, investment, and loan activities
to secure profits from a long-term perspective. This will lead directly to environ-
mental conservation, and as a result, finance will fulfill its responsibility to pursue a
sustainable society.
In this respect, digital finance (financial technology or FinTech) utilization seems
to be useful. Spurring individuals and companies to behave in an environmentally
friendly manner leads to the promotion of financial savvy, and consequently, carbon
neutrality may be achieved efficiently. Recently, services that facilitate the imple-
mentation of environmentally friendly activities at the individual and firm levels have
begun to emerge from FinTech companies. The environment faced in each country
and region will vary greatly depending on the policy for responding to climate change
issues, the degree of interest of people, and the pervasion of financial services.
However, it is crucial to analyze such an environment and search for appropriate
digital finance solutions that can involve individuals and companies in environmen-
tally friendly behavior in the pursuit of a sustainable low-carbon society. The finan-
cial sector has a major role to play in supporting the transition to a carbon–neutral
society. It is generally said that it is possible to change the behavior of individuals
and companies by implementing environment-friendly finance; that is, by designing
mechanisms that incentivize environmental consideration through financial markets.
In recent years, the government, financial institutions, and financial and envi-
ronmental experts have been actively discussing policies for solving environmental
problems and designing the ideal financial sector to respond to them. However,
looking at the rapidly advancing and extensive trends in the financial field, the so-
called FinTech movement, which is an innovative movement to improve the value
added by the financial sectors by utilizing information technology, is becoming more
aggressive especially in the wake of the COVID-19 pandemic. Under these circum-
stances, it is no longer only international organizations and public sectors raising
concerns over climate change and mitigation, but FinTech companies too. They are
working hard to respond to climate change issues.
Therefore, this chapter provides an overview of the discussions on digital finance
and green finance to analyze the limitations and the current status of green digital
finance in Korea in terms of the Korean New Deal policy. The chapter introduces
12 Current Status and Challenges of Green Digital … 245
digital finance as a method of encouraging people to engage in environmentally

friendly behavior and investigates the nexus between digital finance and green finance
to successfully implement the Korean New Deal, consisting of the Digital New Deal
and the Green New Deal. This will also provide implications for emerging economies
from the Korean experiences. Also, a feasible way for achieving green digital finance
as a key driver for the realization of a carbon–neutral society is explored.
12.2 Green Digital Finance
12.2.1 Digital Finance
Digital technology is the representation of information in bits. This reduces the

costs of storage, computation, and the transmission of data. Research on digital
economics examines whether and how digital technology changes economic activity.
When considering cost, Goldfarb and Tucker (2019) list the five benefits on the
cost side: lower search costs, lower replication costs, lower transportation costs,
lower tracking costs, and lower verification costs. Search costs are lower in digital
environments, enlarging the potential scope and quality of search. Digital goods can
be replicated at zero cost, meaning they are often non-rival. Geographic distances
have a limited effect as the cost of transportation for digital goods and information
is approximately zero. Digital technologies make it easy to track any individual’s
behavior. Finally, digital verification can make it easier to certify the reputation and
trustworthiness of any individual, firm, or organization in the realm of the digital
economy. These cost changes draw on a different set of well-established economic
models, primarily search, non-rival goods, transportation cost, price discrimination,
and reputation models.
In recent years, the financial sector has strengthened its integration with infor-
mation technology (Awan et al. 2021a, b; Gomber et al. 2017). Digitalization is
expected to demonstrate a disruptive aspect when compared with conventional finan-
cial services innovation. First, by utilizing a wireless network and wireless devices,
time and space constraints will be eliminated. Second, it has the flexibility to imple-
ment a service function beyond the real space by allowing the offline service to
be provided virtually through the application. Third, it is expected to maximize
the replacement effect through technology by securing the reliability of financial
services by having new security technology, a new authentication system, and a new
verification method. Fourth, new information-based products and service systems
are expected to expand. This is because the collection, analysis, and utilization of
information is a crucial change caused by digitization (WEF 2017). Fifth, digital tech-
nology’s high social acceptance and adaptability will result in an extensive ripple
effect. Thus, the digital transformation of the financial industry is expected to replace
current services and re-establish the interface between financial service providers and
financial consumers.
246 S. Hyun
Digital innovations enable new business models such as financing models, cryp-
tocurrencies and crypto assets, peer-to-peer lending, crowdfunding platforms, online
marketplaces and aggregators, and smart-device linked and index-based insurance.
Algorithmic traders are replacing stock exchange floors. More financial transac-
tions are being executed without any human input. The COVID-19 pandemic has
triggered an unprecedented twin global health and economic crisis. With millions
confined to their homes, the importance of the digital world has grown substantially.
Digital financing solutions have been used to provide social security nets, maintain
liquidity, and ease financial pressure on businesses.
By utilizing digital finance, it is possible to improve the accessibility of data
(project lists, impact assessments, etc.) on climate change-friendly infrastructure
development to financial decision-makers. The COVID-19 pandemic could prove
to be a major turning point for digital financial services. Mobile money, FinTech
services, and online banking will be very useful for low-income households and
small businesses. Economic growth can be facilitated as financial services spread to
the under-utilized group, and financial inclusion progresses through digital financial
services. The current pandemic will increase the use of these untact (non-contact)
services.
The COVID-19 pandemic can serve as an opportunity to alleviate the offline
dependence of financial services by promoting non-face-to-face and contactless
economic activities. First, the activation of non-face-to-face activities and contactless
methods to prevent and block the spread of COVID-19 will promote online-oriented
business activities based on digitalization. Such online-oriented sales expansion can
also be an opportunity to accumulate experiences and cases that can engage in
the sales process through non-face-to-face transactions. In addition, the COVID-19
pandemic is expected to expand incentives for the accumulation or use of financial
information through digitalization and promote innovation in corporate information.
12.2.2 Green Finance
According to the G20 Green Finance Study Group (2016), green finance can be
understood as the financing that provides environmental benefits in the broader
context of environmentally sustainable development. However, in 2018, the G20
Sustainable Finance Study Group highlighted that there is a need to consider addi-
tional aspects of green finance in line with the concept of sustainable development,
for example, job creation, growth enhancement, and technological development
alongside environmental issues.
A clear-cut definition and means of green finance do not yet exist. Sachs et al.
(2019) asserted that financing for environmentally beneficial investments requires
new financial instruments and policies, such as green bonds, green banks, carbon
market products, fiscal policy, green central banking, FinTech, and community-based
green funds, all of which can be collectively referred to as green. It is considered
to include public financing means and monetary and financial policies. It can be
interpreted that the means of green finance are diverse, and most financial means may
be included in this definition. As for the sector or project that is the target of green
finance, there is a discussion of taxonomy (green classification) that tries to define
this strictly, but at least includes the decarbonization that has been discussed so far. As
one of the international standards that define the scope of green investment, the Green
Bond Principles of the International Capital Markets Association (ICMA) states that
renewable energy, energy efficiency improvement, electrification, and changes in
land use methods are measures to control GHG emissions. It includes items from the
perspectives of pollution control and management and climate change adaptation.
DBS Bank (2017) analysis concludes that private funding of green projects needs
to increase approximately 11-fold, indicating a drastic lack of funding for poten-
tial green investments. Thus, it will be necessary to increase green finance. The
following discussion considers three ways to increase funding of green investment
projects. First, the role of government is essential for increasing green investment
projects. Environmental measures are an area where market failure occurs, and envi-
ronmental regulations consistent with Nationally Determined Contribution based on
the Paris Agreement have been established. In addition, given that green investment
often involves new technologies, policies to promote technological development are
also indispensable. Green finance will not increase unless the country is moving
toward “decarbonization.” Second, the “mechanism for smooth implementation of
green finance” is important. Specifically, it includes the definition, classification,
rating, and accounting standards of green finance. When these are clarified clearly,
what constitutes a green investment and how to account for it if invested become
clear. In addition, it will be easier to formulate green-related products that utilize the
securitization mechanism. These tools will also help companies manage their envi-
ronmental risks. Such mechanisms include those that contribute to the formation of
new products, such as market indices in the stock market, green investment funds,
and market-based insurance products. Third, the risks of investment projects should
be reduced to improve returns and increase the number of bankable projects. Again,
governments have a critical role, including the provision of guarantees on investment
returns, incentives, and various other risks associated with an investment.
Environmentally friendly finance (green finance) can be defined as a mechanism
that shifts the behavior of companies and individuals into a more environmentally
friendly position by providing appropriate incentives for environmental consideration
through financial markets. Access to high-quality and equivalent data will be critical
to increase opportunities for sustainable finance. Data is the critical determination
of the investment decision-making process: investors need help to understand how
companies may charge as the environment changes, regulation evolves, new tech-
nologies emerge, and customer behaviors shift. They need to better understand and
quantify risk as well as returns. Investors are progressively looking for instruments
to calculate the impact of their portfolios and set benchmarks.
248 S. Hyun
12.2.3 Green Digital Finance
The financial sector plays an important role in supporting the transition to carbon
neutrality because it can reallocate capital flows and investments and loans as
required. Digitalization could promote the achievement of the Sustainable Develop-
ment Goals (SDGs). The critical impact depends on how digital innovation reshapes
finance. The UN task force on Digital Financing of the SDGs highlights the impor-
tance of putting people at the heart of finance. Cao et al. (2021) explore the impact
of green digital finance on energy-environmental performance in China using panel
data from 2011 to 2017. The empirical results show that digital finance significantly
improves China’s energy-environmental performance. Green technology innovation
is the transmission path through which digital finance affects energy-environmental
performance.
Additional large-scale investment is expected to be required to make the EU
climate-neutral by 2050, which is estimated at between 175 billion euro and 290
billion euro annually in the next three decades (EC 2019). Similar points can be
found in UNEP. It is estimated that the world will require approximately US $90
trillion in investment and loans over the next 15 years to build a sustainable social
infrastructure that takes climate change into account, but the current pace of financing
is by no means sufficient (UNEP 2016). Then how can the international society
turn a transition to a circular economy and change people’s behavior to reduce the
additional investment needed to fight against climate change? One feasible solution
is the use of information technology in the financial sector, so-called Green Digital
Finance (green FinTech). Consumers can be actively involved in environmentally
friendly financial behavior, which may result in a reduction in the investment required
to build environment-friendly infrastructure. A common feature of all options is
that it is possible to engage more consumers and investors than before toward the
construction of environment-friendly social and economic infrastructure by utilizing
digital finance.
First, increased use of environmental data can enhance risk capabilities and adjust
pricing. Sensor technologies such as satellites and intelligent chips will lower the
cost of obtaining environmental data from customers, allowing financial institutions
to better analyze the risk of customers’ lending portfolios. Second, as financial insti-
tutions are enriched with additional data, they will be able and expected to disclose
both risk exposure to environmental and climate change, and enhance reporting on
environmental impact. This will affect capital allocation toward green industry. An
essential aspect of this is to ensure that reporting is globally comparable, and that
relevant, homogenous metrics underpin both accounting and voluntary disclosures.
Third, satellite and blockchain technology can increase auditability and transparency
in supply chains. As consumers become more aware of the negative consequences of
irresponsible production, they are demanding more and more transparency across the
value chain. Increasing transparency is complex given the fragmented nature of value
chains. Fourth, capital market instruments can be digitalized. Although green bond
issuance has grown rapidly, only a very small portion of green assets are financed
by capital market instruments certified as green because of greenwashing. One of

the barriers is the cost of certification, monitoring, and reporting, which impose
additional costs to green bond participants and utilization. Digitizing bond offerings
brings down the cost of obtaining and reporting environmental data for green bonds,
allowing many more companies, especially small and medium-sized enterprises, to
meet the requirements to issue green bonds. Fifth, data allows financial institutions
to provide tailored investment products that can produce financial return and specific
environmental outcomes, in line with one or more of the UN’s SDGs.
Whether digitalization supports a transition to a low-carbon and climate-resilient
economy depends on whether it contributes to the financial service industry that
serves it purpose. The report, “People’s Money: Harnessing Digitalization to Finance
the SDGs,” sets out opportunities and recommendations, as well as a roadmap to turn
good ideas and innovation into scaled practice. It maps the many hundreds of inno-
vative developments around the world at the nexus of digital, finance and sustain-
able development, leveraging big data, artificial intelligence (AI), and blockchain.
It also points to catalytic opportunities for harnessing digital services in aligning
finance with the SDGs, and sets out an action agenda focused on accessing opportu-
nities, building national sustainable digital finance ecosystems, and building a more
inclusive international financial governance.
The economic, social, and governance (ESG) data market is consequently
booming. Data providers have developed a full series of ESG-related products
ranging from raw data to ratings and have multiplied their data sources. With an
expected annual growth rate of 20% for ESG data and 35% for ESG indices, the
overall market could approach US $1 billion by 2021 (Foubert 2020). To compare
and discern meaningful information will be increasingly challenging for investors
because of a lack of relevant data, such as indirect carbon emissions in a company’s
value chain, and because of an absence of standards and consistent regulation. It is
generally expected that AI, machine learning, and natural language processing will
be used to both generate and evaluate unstructured ESG data. However, technology is
not a cure-all but an effective way of strengthening human judgment and amplifying
the effectiveness of ESG analysis.
The availability of high-quality, data-driven insights will assist financial institu-
tions in improving the sustainability of investor portfolios and in advising clients
on how to align investments to their individual preferences. Financial institutions
can also create innovative financing models that guide client money to promising
new projects and cutting-edge startups. For climate-aware investors, modelling of
the potential financial and non-financial impacts of climate change on specific assets
or portfolios can help them understand their climate risk and return profile. Equipped
with this information, investors might consider how to mitigate, adapt, or transition
their portfolios. It highlights the role of digitalization in extending the volume of
ESG-directed financial assets from the current level of US $30 trillion across the
world’s US $185 trillion capital markets. This illuminates how digital finance can
increase the transparency and accountability of public finance that accounts for about
20% of global spending (WEF 2020).
250 S. Hyun
Fig. 12.1 Overview of the Korean New Deal (Source Government of The Republic of Korea [2020])
12.3 New Deal Policy and Green Finance in Korea1
Korea announced the “Korean New Deal” policy in July 2020 as a strategic measure
for economic recovery and as an economic leap forward in response to the post-
COVID-19 era. This policy is pursued in two axes, the Digital New Deal and the
Green New Deal (see Fig. 12.1), and aims to inject a total of 160 trillion won (114.1
trillion won from the government) by 2025 and create a total of 1.9 million jobs. One
of the pillars, the Digital New Deal, is to transform the economic and social structure
where non-face-to-face economic activity such as online consumption and remote
work, is spreading, and digital transformation is accelerated.
The Korean New Deal has three main objectives. First, it attempts to minimize
economic shock by creating jobs. It creates government-supported jobs for low-
skilled workers and jobs that support the structural transition toward a digital and
green economy. Second, this strategy supports the Korean economy’s quick return
to its normal growth path by building the necessary infrastructure for a digital and
green economy that will restore investment and support job creation. Third, it lays
the groundwork for Korea to adapt to the structural changes and lead the global
community in the post-COVID-19 era.
This plan forms an institutional foundation on which a digital and green economy
can be supported. As a measure to promote the Digital New Deal, the government
announced the “People Participating New Deal Fund Creation and New Deal Finance
Support Plan” in September 2020 with the aim of actively activating public partic-
ipation and private investment by a public participation New Deal Fund. However,
1This section is mainly based on Government of the Republic of Korea (2020), Financial Services
Commission (2021) and Financial Services Committee and Ministry of Environment (2021).
despite such active promotion, it was difficult to clearly confirm the government’s
New Deal promotion strategy. In September 2020, the “Korean New Deal Law and
Institutional Reform Task Force” was established as a systemic improvement task
for the New Deal, which included 161 legislative tasks. Among them, measures for
voluntary participation of the private sector and economic revitalization are included.
The Korean New Deal seeks to transform the country from a fast follower into a
first mover. To this end, the Korean government plans to introduce two main poli-
cies: the Digital New Deal and the Green New Deal. With the Digital New Deal,
Korea aims to further strengthen its digital capacity based on its competitive edge
in information and communication technology (ICT), thereby promoting innovation
and dynamics throughout the economy. The government plans to build large-scale
ICT infrastructure including a “data dam,” which serves as the foundation for a digital
economy. This promotes a data-driven economy including the collection, standard-
ization, processing, and combining of data and ultimately secures a competitive
advantage for the country by creating new industries and accelerating the digital
transition of key industries. At the same time, Korea’s Green New Deal aims to
achieve net-zero emissions and accelerates the transition toward a low-carbon and
green economy. To this end, the government plans to build eco-friendly energy infras-
tructures that promote energy-saving and an increased use of renewable energy. The
mobility, energy, technology, and other types of climate-friendly industries will be
strengthened in all possible ways.
12.3.1 Digital New Deal
The Digital New Deal aims to build a digital economy and promote growth in
promising “untact” industries. It heightens the competitiveness of Korea and its
industries by establishing digital infrastructures in areas such as data, network, and
artificial intelligence (DNA) (see Fig. 12.2). At the same time, major infrastruc-
ture developments including those for transportation, water resources, urban plan-
ning, and logistics will be digitalized. In addition, the Digital New Deal fosters
“untact” industries, which are critical for the post-COVID-19 era, while also strength-
ening support for small and medium-sized enterprises and micro businesses against
the rapidly changing business environment. Through these efforts, Korea seeks to
generate greater added-value and create more jobs in the future while attempting
to bridge digital gaps. The Korean government is making various efforts to promote
the Digital New Deal, but to newly embrace the digital transformation phase, it is
necessary to accurately understand the nature of the New Deal in terms of acti-
vating the Digital New Deal and to achieve institutional innovation based on it.
Understanding that the main core of the Digital New Deal is the establishment of a
data dam, the creation of new industries and jobs, and the revitalization of private
participation for this purpose, the following two directions can be suggested for the
successful Digital New Deal.
252 S. Hyun
Fig. 12.2 SWOT Analysis of the Digital New Deal (Source Government of The Republic of Korea
[2020])
First, efforts for institutional improvement are needed to increase the value of data.
Discussions on data and system improvement were very active, and in early 2020,
the three related laws, “Personal Information Protection Act,” “Act on Promotion
of Information and Communications Network Utilization and Information Protec-
tion,” and “Act on the Use and Protection of Credit Information,” were amended.
The revision was carried out by introducing the concept of pseudonymous infor-
mation to activate data use, streamlining the governance system for unification of
the promotion system, strengthening the responsibility of the personal information
processor, and clarifying the ambiguous criteria for judging personal information as
is enforced under law. Although pseudonymity of data is a fundamental issue in data
utilization, it is necessary to increase value through desirable data collection prior to
data utilization.
Second, a system that will lead the industrial paradigm should be established.
Academia has proven that technological innovation and institutions have a coevolu-
tionary relationship. However, it is pointed out that digital innovation is progressing
more rapidly than existing technological innovations, so that institutional improve-
ment cannot facilitate innovation later. Therefore, it is necessary to think about
system improvement to promote new industries and industrial convergence smoothly.
Legislative amendments should be made to solve legal business operation difficulties
and allow the expansion to various businesses. In addition, the creation of new indus-
tries can cause market changes that create new jobs. Therefore, it will be necessary to
establish a social security net for the stable introduction of new jobs and to establish
the legal status of new types of jobs.
12.3.2 Green New Deal
According to the Paris Agreement, Korea will reduce its GHG emissions to 536
million tons by 2030. It has been observed that the competitiveness of major indus-
tries in the Korean economy has rapidly weakened as a result. The restructuring of
the shipbuilding and steel industries is underway, and this is weakening competitive-
ness among sectors such as the automotive, electronics, and petrochemical sectors.
This is also of growing concern. For example, the global automotive industry has
increased investments in electric and self-driving vehicles while attempting to reduce
the production of existing internal combustion engines. The rapid expansion of elec-
tric vehicles impacts the production of internal combustion engine vehicles and
parts, which directly impacts related jobs. Therefore, we should be prepared for the
impact on employment and new jobs caused by climate regulation and technological
development.
The Green New Deal can contribute to reducing GHG emissions in the short
term through the government’s investment of financial, fiscal, and human resources.
Furthermore, effective policies to reduce emissions under the Paris Agreement will
be helpful too. This can also create new jobs in the energy, environment, healthcare,
and leisure sectors in the era of industrial advancement. Therefore, a comprehensive
policy is needed to transform existing industrial and economic activities.
The Green New Deal is a feasible solution for job creation in the current recession
caused by the COVID-19 pandemic. As alternatives and technologies to reduce GHG
emissions are developed, jobs can be created through the investment of fiscal and
human resources. More than 70% of the investment in new power generation facilities
is in renewables such as wind, solar, bioenergy, and hydropower. The number of coun-
tries that have reached grid parity is increasing because renewable energy is cheaper
than coal, gas, and nuclear power. The unparalleled challenges of the pandemic have
completely changed the world’s overall economic and social structures. In addition
to the increased use of contactless services accelerating the transition toward a digital
economy, there has also been a growing demand for a green economy, resulting in
a consensus in the international community. Therefore, delayed action against such
structural changes may impede productivity and result in a lower growth path.
Korea’s Green New Deal aims to achieve net-zero emissions and accelerate the
transition toward a low-carbon and green economy (see Fig. 12.3). To this end, the
government plans to build environment-friendly energy infrastructure that promotes
energy saving and increased use of renewable energy. Mobility, energy, technology,
and other types of climate-friendly industries will be encouraged. Many countries
are transitioning toward a low-carbon economy to combat climate change, secure a
stable energy source, and foster green industries. However, GHG emissions in Korea
have seen a steady increase of 2% annually from 2000 to 2017, and the country’s
industrial base remains very carbon dependent.
The Korean government plans to move toward a net-zero society by supporting
ongoing policies such as the 2030 target for reducing GHG emissions. The plan is to
have renewables account for 20% of the country’s generation capacity by the same
254 S. Hyun
Fig. 12.3 SWOT Analysis of the Green New Deal (Source Government of The Republic of Korea
[2020])
year. This includes a green transitioning of infrastructure to strengthen the safety

net against climate and environmental risks. In addition, the use of low-carbon and
decentralized energy will be promoted, while protecting those regions and groups that
lag behind the transition. Moreover, the green industry’s foundations for innovation
and growth will be consolidated.
With an investment of 73.4 trillion won (US $61.6 billion), including 42.7 trillion
won (US $35.8 billion) from the treasury by 2025, the Green New Deal will create
about 659,000 jobs. A loan of 1.9 trillion won will be introduced for the green sector,
including investments to prevent environmental pollution; and a joint fund made up
of the public and private sectors will be set up (~215 billion won) to foster green
businesses.
12.3.3 New Deal Fund and Green Finance in Korea
12.3.3.1 Korean New Deal Fund
To successfully implement the Korean New Deal projects, it is necessary to provide

sustainable and sufficient funding and to establish a self-sustaining and thriving
New Deal eco-system driven by private sector investment. At the same time, the
government should provide a pump-priming role to encourage more private sector
investment. The Korean New Deal Fund aims to: (1) provide sufficient funding
support for the New Deal projects, (2) help channel abundant market liquidity to
productive and innovative sectors, and (3) induce profit sharing from Korean New
Deal investment projects with the public. To this end, the government introduced its
plans for creating the Korean New Deal Fund, which consists of three key pillars
(see Fig. 12.4).
Fig. 12.4 Overview of Korean New Deal Fund (Source Government of The Republic of Korea
[2020])
1. Launching a 20-trillion-won public sector-led New Deal Fund

The public sector-led Korean New Deal Fund will be created in the amount of 20
trillion won for 2021–2025. Over the next 5 years, the government and policy-based
financial institutions including the “growth ladder fund” will invest 3 trillion won
and 4 trillion won each to launch a 7-trillion-won master fund (fund-of-funds), which
will make up about 35% of the public sector-led Korea New Deal Fund. The private
sector financial institutions, pension funds and the public will then contribute 13
trillion won in matching investments over the same period to create feeder funds,
which will represent about 65% of the total fund size. The master fund backed by
the public sector will serve as a cornerstone to absorb part of losses first, reducing
investment risks of private sector investors.
The New Deal Fund will invest in wide-ranging areas of New Deal projects and
businesses through various investment methods, such as equity investments and debt
financing. By providing the public with opportunities to invest in Korea New Deal
projects through public offerings at lower risk, the Korean New Deal Fund also
encourages active participation from retail investors. To effectively guarantee funding
supply, investments will take the form of both project-based and blind-pool funds,
and the feeder funds’ structures will be diversified according to expected investment
risks.
2. Promoting New Deal SOC investment funds
The second pillar of the Korean New Deal Fund focuses on social overhead capital
(SOC) investment related to both Digital and Green New Deal projects. As such,
the New Deal SOC investment funds will invest in digital SOC safety management
systems, smart collective warehousing solutions, data centers, contact-free business
256 S. Hyun
facilities, development of new renewable energy sources, green smart schools, and
hydrogen fueling stations.
The public sector-led master fund and SOC investment funds that have been
created and managed by private sector entities will be utilized to create the New
Deal SOC investment funds. To promote private sector investments, tax incentives
will be provided in the form of separate taxation at a low tax rate (9%) on dividend
income earned from Korean New Deal SOC investment funds. As in the case of the
public sector-led New Deal Fund, the public sector-led master fund will help absorb
investment risks through a subordinated investment position. Tax incentives in this
regard will be restricted only to investments made to public equity funds to promote
active participation by retail investors in the SOC investment fund market, which
has been traditionally dominated by institutional investor activities. The government
also plans to set up rules to promote SOC investment by pension funds.
3. Boosting private sector investments in New Deal projects
Creating conditions for the development of private sector Korean New Deal Funds
based on the ingenuity and autonomy of the private sector is an important task. As
such, the government will encourage private sector financial institutions to search for
promising New Deal investment projects and create funds to supply private sector
capital. To this end, the government will operate on-site support teams to provide
assistance and help remove obstacles for financial institutions investing in Korea New
Deal projects. At the same time, the government will work to improve regulations to
promote RE100 and ESG investment. Retail investors will then have an opportunity
to invest into these private sector-run Korean New Deal funds according to their risk
appetite and share profits from Korea New Deal projects.
To overcome the COVID-19 crisis and lead the transition to the green and digital
economy, it is necessary to provide funds smoothly to the New Deal sector, and
the purpose of the New Deal Fund can be justified to attract market liquidity to the
productive sector. For the New Deal to be successful, it is necessary to attract more
private capital and minimize fiscal expenditure. To induce private investment, it is
necessary to strengthen the protection of individual investors who lack expertise and
seek ways to increase their understanding of the New Deal Fund. Policy support
should be provided for sustainability of the New Deal Fund, including the estab-
lishment of investment target certification and green classification, and establishing
a system for nurturing financial experts so that highly profitable investment can be
identified.
12.3.3.2 Green Finance in Korea
Discussions on green growth and finance were previously attempted in Korea several
times. The Korean government’s pursuit of green finance dates back to 2009 when it
announced plans to promote investment in green growth-related industries. However,
the continued promotion of green finance has been limited because of a lack of
definition and standardization in the green industry and the lack of incentives for
green investment. As the importance of sustainable finance has been highlighted, in

Korea, discussions on the role of finance in the green sector have actively expanded
in 2020. After the introduction of the Korean New Deal policy in July 2020 and
adoption of the Green New Deal as a crucial part of the broader post-pandemic
developmental strategy in terms of the sustainability, the policy framework on green
finance has taken a more concrete shape in terms of its goals and strategies.
Specifically, the use of FinTech is progressing faster because of the accelera-
tion of untactness and digitalization after the COVID-19 pandemic, and the role of
FinTech related to the environment is increasing. A green card (credit card) system
is now in use to pay points for low-carbon, eco-friendly consumption practices such
as purchasing low-carbon, eco-friendly products, using public transportation, and
saving electricity, water, and gas. Recognizing the urgent needs for the green financial
development, the Financial Services Commission and the Ministry of Environment
established a working group for each major policy task under a joint task force. Early
detection and early resolution are more important than anything else in the vitaliza-
tion of green finance to strengthen eco-friendliness. To this end, it is necessary to
utilize real-time digital finance related to the environment and to use various digital
financial instruments.
The green finance promotion plan for 2021 (Financial Services Committee and
Ministry of Environment 2021) has drawn practical tasks by substantiating the green
finance activation aspect of the 2050 carbon–neutral strategy. The government plans
to continue to supplement the carbon–neutral-related discussions at the intergov-
ernmental level in the future. Furthermore, it plans to prepare investment strate-
gies for each institution to increase the proportion of support in the green sector
of policy financial institutions from the current 6.5% to about 13% by 2030. If a
green classification system (the so-called Korea Taxonomy) is prepared in 2021,
a green-specialized loan and guarantee program will be established based on this.
For example, there are special green loans, preferential guarantees for green compa-
nies, and special on-lending programs. A green finance-related organization for each
policy will be established. For instance, financial institutions such as the Korea Devel-
opment Bank, the Export–Import Bank, and the Industrial Bank of Korea established
an organization dedicated to green finance. The Korea Credit Guarantee Fund plans
to establish a dedicated organization. Through the establishment of a related organi-
zation, work consistency related to green finance and the Korean version of the New
Deal will be improved, and specific results will be realized by facilitating collabora-
tion between related departments. Major financial institutions in Korea have stepped
up their efforts for green finance. Major financial holding companies have all made
pledges to cut investments in fossil fuels and make their investment portfolios carbon
neutral by 2050.
To maximize the synergy of financial policy support, the government organizes
and operates a consultative body among policy-based financial institutions to estab-
lish a joint green support strategy and promote information sharing. The Financial
Services Commission plans to support institutional improvement by periodically
reviewing policy financial institutions’ green finance implementation status and diffi-
culties. Through this consultative body, strengthening networks with the international
258 S. Hyun
community, P4G (Partnering for Green Growth and the Global Goals) 2030 plans to
play various roles, such as preparing for the summit.
The government plans to prepare a green classification system (Korean Taxonomy)
that separates green and non-green activities based on expert opinions. A compre-
hensive classification system that identifies environmentally sustainable economic
activities and investments can help businesses and consumers make proper distinc-
tions about what is truly green and what is merely greenwashing. The government
is currently in the process of developing the Korea Taxonomy that will serve as a
crucial reference point to make a transition to a green sector and to help investors
look for investment opportunities in green projects and help financial institutions
grant more loans to green companies. The government announced that it plans to
introduce Korea Taxonomy in 2021 to be piloted in the financial sector in the second
half of the year. It is expected that Korea Taxonomy will contribute to prevent green-
washing. The financial authorities in Korea are also considering introducing a new
green finance lending program when Korea Taxonomy is ready for use.
Green bond issuances are implemented through business agreements with finan-
cial companies and companies based on the green bond guidelines published in
December 2020. The guidelines plan to materialize the four key elements that green
bonds must have, such as the use of funds, the process of project evaluation and selec-
tion, fund management, and post-reporting, according to the domestic situation. The
government is planning to establish a step-by-step plan to strengthen the disclo-
sure obligations of exchanges to expand the disclosure of environmental information
such as environmental risks, management systems, and response plans. In addition,
amendments to the Environmental Technology and Environmental Industry Support
Act are being pursued to expand the disclosure target of the current Environmental
Information Disclosure System.
The government is reviewing the direction to revise the stewardship code to
include environmental and other ESG factors in the scope of trustee responsibility
of institutional investors. Financial institutions also pledged their commitment to
ESG issues and individual firms are also drawing up ESG strategies and gearing up
plans for ESG investment projects. To facilitate their efforts, the Financial Services
Commission introduced a plan for improving corporate disclosure rules to strengthen
disclosure of corporate management on ESG factors. This plan entails making ESG
disclosure mandatory for all KOSPI-listed companies gradually in three stages. In
the first phase, businesses will voluntarily file ESG disclosure reports until 2025.
From 2026 to 2029, companies that have total assets of 2 trillion won or more will
be required to report their ESG management. From 2030 onward, ESG disclosure
will become mandatory for all KOSPI-listed firms.
In recent years, considerable progress has been made in the areas of both digital
finance and sustainability. The financial sector plays a key role in the challenge
to mitigate climate change and this sector is tasked with financing the investments
needed to make economies more sustainable. There are various initiatives in the
private financial sector aimed at introducing sustainability into its decision-making
process aligned with responsible investment principles and international standards.
These new financial services relating to sustainability are provided by both tradi-
tional suppliers and digital finance. It must be noted that the COVID-19 pandemic
has demonstrated the existing link between sustainability, finance, and technology,
because all countries have been urged to re-think traditional models and to rely more
heavily on technology and sustainability. The development of new technologies has
transformed the financial sector, and climate risk management is an important part of
this transformation. Furthermore, sustainability criteria may play an important role
in all these changes. Certain initiatives are increasingly popular, such as applications
that employ AI techniques to monitor the sustainability metrics cited in firms’ annual
reports, sustainability reports, and financial statements.
Although technology is not often associated with environmental goals, digital
finance shows coherence and continuity with the ESG investing, aimed at a
more inclusive, ESG-resilient, circular, and environment-friendly financial system
supporting sustainable development. In fact, “the G20 has included green (sustain-
able) digital finance” as one of its 2030 workstreams, and the UN, since 2016, has
been studying the link between digital finance and sustainable development.
Digital finance can play a critical part in achieving SDGs. Digital finance can
enhance the allocation of existing financial resources to support sustainable develop-
ment, which occurs through “business models, incentives, policies, and regulations
to redirect financial resources globally and in individual countries to provide SDG-
related finance.” Moreover, the traditional barrier between developed economies and
emerging markets is being lowered thanks to the rapid digitization and development
of the FinTech industry.
The current concerns over global warming and environmental issues, as well as
the importance of corporate social responsibility and ESG factors have led to the
emergence of different kinds of behavior (e.g., greenwashing) and finance trends
and tools because investors are willing to incorporate not only financial criteria but
also non-financial attributes into their investment decisions. Furthermore, digital
finance is a driving force for sustainable economic growth and provides social, envi-
ronmental, and ecological benefits. FinTech can promote the use of funds for energy
and environmental projects, as well as the construction of renewable energy and
environmental infrastructure.
Looking at green finance policies and policies related to digitization, the latter
explicitly utilizes technology as a tool to provide sustainability, whereas green poli-
cies and initiatives tend not to be integrated. Environmental policies and strategies
tend to integrate these two, and it is important to explicitly express the need to
provide sustainability objectives to core digital technologies. To achieve a high level
of integration between the two policies of the Green New Deal and the Digital New
Deal, it is necessary to systematically link green finance and digitalization policies
(see Fig. 12.5). The Korean New Deal Fund is also established to provide suffi-
260 S. Hyun
Green
Digital Green Digital
Finance
Finance Finance
+
+ +
Green New
Digital New Korea New
Deal
Deal Deal
Fig. 12.5 Transformation of Green Digital Finance (Source Hyun [2021])
cient funding support for New Deal projects, and to help channel market liquidity to
productive and innovative sectors.
The Korean New Deal policy is of great significance because it suggests the direc-
tion of the transition to both a digital and green economy. However, its presentation
in the form of various separate projects means that there may be a limitation in the
lack of connectivity or nexus between projects in the Digital New Deal and the Green
New Deal. To maximize the effectiveness of Korean New Deal Policy, the Digital
New Deal should be combined with the Green New Deal as a nexus of Green Digital
Finance.
References
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Financial Services Commission (2021) Green finance. https://www.fsc.go.kr/eng/po060101
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research/547/detail/
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Gomber P, Koch J-A, Siering M (2017) Digital finance and fintech: current research and future
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utoronto.ca/2016/green-finance-synthesis.pdf
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of Green Finance Forum-Korea
development. Springer, Tokyo
UNEP—United Nations Environment Programme (2016) Green finance for developing countries:
needs, concerns and innovations. UNEP, Nairobi
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World Economic Forum, Cologny
Part III
Role of FinTech and Financial Innovations
in Scaling up the Green Digital Finance
Chapter 13
Distributed Ledger Technology
and Climate Finance
Tim Schloesser and Karsten Schulz
Abstract Enormous amounts of capital will need to be mobilized in the coming

decades to drive the transition of our global economy toward climate neutrality. In
recent years, the financial system started to move in a more environmentally sustain-
able direction, inter alia offering more green investment opportunities. Speeding up
this process is inevitable if humanity wants to meet the Sustainable Development
Goals (SDGs) and achieve the targets of the Paris Climate Agreement. Distributed
Ledger Technology (DLT) may enable climate finance to effectively accelerate this
transition toward sustainability. Inherent characteristics like security, immutability,
transparency, and auditability make DLT a highly promising tool for climate-related
use cases. However, the mainstream adoption of these digital innovations is still
constrained by various obstacles, including technological and regulatory barriers,
especially in the highly regulated finance sector. Existing digital divides between
developed and developing nations further exacerbate these challenges. Based on these
initial deliberations, this chapter shows how DLT can be used effectively for innova-
tive climate finance. We first introduce the technology and discuss its sustainability
as well as different possible DLT governance structures. Based on this introduction,
we provide an overview of sustainability-related initiatives and networks linked to
DLT. We review various DLT applications in Decentralized Finance (DeFi), asset
management, Measurement, Reporting and Verification (MRV), tokenization, and
other relevant fields. We conclude with an outlook on the role of DLT in climate
finance and present recommendations for overcoming some of the remaining risks
and obstacles.
Keywords Distributed ledger technology · Blockchain · Decentralized finance ·

Green finance · Sustainable finance · Climate finance · FinTech · Governance
T. Schloesser (B)
Independent Scholar, In den Heimgärten 56, 52066 Aachen, Germany
K. Schulz
Campus Fryslân, University of Groningen, Wirdumerdijk 34, 8911 CE
Leeuwarden, The Netherlands
https://doi.org/10.1007/978-981-19-2662-4_13
266 T. Schloesser and K. Schulz
JEL Classification Codes G10 · G21 · G29 · O30 · O33
13.1 Introduction
Climate change and environmental degradation are the biggest challenges humanity
is facing in the twenty-first century. Global emissions must be significantly reduced
to limit the negative impacts of climate change, and to put our societies on a more
sustainable trajectory that allows us to continue living on planet Earth. The Paris
Climate Agreement sets the target of limiting global warming to “well below 2 °C”
by the end of the century compared to the pre-industrial period. This transition of the
predominant economic model requires considerable financial investments, together
with the reorganization of the entire energy sector. Current development trajectories
and political commitments do not suffice, as persistent financing gaps for climate
mitigation and adaptation clearly demonstrate, including inadequate financing for
sustainable energy systems (International Energy Agency 2020; UNCTAD 2020).
In light of the need for innovative climate finance, we set out to investigate the links
between climate finance and technological innovation driven by distributed ledger
technology (DLT). Climate finance denotes private and public financing related to
banking, investment, and insurance that aims to support climate mitigation and adap-
tation actions. DLT has made major advancements since 2008, when the initial idea of
a distributed ledger in the form of a blockchain emerged. In essence, the overarching
term DLT refers to a group of protocols that enable the secure functioning of a decen-
tralized digital database. Not only cryptocurrencies, which are based on distributed
ledgers, but also DLT-based real-world applications have sparked interest across the
board (Hughes et al. 2019). This is equally true for a broad range of applications
seeking to support climate mitigation and adaptation (Dorfleitner et al. 2021). Rele-
vant areas include the energy sector (Mengelkamp et al. 2018; Andoni et al. 2019),
smart cities (Treiblmaier et al. 2020), and agriculture (van Wassenaer et al. 2021).
Especially with regard to climate change mitigation, there is also increasing interest
in tracking and monitoring of greenhouse gas emissions (Liu et al. 2019), carbon
markets and trading (Kim and Huh 2020; Mandaroux et al. 2021), and indirectly
linked efficiency gains, for example, through innovative supply chain management
(Saberi et al. 2019). Most of these projects are still in their infancy but demonstrate the
potential that the technology entails. However, DLT is not defined by a homogenous
set of technical specifications. In addition, technical specifications are continuously
evolving, which shows that DLT is not one monolithic technology, and that proto-
cols and interoperability options develop dynamically. Accordingly, we systemati-
cally explore potential applications of DLTs in climate finance and show how this
emerging technology cluster could accelerate the closing of existing financing gaps
for climate change mitigation, adaptation, and sustainable energy systems (Interna-
tional Energy Agency 2020; UNCTAD 2020). Closing persistent financing gaps and
boosting green finance will be pivotal for achieving the goals of the Paris Climate
Agreement as well as the sustainable development goals (SDGs).
13 Distributed Ledger Technology and Climate Finance 267
The sheer magnitude of the required economic transition becomes tangible by

recognizing the rapid evolution of the green bond market in recent years. At the end
of 2015, the total value of globally issued green bonds amounted to US $105 billion,
which increased to US $1050 billion in 2020, of which US $269.5 billion was in the
form of newly issued bonds (Climate Bonds Initiative 2021). However, the entire
global bond market is much more substantial in size and had a market cap of US
$128,300 billion in August 2020 (International Capital Market Association 2021).
This means green bonds continue to represent a comparatively small share of the
global bond market; they accounted for only 3.5% of total global bond issuance in
2019 (Ehlers et al. 2020). Fundamental shifts in capital allocation in line with global
sustainability criteria are only beginning to emerge. However, a global survey of
high-impact investors revealed that investors seek to double their sustainable assets
by 2025 (BlackRock 2020). Evidently, there is an enormous demand for sustainable
investments, which currently cannot be satisfied through available options.
The most commonly cited reasons for a lack of sustainable investments include
high costs connected to the development and operation of green financial prod-
ucts; information asymmetry between participants, varying, indistinct, and non-
standardized sustainability criteria; and lack of transparency in the sustainability
certification process of an asset (Dorfleitner and Braun 2019). To illustrate the poten-
tial of DLT for addressing these key problems in climate finance, we first introduce
the features and limitations of DLT, as well as different governance architectures and
types of DLT-based systems. We argue that the effective use of DLT in climate finance
will not only depend on trust, technological capabilities, and the actors involved in
technology deployment or regulation, but also on initial design choices (Schulz et al.
2020). Based on our initial analysis of the technological potential and limitations,
we then discuss the role of relevant sustainability initiatives and networks linked to
DLT at the international, European, and national levels. In a second step, we review
the use of DLT-based applications in decentralized finance (DeFi), asset manage-
ment, measurement, reporting and verification (MRV), tokenization, and other rele-
vant fields. We conclude with an outlook on the role of DLT in climate finance and
present recommendations for overcoming some of the remaining risks and obstacles.
13.2 Distributed Ledger Technology
13.2.1 Technological Background
Distributed ledgers are able to store data across a network of participants and ensure
data accuracy by finding a consensus among participants. This technological setup
has developed into a variety of protocols that are built on different specifications.
The majority of these protocols are based on blockchain technology (e.g., Bitcoin,
Ethereum, Cardano, Solana, Litecoin, and Hyperledger) and a few depend on other
structures of the ledger; for instance, on a directed acyclic graph (DAG) (e.g., IOTA
and Nano). Another important design choice across protocols is the structure of the
consensus mechanism. By looking at the variety of approaches to create the basis
for consensus, it becomes clear how diverse design choices have become: Proof of
Work (PoW), (Delegated) Proof of Stake (PoS), Proof of Activity, Proof of Authority,
Proof of Capacity, Proof of Elapsed Time, or Fast Probabilistic Consensus Algorithms
(Kannengießer et al. 2020). However, initial design choices for a protocol could later
be overruled by a majority of network participants. This will likely be the case for
Ethereum where a part of the community, including the Ethereum Foundation, is
currently preparing the Eth2 upgrades, which entail a transition from PoW to PoS
(ethereum.org, 2020).
The most popular protocols also come with their own “native” or protocol tokens.
These digital means of value exchange are commonly known as cryptocurrency. One
of the most prominent cryptocurrencies is Bitcoin, which we will use as an example
to better understand the functioning of DLT. In the case of Bitcoin, the blockchain-
based distributed ledger is created by combining blocks of valid transactions into
a chain of blocks, whereas each block is immutably linked to the preceding one.
This chain is shared by the entire network, and each new block has to be verified by
the majority of network participants. This act of finding consensus is carried out by
solving cryptographic algorithms and requires a PoW from each participant, which
in turn translates to computing power. Participants providing computing power are
commonly referred to as “miners,” because they are mining new blocks by verifying
bundles of transactions for which they are then rewarded with newly mined coins.
Miners compete to be the fastest in adding a new block of transactions. In the case
of Bitcoin, a lottery system is used to finally determine which block to attach, and
thus to establish which miner is the “leader.” Together with the transaction fees paid
by users who want to have their transactions executed, coin mining is a monetary
incentive to keep the chain evolving. To break the system, an attacker would have
to trick the majority of network participants, which would in turn require enormous
computing power. Therefore, the aforementioned process leads to a secure, verifiable,
trusted, and distributed ledger consisting of immutable, auditable transactions. Thus
far, however, existing protocols have not yet been able to solve the “blockchain
trilemma,” meaning that a protocol needs to sustain decentralization, security, and
scalability at the same time. Common protocol design choices mostly sacrifice one
property for the sake of the others. In the case of blockchain, this sacrifice is usually
scalability, for which a solution is intensely researched (Zhou et al. 2020).
In June 2021, the developers of the IOTA protocol released an initial version
of the development network “IOTA 2.0 DevNet (Nectar),” which is at the same
time decentralized, secure, and scalable, according to the IOTA Foundation (2021).
Instead of blockchain, the IOTA protocol relies on a DAG called “The Tangle”
and targets the Internet of Things (IoT). To attach a new transaction to the DAG,
each participant has to carry out a small PoW to confirm the validity of several
other transactions. This means that the users themselves sustain the network, which
scales according to its actual size, while coin mining is not necessary. The current
IOTA protocol still sacrifices decentralization for the sake of security and scalability
by having a centralized coordinator for the validation of value transactions. The
new protocol functions without central coordination. It adopts a novel consensus

mechanism based on fast probabilistic consensus to sustain security (Popov and
Buchanan 2021). Over time, protocol specifications will undergo rigorous testing
and refining, finally leading to an upgrade of the IOTA main protocol. If successful,
this step would mark a turning point in the DLT space, because the new protocol
would be the first DLT to be decentralized, secure, and scalable, while also being
free to use.
These examples of different base protocols illustrate how DLT systems can func-
tion as trust mechanisms based on consensus (Smits and Hulstijn 2020). Supplemen-
tary features such as smart contracts, decentralized Applications (dApps), oracles,
non-fungible tokens (NFT), and asset tokenization either already exist or are in the
process of being developed.
Smart contracts are based on code-based rules that the signing parties have agreed
upon. Once a smart contract is initiated, it is immutable and follows the rules that
were initially established. This process enables automated interactions between trans-
acting parties. One use case are dApps that harness smart contracts and enable the
application to run on a decentralized distributed system. Another connected feature
are oracles that link the virtual DLT world with the real world by importing real-
world data that can be used by smart contracts. One example is stock price data that
is queried from a particular stock exchange, imported to the DLT system, and then
utilized in a smart contract to trigger sell/buy orders once specific thresholds are
reached. Another feature are NFTs, which function as digital representations for the
ownership of unique items like (digital) art, collectibles, songs, videos, patents, or
carbon credits that correspond to voluntary emission reductions or emission offsetting
credits. Ownership is singular and tokens are not interchangeable (i.e., non-fungible),
because each token is unique. Technically, an NFT is created by appending a transac-
tion to a public ledger, including the cryptographic hash that certifies the uniqueness
of a set of data and the ownership information. It is also possible to represent any
kind of real asset, thus creating a unique digital representation of a physical or non-
physical asset. With this process, non-fungible or fungible real assets can become
liquid when they are broken down into digital shares. An example for a non-fungible
real asset is a real estate investment of 30 million euro that is tokenized and split into
1000 pieces, thus creating investments of only 30,000 euro.
However, despite these promising technological features, current DLTs also come
with a number of limitations, and often with technological sustainability issues. The
most prominent issue is the high energy consumption required to conduct PoW for
some blockchain-based protocols. On 22 November 2021, one single transaction in
Bitcoin (Ethereum) required around 1985 (197) kWh, which amounts to an annual
electrical energy use of 198 (91) TWh for the entire network, making it comparable
to the power consumption of Thailand (Philippines) (Digiconomist 2021). Using
a digital technology with such high levels of energy consumption to tackle climate
change would indeed be self-contradictory. Furthermore, blockchain-based protocols
are still limited by the scalability issue. Today’s networks could reach their maximum
throughput due to a rising demand for transactions and soon become congested,
which would result in rising fees for processing transactions and delays in transaction
processing. Transaction fees are a limiting factor in general, but in particular because
of their great variance over time: in the first half of 2021, they alternated between
$4.5 ($3.1) and $63 ($72) per transaction for Bitcoin (Ethereum) (YCharts 2021).
However, not all DLTs have issues of high energy consumption and transaction
fees; for instance, PoS utilizing blockchains or DAG-based protocols. In addition,
protocols facing those issues are working on solutions or are already preparing to
integrate them; for example, Ethereum with its Eth2 upgrades. Another noteworthy
technological limitation is the lack of interoperability between different protocols,
which may limit their functionality.
Apart from these technological limitations, we also regard politicization and a
general lack of trust in the technology sector as obstacles for the application of DLT.
The digital sphere is barely regulated and is sometimes seen as a lawless space. In
addition, interested companies are often not able to utilize DLT because of non-
existent regulation; for instance, the regulation of cryptocurrencies. Another impor-
tant regulatory issue is the immutability of transactions, which concerns privacy and
security challenges related to the EU General Data Protection Regulation (GDPR),
and especially Article 17 GDPR, which outlines the so-called right to erasure (right to
be forgotten). In this regulatory environment, only a limited subset of potential appli-
cations can be executed effectively. However, an enabling regulatory environment
that creates legal security is essential for broad adoption of DLT.
Considering the opportunities and limitations of DLT, it is important to note that
the appropriate design of DLT systems is crucial for users as well as application
operators. Following Schulz et al. (2020), we differentiate DLT systems into four
different types: (1) public-permissionless ledgers, (2) public-permissioned ledgers,
(3) private-permissionless ledgers, and (4) private-permissioned ledgers. Table 13.1
summarizes these four different types of DLT-related governance systems.
The embeddedness of DLT in real-world legal and regulatory structures shows that
the use of DLTs is directly linked to contextual circumstances and questions of gover-
nance. The term on-chain governance describes the set of rules determined by the
technical code of a given DLT application. This type of governance determines, i.a.,
the consensus mechanism, decision power, participants in the network, the reward
system, and what information to record. Therefore, a key element when developing
a DLT application is the design of its governance structure to create a secure envi-
ronment and curtail future structural complications that may disincentivize its use.
Simultaneously, off-chain governance in the “real world” must enable the effective
transnational use and standardization of DLT applications, while addressing existing
risks related to, inter alia, cybercrime, privacy, data use, or legal compliance.
Off-chain governance, more specifically, can be further distinguished into the
governance of the digital sphere, on the one hand, including Internet and financial
regulation. On the other hand, off-chain governance in this context can also refer
to governance through the digital sphere, for example, by issuing official digital
identities, currencies, or certificates. Accordingly, the effective use of DLT crucially
depends on initial design choices, both on-chain and off-chain, for specific gover-
nance systems. These choices are inherently political, especially in the case of off-
chain governance, and presuppose rigorous assessments for each application to select
Table 13.1 Distributed ledger technology systems
1. Public-permissionless 2. Public-permissioned 3. Private-permissionless 4. Private-permissioned
Public access to ledger Yes Yes Yes Yes
Open participation to verify and add Yes Yes No No
transactions
Governance Fully distributed Partly distributed Partly distributed Fully centralized
Token required Yes Yes No No
13 Distributed Ledger Technology and Climate Finance
Examples Bitcoin, Ethereum, Cardano, Solana, Ripple LTO Network Hyperledger Fabric
Litecoin, IOTA
Source Schulz et al. (2020)
271
the most suitable DLT. This means that DLTs are useful digital tools for tackling
specific problems in climate finance such as the need for standardized and trans-
parent monitoring and evaluation, but not a stand-alone technological solution for
key political issues in the field of climate finance.
13.2.2 Sustainability Initiatives and Networks
The transfer of sophisticated technology to real-life applications is a challenging task

in general, particularly due to the technical complexity of DLTs. Various initiatives
and networks have been formed to introduce and promote the potentials of DLT
with the aim to foster real-life applications. We discuss the role of three selected
initiatives and networks at the international, European, and national levels to illustrate
the relevance of DLT for sustainability and climate action at different regulatory and
governance levels.
At the international level, the Climate Chain Coalition (CCC) was formed in 2017
by various stakeholders with a focus on utilizing DLT and related digital solutions for
mobilizing climate finance and fostering effective MRV to scale climate actions for
mitigation and adaptation. The open global initiative involves more than 170 members
ranging from research institutions and other initiatives to private sector companies
(Climate Chain Coalition 2021). Coalition members self-organize in various teams
that deal with topics such as education in a specific region, the development of
concrete applications, and research collaboration. The CCC maintains close ties
with multilateral organizations such as the United Nations Framework Convention
on Climate Change (UNFCCC) or the World Bank. This reflects the coalition’s
approach of applying DLT to tackle global issues such as climate market challenges
and product traceability in supply chains, especially within multilateral organiza-
tions. Because of diverse national circumstances, it is useful to have an international
network to exchange knowledge, learn from each other, and even transfer ideas that
might not be applicable in one specific country to another setting where they might
work well. In addition to existing and potential real-life applications, the engage-
ment of multilateral organizations with DLT also helps create trust between national
governments, and might even reduce global knowledge asymmetries.
At the European level, the EU Blockchain Observatory and Forum (EUBOF) was
launched in 2018 based on an initiative from the European Parliament. It is funded by
the European Commission (2018). EUBOF is tasked to identify and observe global
trends in the DLT sector, foster education and knowledge dissemination, create a
forum for knowledge exchange, and to accelerate the application of DLT in the EU by
providing policy recommendations concerning regulatory questions (EU Blockchain
Observatory and Forum 2021). The formation of this initiative is in line with the EU’s
aim to become a global leader in blockchain technology as outlined in the European
Blockchain Strategy (European Commission 2021a). This is also reflected by recent
regulatory proposals; for instance, the “Regulation on Markets in Crypto Assets
(MiCA) and the Regulation on a Pilot Regime for Market Infrastructures based on
Distributed Ledger Technology (DLTR)” (European Commission 2020). Within the

EU, EUBOF plays an essential role as a low-threshold space for knowledge exchange
across the Union. Compared to the CCC, EUBOF has been proactively initiated by
policymakers and is primarily focused on knowledge creation and dissemination,
and less on knowledge adoption. This approach creates institutional credibility and
lowers the barrier for EU member states who have not yet explored DLT to access
relevant knowledge. EUBOF has no particular focus on the links between DLT and
climate change but has dealt with related sustainability issues in different formats.
In addition, DLT use is also facilitated by national-level initiatives such as the
Dutch Blockchain Coalition (DBC). The DBC was founded in 2016 by partners from
the Dutch government, knowledge institutions, and industry to serve as a catalyst and
facilitator for socially accepted DLT applications. The work of the DBC is based on a
broad action agenda that encompasses the investigation of DLT capabilities, (poten-
tial) DLT legislation, as well as research and training programs. The DBC focuses
on digital identities, the definition and creation of “good conditions” under which
DLT-based applications can be used, and the formation and realization of a human
capital agenda (Dutch Blockchain Coalition 2021). The coalition’s principal task is
to establish the social, legal, ethical, and economic conditions under which DLTs can
thrive. In this context, standardization, norms, and governance are pivotal, together
with international collaboration. The DBC also functions as a network for knowl-
edge distribution. Since 2019, the focus has been placed on specific use cases and
experimental research in the fields of self-sovereign identity, logistics, educational
certification, pensions, compliance by design, and mortgages.
13.3 DLT-Based Applications in Climate Finance
In line with our research approach, we focus exclusively on DLT applications in

public or private financing that are designed to support climate mitigation, adap-
tation, and/or sustainable energy systems. Relevant applications can be found in
the banking, investment, and insurance sectors, where the unique features of DLT
are used to increase efficiency and reduce risks for involved parties. Accordingly,
this section engages with a variety of DLT applications in different fields of public
or private financing. Each field is briefly introduced and concrete use cases with
a link to climate finance are presented. Relevant fields include (13.3.1) Decentral-
ized Finance (DeFi); (13.3.2) asset management; (13.3.3) Measurement, Reporting
and Verification (MRV); and (13.3.4) tokenization, together with (13.3.5) other
community-oriented approaches.
13.3.1 Decentralized Finance
Since 2020, DeFi has gained popularity around the world, reaching an all-time high of
US $112 billion in locked value by November 2021 (DeFi Pulse 2021). DeFi requires
a DLT protocol that is public and comes with smart contracts (e.g., the Ethereum
protocol), thus enabling the creation of dApps on top of the protocol. This general
setup enables peer-to-peer (P2P) financing and complex financial applications by
combining multiple dApps. The decentralized and open-source nature of these apps
bypasses classical financial intermediaries. Yet, decentralization also has its down-
sides such as insufficient regulation and a lack of deposit insurance, two measures
that would normally reduce risks for the customers of financial intermediaries. Such
issues of accountability directly relate to the governance of DeFi products, which
can be categorized in three different forms (World Economic Forum 2021).
First, if a service is implemented and exclusively controlled by the operator of
the service, centralized governance is present. Decentralization of governance can be
introduced into the system by integrating a governance token that represents voting
rights on governance questions. Second, if token holders only have limited voting
rights and can merely govern certain predetermined parameters while the devel-
oper(s) and/or operator(s) still hold great power, this is called partially decentralized
governance. Third, fully decentralized governance can be established through the
formation of a decentralized autonomous organization (DAO), which specifies the
rules for the interplay between governance token holders. Often, the aim of developers
is to move from a centralized to a decentralized governance structure as the project
matures. In the following, we take a closer look at several popular types of DeFi
services to better understand the status quo in the sector. The first important type of
service concerns stablecoins, which address the issue of price volatility in cryptocur-
rencies. The idea is to back-up a token with some collateral to create a stablecoin.
Collaterals can be fiat money, commodities like gold, crypto assets, or a combina-
tion of several of them. Another approach is to use algorithms that autonomously
carry out specific actions to stabilize the price. Stablecoins have been pivotal for the
evolution of DeFi because a stable currency is critical for financial products. Second,
decentralized exchanges (DEXs) facilitate direct exchange of currencies between
users, for example, cryptocurrencies or classical currencies. Third, P2P cryptocur-
rency lending/credit platforms directly connect lenders and borrowers to each other.
The content of lending agreements has no limit, so that for instance, short-term (flash)
loans become feasible. Such platforms enable direct interactions between savers and
borrowers. Fourth, decentralized prediction markets enable participants to bet on the
outcome of future events. Agreements are translated into smart contracts that use
oracles to decide on the final outcome and trigger corresponding actions. All these
types of DeFi services have been technology front-runners so far, but more and more
additional services like derivatives or insurances are offered. Figure 13.1 illustrates
the general setup of DeFi comprehensively.
DeFi offers the potential to democratize the financial sector by bypassing inter-
mediaries, and by equalizing access to high-return financial products. In addition,
Fig. 13.1 The decentralized finance (DeFi) stack (Source World Economic Forum 2021)
it can enable access to climate finance and insurance for the unbanked. Thus, DeFi
can provide people with financial tools to shape their surroundings; for example,
through access to external investment for local renewable energy projects. Such
projects often face frictions in local finance markets, which can now be dissolved
by borderless DeFi. Classical use cases in climate finance include donations or phil-
anthropic investments, which often flow from industrialized countries to projects in
developing countries. To improve the trust of donors, the traceability and auditability
characteristics of DLTs are harnessed.
GiveTrack™: Funded by the non-profit organization BitGive, this blockchain-based donation
platform for non-profits provides transparency and accountability to donors and enables
cryptocurrency donations. Financial information and direct project results are shared in real-
time with donors. The majority of funded projects are small in scale and some projects are
linked to climate actions.
TruBudget: Initiated in 2017 by the German development bank KfW, the open-source Trusted
Budget Expenditure Regime workflow software makes the implementation of donor-funded
projects more transparent and collaborative by using a “logbook” approach. By using private
blockchains, all activities are securely and traceable documented, which facilitates relation-
ships between donors, fund managers, and project implementers. This setup allows public
investments to be carried out more securely, transparently, and effectively. One use case
is the Amazon Fund, which uses donations for efforts to prevent, monitor, and combat
deforestation.
Another important application are P2P lending services that offer direct links between
lenders and borrowers. Although the use of DLT is not mandatory to enable such
services, it can be of benefit to reduce service costs, increase investor trust, and
enable new types of services. One example for the latter are flash loans, which are
instant and collateral-free loans that have to be paid back within a short period. Most
DeFi P2P lending platforms do not focus on climate-related loans and offer standard
loans for individuals and businesses. However, there are established projects that
have built platforms that explicitly focus on climate action and sustainability-related
investments.
Sun Exchange: Founded in 2015 with the aim to overcome hurdles in financial markets
that impede the exploitation of solar energy in emerging countries, the Sun Exchange is a
P2P solar leasing platform that links investors with potential solar energy projects. Funded
solar cells are leased out to users like schools or local communities. The company integrates
Bitcoin as means of payment, uses reward tokens, and harnesses smart contracts to offer a
solar project insurance fund and to integrate a MRV solution. Until June 2021, more than 40
projects had been completed, totaling around 5.2 GWh of clean energy.
At the same time, insurance companies are exploring the potential of DLT to improve
their business cases, while startups are developing new insurance products. Potentials
of DLT for the insurance sector encompass event-triggered smart contracts, disinter-
mediation, better risk assessment, general efficiency gains, new types of insurance,
and the broadening of the customer base. The first aspect is pivotal because smart
contracts allow for fast and automated pay-outs in case a specific event happens,
which is identified by consulting external data via oracles. Streamlining insurance
also means access to insurance for the un(der)insured, which enables them to hedge
against livelihood risks. Naturally, insurances play a key role in climate adaptation
by cushioning risks related to extreme weather events such as droughts, floods, or
storms.
Etherisc: Formed in 2016 with the aim to make insurance fair and accessible, the non-
profit Etherisc foundation provides a platform to facilitate the building of new DLT-based
insurance products. This decentralized insurance platform is based on its generic insurance
framework and its decentralized insurance protocol. The protocol leverages the Ethereum
sidechain xDain and utilizes smart contracts as well as tokenization. The for-profit Etherisc
company serves as a first mover on the platform to create products that generate revenue,
which ensures the development of the platform. Its main product is flight delay insurance,
but more insurance products are under development. This concerns hurricane protection
and crop insurance, which are designed for low-income individuals and small business
owners, hedging against hurricanes, droughts, or floods. The payouts of those insurances
are triggered by specific events, which are identified by consulting external data via oracles.
Such index-based insurances are called parametric insurances.
Arbol: In 2018, the company was founded to provide a DLT-based parametric insurance
against extreme weather for businesses, putting a focus on fast payouts in case predefined
events happen. Arbol’s design eliminates the traditional claim process and provides security
of payout for customers. The solution is based on the Ethereum blockchain and uses smart
contracts. It leverages Chainlink’s oracle network as well as tokenization of climate data.
The company offers products for the agriculture, energy, maritime, and hospitality sectors
by offering insurance against rainfall, snow, temperature, humidity, crop yield, wind, and
other weather-related risks.
13.3.2 Asset Management
This section deals with the utilization of DLT in financial asset management, which
promises to bring increased security and transparency to investors and improve back-
end efficiency, thereby reducing costs for providers. Applications can take on various
forms, as not only private but also public entities explore DLTs. In April 2021, the
European Investment Bank (2021) issued its first digital bond on a public blockchain.
These initial implementations of DLT in the financial system lay the cornerstone for
successful large-scale climate finance applications in the future.
First, we consider DLT with regard to the improvement of existing asset manage-
ment systems. Integrating DLT and smart contracts into the administration of funds or
bonds can automate workflows and tighten related processes, which enhances back-
end efficiency and regulatory compliance. Efficiency gains have been estimated by
HSBC and Sustainable Digital Finance Alliance (2019) to more than 10X. This
particularly concerns the issuance of green bonds, for which Malamas et al. (2020)
propose a DLT-based architecture.
BBVA—Structured Green Bond: In 2019, the Banco Bilbao Vizcaya Argentaria (BBVA)
issued a first DLT-supported structured green bond of 35 million euro tailored to the needs
of one of their investors. The bond runs on BBVA’s own blockchain-based platform that
utilizes smart contracts, automating the arrangement, negotiation, and issuance processes.
This allows the investors to configure their own bond according to their needs, limited by
the boundaries set by the issuer. This DLT-based setup reduces costs for the entire lifecycle
of green bonds, thus facilitating their establishment.
The reporting process for green assets such as funds or bonds can benefit from the
increased transparency and improved auditability of projects. This can be achieved by
utilizing DLT as a data transmitting layer. Investors receive tamper-proof information
about the sustainability metrics of projects, as well as aggregated metrics of the
project portfolio they are invested in. Integrating DLT directly at the impact data
generating source and in the entire data trail would constitute a more extensive
approach, which is studied in the following subsection.
Green Assets Wallet: Launched in 2017 by Stockholm Green Digital Finance and a consor-
tium of diverse entities, the platform aims to bridge sustainable investors with green invest-
ments. Issuers can demonstrate credibility and showcase their project’s impact to attract
investors. Thereby, investors are provided with trusted impact data, enabling them to better
evaluate potential investments. Similarly, the entire lifecycle of a project is tracked on the
platform and impact metrics are shared with investors. The platform utilizes the Chromia
relational blockchain technology that combines the concepts of relational databases and
blockchains. This integrated approach guarantees immutability of data inputted by projects
and investors, thus establishing a standard between market participants.
Funds and bonds become more transparent based on this process, which enables the
sector to harmonize reporting standards, and to ease benchmarking. Even though
there are more recent regulatory attempts to define sustainable activities (e.g., Euro-
pean Commission 2021b), the transparent implementation in funds and bonds is not
straightforward. DLT can be vital to address this issue and improve the comparability
of funds and bonds. DLT can also enable new types of asset management because of
its decentralized nature. For instance, the entire asset management lifecycle can be
implemented as a dApp, which is managed through the rules enshrined in its setup.
This can be transferred to portfolio management, so that a portfolio is managed by
a dApp. To fully decentralize portfolio management, a DAO can be formed to take
over based on predefined rules for decision-making. Another tangible application is
enhanced portfolio diversification, which can be enabled by tokenizing larger invest-
ments and cutting them into smaller pieces, thus providing more and smaller invest-
ment opportunities (HSBC and Sustainable Digital Finance Alliance 2019). This
option expands the potential customer pool to investors with liquidity constraints for
whom large investments have not been accessible, thereby simultaneously expanding
the capital pool. In addition, more efficient and automated management systems
simplify the pooling of small-scale investments into large investments, which facili-
tates investments of larger investors (HSBC and Sustainable Digital Finance Alliance
2019). These new types of asset management are still in their infancy and have not
yet been fully leveraged for climate finance. However, a number of exploratory case
studies examine the potential of linking DLT-based systems to green funding sources,
for example, in the context of the Green Climate Fund (e.g., Schulz and Feist 2021).
13.3.3 Measurement, Reporting and Verification
Closely connected to climate finance and asset management are processes of MRV,
which are used to determine the sustainability impact of a “green” asset. DLT can
serve as a trust-creating data layer for MRV processes and enable their automati-
zation (Dorfleitner and Braun 2019). Verifiable, transparent, and trustworthy MRV
processes are essential for investors, as they wish to invest in credible and impactful
green assets. If sustainability is not guaranteed, investors often lack trust in the green
asset. Solving the trust issue would enhance the credibility of a financial product and
also prevent the greenwashing of assets. This means streamlining MRV processes is
pivotal in boosting climate finance from the investor perspective. The streamlining
process can be facilitated by using DLT to directly link devices such as sensors
in cyber-physical systems to investor(s), so that an automated, traceable, and trust-
worthy trail of tamper-proof data, from generation to data use, is established. Such
data could include the amount of CO2 emitted, or the amount of electricity generated.
MRV processes become more transparent and cost effective with such a streamlined
approach, for example, by improving the monitoring and tracking of the asset’s
performance, including its impact, along the lifecycle. The automatization of data
flows also facilitates the digitalization and certification process of green assets.
Distributed Renewable Energy Certificate (D-REC) Initiative: Announced in January 2021,
the initiative’s objective is to create a global market for distributed renewable energy to
connect corporate finance and small-scale renewable energy projects. Through the creation
of tokenized D-RECs, which are based on the International REC (I-REC) Standard, a glob-
ally recognized proof of electricity source is established. One certificate corresponds to 1
MWh of generated electricity, which is stacked by the production of several small-scale
facilities. The certification process is handled by approved I-REC issuing bodies, taking
into account generation data automatically provided by electricity meters. In the future, this
semi-automated process should be fully automated based on oracles importing the generated
data and the automatization of certificate issuance.
Digital MRV™: Initiated by the IOTA Foundation and ClimateCheck in 2020, the pilot
project streamlines MRV processes by utilizing data produced by various IoT sensors on-site
to create digital twins of facilities on a DLT. The used IOTA protocol is directly integrated on
gateway devices, which reduces MRV costs and creates trust in the generated data directly at
its source. This streamlined process produces a near real-time representation of the facility’s
activities that facilitates the creation and verification of tokenized carbon credits, which will
be added to the project in the future. This holistic approach from data generation via impact
information to carbon credit certification, links credible impact information with carbon
credits and can incentivize sustainable economic growth via carbon trading.
Evercity platform: Founded in 2018, Evercity works on two projects to increase climate
finance. First, it develops a smart sustainable bond protocol based on the Polkadot protocol
that facilitates the issuance and management of green bonds. Second, it develops a
blockchain-based platform that simplifies the matching of professional sustainable investors
and impactful projects by improving asset issuance, impact measurement, project moni-
toring, and reporting. Features include the integration of data generated by IoT devices,
drones, and satellites for impact measurement, as well as the issuance of carbon credits.
The process of carbon credit certification is currently a costly process, especially

in developing countries. Reduced costs incentivize projects to qualify their carbon
reductions as actual carbon credits. Such tokenized carbon credits could be traded on
a global market and create new revenue streams for green projects, thus improving
unit economics, which in turn incentivizes the establishment of additional projects.
However, innovative certification processes also require improved MRV processes
based on reliable, tamper-proof data trails and credible source data that can be
established by using DLT and tokenization.
13.3.4 Tokenization
In addition to the native token of a DLT protocol, some protocols also allow for the
creation of additional assets. The underlying idea is to make assets more accessible
and simplify asset transactions. As described in subsection 13.2.1, the object of
representation can be any kind of real or digital asset. Tokenized assets can serve a
variety of purposes: from governance tokens of DAOs or utility tokens and NFTs to
tokens representing the value of a real-world asset (security tokens). The main risk
of some kinds of tokenization is issuer risk, which directly relates to the credibility
of a claim. If an issuer promises, for instance, a future interest payment to the token
holder, the token value depends on the credibility of the said claim. The back-up
of such promise-based tokens can take the form of either off-chain or on-chain
collateral, or no collateral at all (Schär 2021). In the following, relevant application
areas of tokenization in the context of climate finance are studied, even though other
climate-related approaches like reward tokens are promising as well.
In the previous subsection, we already introduced the key links between MRV
and carbon credit certification. Article 6 of the Paris Climate Agreement, in partic-
ular, establishes the use of Internationally Transferred Mitigation Outcomes (ITMOs)
between countries for achieving national contributions, which constitutes the corner-
stone for a global carbon market that allows green capital to flow where it can be
used most efficiently for mitigation. Nevertheless, Article 6 has not been operational-
ized so far, although important progress on its implementation has been made at the
UNFCCC COP26 summit in Glasgow. Automatization, transparency, and enhance-
ments of carbon credit certification through DLT could be used to ascertain the
underlying quality of carbon credits, which could then pave the way for a functioning
global carbon market. Franke et al. (2020) and Kim and Huh (2020) elaborate such
a DLT-based system.
BITMO platform: In 2021 at the COP26, the Blockchain for Climate Foundation launched
the Blockchain Internationally Transferred Mitigation Outcomes (BITMO) platform that
enables national governments to issue and exchange carbon credits. The platform uses the
Ethereum blockchain and represents carbon credits as NFTs. The project aims to become
the infrastructure to operationalize Article 6 and enable carbon trading on a global scale.
Similarly, Mandaroux et al. (2021) propose the use of DLT to digitalize the
Emissions Trading System for the EU. Other approaches for establishing carbon
markets specifically target companies and individuals wishing to offset their carbon
emissions.
ClimateTrade: Founded in 2017, the company supports companies to achieve carbon
neutrality by offsetting carbon emissions via its marketplace. The marketplace is geared
toward the needs of companies that want to offset and simplifies the offsetting process.
Projects that are used to offset emissions only enter the marketplace after a manual assess-
ment by the team of ClimateTrade, ensuring high-quality projects, which can be manually
selected by companies that want to offset. The marketplace utilizes Algorand’s Pure Proof
of Stake blockchain technology that allows for a high throughput and sustains traceability
and transparency of carbon credits. So far, the company has offset more than 1 million tons
of carbon.
ECO2 Ledger: In 2018, the ECO2 foundation started to work on the ECO2 Ledger, a
blockchain-based carbon market network that enables carbon trading between individuals.
Carbon neutrality of the Nominated Proof-of-Stake blockchain network is sustained by
using transaction fees to buy and consume carbon credits. The ledger serves as backbone for
sustainability dApps that can be built on top. MyCarbon, the first finalized dApp, provides a
tool for personal carbon accounting and enables individuals to directly trade carbon credits.
All the aforementioned types of carbon markets can accelerate capital flows to
projects with the highest efficiency in reducing carbon emissions. Another impor-
tant feature are new revenue potentials for project issuers. Both benefits can speed
up the development of new projects. However, the main issue for the establishment
of functioning global carbon markets is non-standardized carbon accounting, which
resulted in different certification processes and siloed exchanges. The InterWork
Alliance (2020), an association of private sector and DLT organizations, addresses
this issue and is working on defining global standards for tokenization of emissions,
offsets, and trade contracts.
Tokenization is linked with asset management because of the opportunity it creates

to pool and chop investment, together with the ability to create new digital represen-
tations for various tangible and intangible assets. The former is especially important
for issuers of funds and bonds. Schletz et al. (2020) explore the potentials of the
latter by researching tokenized securities that are digital representations of security
assets, which can be debts, equity, or asset-based tokens. Contrary to other kinds
of tokenization, security tokens must comply with legal regulations by nature. The
authors conclude that the potential for green finance is promising but applications
are limited by immature technological infrastructure and regulatory uncertainty.
Nonetheless, combinations of tokenization with novel financial product schemes
show promise.
ixo protocol: The ixo Foundation, formed in 2017, develops the blockchain ixo protocol
that enables everyone to deliver, evaluate, or invest in sustainable development impacts by
utilizing non-fungible impact tokens that represent proof of impact. Impact certification
of verifiable impact claims is done by independent, certified verification agents who are
supported by high-definition data and prediction oracles. Impact tokens serve as community
currency in the Internet of Impact and can be configured into outcome-based financing mech-
anisms. To power novel sustainable DeFi services AlphaBonds, which automate market-
making and dynamically adjust parameters in response to real-world signals, are built and
utilized in first pilot projects.
Another area of application are utility tokens. Examples include a variety of energy
projects like Greeneum, Power Ledger, Rowan Energy, or WePower that use tokeniza-
tion on their platforms to represent green energy and enable P2P energy trading. Some
also integrate financing mechanisms, such as the investment of tokens in energy
projects.
13.3.5 Other
In addition to the previously discussed applications, DLT can also be deployed to

improve social funding schemes such as crowdfunding platforms or community-
based approaches, which are not merely driven by monetary incentives, for example,
in sustainable and social entrepreneurship (Dorfleitner et al. 2021). Community-
based DLT approaches in combination with climate finance hold the potential to
benefit local communities and to improve localized climate finance. Yoshino et al.
(2020) propose a DLT-enhanced version of community-based hometown investment
trust (HIT) funds, which provide financing for local small-scale renewable energy
projects and have already been used in multiple countries. The underlying idea of
HIT funds is to create a trustful, spatially close opportunity for individuals to invest
small amounts in local projects. DLT can add trust in the proper functioning of the
funds through its security, transparency, and auditability characteristics. Accordingly,
the potential investor pool could be expanded across borders, so that projects in
developing countries are able to access climate funding from abroad.
One key problem in climate finance is a general lack of investment opportunities

because of a lack of credible projects. Project leaders often spend a lot of time
searching for funding opportunities when they could improve or develop projects
instead. In addition, new projects often lack the quality to attract direct funding. This
means improving projects could broaden the supply side. DLT can facilitate network
platforms by creating trust between parties and streamlining certain processes.
Interactio: Initiated in 2019 by the World Wildlife Fund (WWF), the platform aims to
get projects off the ground by identifying impactful projects, providing them with external
advice, and enabling the most promising ones through matchmaking with implementation
and funding partners. The platform’s main objective is to enable “global collaboration to
curate, support, and deliver high-quality impactful solutions” to achieve the SDGs. Interactio
utilizes the Ethereum blockchain as well as its smart contract and tokenization features.
Tokens on the platform have no monetary value and serve as behavioral motivators to assist
the processes of curation and selection of projects as well as matchmaking. External subject
matter experts (or curators) play a pivotal role on the platform because they review projects,
provide feedback, and decide on the quality and impactfulness of projects.
Approaches to reward good behavior can contribute to climate finance if created

incentives cause behavioral changes. For instance, SolarCoin established its own
cryptocurrency that rewards solar electricity producers who can claim one SolarCoin
per MWh they produce. Even though monetary incentives created by the value of
SolarCoins are insignificant, the non-monetary gratification reward could motivate
producers to establish new projects.
13.4 Conclusion and Policy Implications
The underlying technologies of distributed ledgers have significantly evolved. Solu-

tions for most technological limitations are on the horizon and point toward the
broader adoption of DLTs in climate finance. Yet, it is crucial that DLTs become
more sustainable to avoid situations in which emission reductions through DLT
applications are offset by the overall resource consumption of the digital system.
In addition, it is paramount to establish an enabling regulatory environment to fully
leverage the potential of DLTs. This entails reconciliation with legal concerns over
privacy, value transactions, accountability, liability, and anti-money laundering, as
well as global standards to create secure and interoperable solutions and markets.
From a climate governance perspective, DLT promises significant efficiency gains
together with increased interactional transparency, which, in turn, could lead to more
successful cooperation and higher levels of trust. One specific DLT solution that holds
great promise for advancing high-impact climate finance is the design of an end-to-
end process for issuing green bonds that simultaneously ties in with open and nested
climate accounting. In a multilateral climate governance setting, this would neces-
sitate collective action toward the integration and scaling of existing but fragmented
DLT climate, sustainability, and FinTech applications in alignment with the Global
Stocktake process under the Paris Agreement. Promising regulatory initiatives like
the MiCA and DLTR regulations (European Commission 2020), the EU taxonomy
(European Commission 2021c), or the European green bond standard (European
Commission 2021b) are designed to tackle these issues. As regulatory frameworks,
they pave the way for the broad adoption of DLT-based financial products, so that, for
instance, security tokenized green bonds can become regulated financial instruments.
Equally important is the standardization of green financial products, project impact
measurement as well as the tokenization of emissions and carbon offsets. Here, a
decisive role falls to DLT-based MRV processes, which guarantee the credibility of
source data and create reliable and tamper-proof data trails. The integration of DLT
oracles with IoT devices is also desirable for data correctness because such a setup
would increase trust for all parties and facilitate compliance with regulations and
standards.
Adequate resources are also needed to link global policy frameworks and carbon
markets to local and community-driven DLT solutions, for example, through a proof
of concept for an end-to-end digital green bond. Such an integrated approach based
on nested and open climate accounting could contribute to the removal of financial
frictions and barriers with the aim to democratize securitized impact investing for
community projects. These investments could then be used as a vehicle for sustain-
able local economic development. Developing countries, in particular, could drive
this innovation by introducing enabling national legislation to foster the use of
DLT-based solutions and supplement existing financial mechanisms. In combina-
tion with enhanced MRV processes, such a favorable regulatory environment could
create access to climate finance and generate new sources of revenue for sustain-
able projects. However, a vibrant national and international DLT sector requires
regulation and extensive technological knowledge on all fronts. Trusted cooperation
within initiatives and networks will be crucial to advance, exchange, and dissemi-
nate relevant knowledge, as we have illustrated in our analysis. Equally important
are direct public investments in education, so that the created regulatory security
can be utilized in the first place, and existing digital divides between developed and
developing countries can ultimately be narrowed.
Appendix
See Table 13.2.

Table 13.2 Distributed ledger technology-based applications

Use case Application field URL
(Accessed 27 November 2021)
GiveTrack™ Decentralized finance https://www.givetrack.org/about
TruBudget Decentralized finance https://trubudget.net
Sun Exchange Decentralized finance https://thesunexchange.com
Etherisc Decentralized finance https://etherisc.com/
Arbol Decentralized finance https://www.arbolmarket.com/
BBVA—Structured Green Asset management https://www.bbva.com/en/sustai
Bond nability/bbva-issues-the-first-
blockchain-supported-struct
ured-green-bond-for-mapfre/
Green Assets Wallet Asset management https://greenassetswallet.org/tec
hnology
D-REC Initiative Measurement, reporting and https://www.d-recs.energy/
verification
Digital MRV™ Measurement, reporting and https://www.digitalmrv.earth/
verification
Evercity platform Measurement, reporting and https://www.evercity.io/
verification
BITMO platform Tokenization https://www.blockchainforcl
imate.org/the-bitmo-platform
ClimateTrade Tokenization https://climatetrade.com/abo
ut-us/
ECO2 Ledger Tokenization https://www.eco2.cc/
Ixo protocol Tokenization https://www.ixo.world/protocols
Greeneum Tokenization https://www.greeneum.net/
Power Ledger Tokenization https://www.powerledger.io/pla
tform
Rowan Energy Tokenization https://www.rowanenergy.com/
WePower Tokenization https://wepower.com/tech/
index.html
Interactio Other https://impactio.global/how-it-
works
SolarCoin Other https://solarcoin.org/
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Chapter 14
The Potential Role of Fintech and Digital
Currency for Islamic Green Financing:
Toward an Integrated Model
Mohamed Asmy Bin Mohd Thas Thaker, Ahmad Bin Khaliq,

Hassanudin Bin Mohd Thas Thaker, Md Fouad Bin Amin,
and Anwar Bin Allah Pitchay
Abstract The role of FinTech and digital currency on green financing has gained
significant attention in recent years. With the assistance of FinTech and digital
currency, investors are redirecting their investment portfolio into economic activ-
ities that bring good balance between economic, environmental, and social objec-
tives. This is to promote the well-being of humans and to mitigate climate change,
biodiversity loss, and inequality. Indeed, FinTech and digital currency are touted as
game-changers that help to innovate new investment instruments related to green-
based projects and close the financing gap. While progress has been made in green
financing, the applications of FinTech and digital currency in the context of Islamic
green financing are scarce. Currently, traditional methods are used to raise funds
for green-based projects or activities, thus creating a financing gap between issuers
and investors. Although many issuers promote and facilitate flexibility and financial
innovation, many investors lack the depth of using the power of FinTech and digital
currency to harness their potential. In fact, the literature remains silent on this impor-
tant gap. There is an absence of an integrated model, which could enhance the role
M. A. B. M. T. Thaker (B) · A. B. Khaliq

International Islamic University Malaysia, Kuala Lumpur, Malaysia
A. B. Khaliq
H. B. M. T. Thaker
UCSI University, Kuala Lumpur, Malaysia
M. F. B. Amin
King Saud University, Riyadh, Saudi Arabia
A. B. A. Pitchay
Universiti Sains Malaysia, Penang, Malaysia
https://doi.org/10.1007/978-981-19-2662-4_14
288 M. A. B. M. T. Thaker et al.
of FinTech and digital currency in Islamic green financing. The novelty of this study
lies in setting a new research direction for integrated FinTech and digital currency
models that can be instrumental in further enhancing and optimizing the efficiency
of Islamic green financing.
Keywords FinTech · Digital currency · Green finance · Islamic green finance ·

Integrated model
JEL Classifications O3 · Q2 · Q5
14.1 Introduction
In the early part of the twenty-first century, concerns were raised toward future
sustainable economic development with environmental safety and ecological
balance. The outcome of the United Nation’s agenda for 2030 is to promote sustain-
able development. To facilitate the agenda, the concept of green finance has been
introduced by the UN member states. According to a report by the Alliance for
Financial Inclusion (2020), the broader areas that cover the investment of green
finance (GF) are “renewable energy and energy efficiency, pollution prevention and
control, biodiversity conservation, circular economic initiatives, and sustainable use
of natural resources and land.”
Today, GF is a true game-changer and progresses rapidly worldwide. According
to the World Economic Forum (2019), close to US $5.7 trillion was expected to be
invested in green infrastructure, mostly in the developing countries. On the same
note, a Climate Policy Initiative report highlighted that US $360 billion was invested
annually in climate-related projects by public and private firms. Most funding comes
from private entities and investors with total funds of US $19 trillion. GF bonds
have seen significant growth and are valued at US $100 billion annually. Starting
in 2016, some countries are now issuing sovereign green bonds including Poland,
France, Fiji, Nigeria, Indonesia, and Belgium. France dominated the issuer’s list
whereby the issue was valued at US $7 billion. Furthermore, the global assets under
sustainable management increase to 25% from 2014 to 2016.
In 2020, the top issuers of green bond were the United States, Germany, and
France, which issued totals of US $51.1 billion, US $40.2 billion, and US $32.1
billion, respectively. Given the statistical facts discussed above, GF development is
quite significant for the commercial opportunities that will allow the financial sector
services to support the low-carbon world. Many participants that are involved in GF
provide direct and indirect financial support to materialize green projects; however,
the actual amounts needed to successfully complete these projects are not available
(Sachs et al. 2019). The application of financial technology (FinTech) and digital
currency is the best alternative to reduce the gap between demand for and the supply
of GF.
14 The Potential Role of Fintech and Digital Currency … 289
Islamic green finance (IsGF) is a fast-growing sub-sector of Islamic finance that

contributes to sustainable economic development across the globe, particularly in
Islamic countries. Despite its fast growth, the gap between demand for and the
supply of IsGF is widening because of the diverse nature of green projects in
recent times. The higher demand for IsGF remains unmet by the existing mecha-
nism whereas conventional GF has experienced exponential growth over the past
few years by adopting FinTech. This can be a good lesson for IsGF. Realizing the
huge demand for GF projects, it is an opportunity for IsGF to utilize the innovative
tools of FinTech/digital currency as the impetus for financing green projects. There is
a need for an integrated model that combines FinTech/digital currency with Islamic
green financing instruments like green Sukuk (Sharia-compliant bonds). This trian-
gular approach is expected to foster the success of green projects by achieving the
efficiency and effectiveness of IsGF.
A triangular approach that blends FinTech, digital currency, and IsGF is expected
to increase the capital flows and satisfy the financing requirements for diverse green
projects. It is also expected that this approach will play a significant role in safe-
guarding the potential of the IsGF industry in competition with conventional green
finance. This triangular approach can contribute to the UN aims of sustainable devel-
opment for 2030. The adoption of this approach will be a key determinant of future
success of the IsGF sector through: (a) fostering the economic and environmental
benefits, (b) gaining global competitiveness through efficiency and productivity,
and (c) increasing the flow of information with adequate analytical capacity. This
approach is expected to create additional support by increasing the capital flow at a
higher rate for green projects and enable sustainable economic development.
This chapter shows how the proposed model can create significant impact on
Islamic green financing by utilizing the potential of both FinTech and digital currency.
This model can be cost effective and appeals to issuers and investors because it ensures
maximum transparency and minimum risk in smart contracts under the principle of
Sukuk. This model is also expected to eliminate the involvement of various interme-
diaries like brokers, listing agents, and traditional banks to achieve higher efficiency.
In addition, digital assets can be utilized to finance green-based activities by a specific
token or security code using blockchain technology and smart contracts.
This chapter proposes several policy recommendations for implementing the
model. First, policymakers need to be updated with the development of FinTech
and digital currencies in relation to approving green finance projects. They also need
to examine the economic cost and benefit of the projects by ensuring transparency,
financial inclusion, property rights, and most importantly, the achievement of the
sustainable development goals (SDGs). Second, policymakers need to pay attention
to the approval of Islamic green finance projects that create new opportunities to
support economic and financial development. Lastly, Shariah advisors need to play
their roles in ensuring the principles of Islamic finance transactions in the proposed
model.
14.2 FinTech, Digital Currency, and Green Finance
The application of FinTech and digital currency such as blockchain is the best alterna-
tive to reduce the gap between the demand for and the supply of GF. The advancement
of technology that integrates FinTech and digital currency can be applied in three
ways to finance green projects: applications for sustainable development; renewable
energy, decentralized electricity markets, carbon credits, and climate finance; and
innovation in financial instruments, including green bonds (Nassiry 2018).
The role of FinTech in GF is undeniably significant whereby FinTech serves to
facilitate data collection. There are limited data available on climate-related statistics,
which causes higher search costs for investors and banks, whereby they must pay extra
costs and conduct due diligence to obtain the data. This is because some climate data
are difficult to identify and as a result, climate risks may not be priced adequately. On
this note, innovative solutions are required to measure climate-related data efficiently
and effectively. FinTech will fill the gap whereby the use of digital technologies
such as artificial intelligence, big data, and blockchain will allow the collection of
information including climate data in a cost-efficient way. Using FinTech allows
banks and investors to utilize climate data to measure risk and allows the design of
policy and financial activities whenever climate change occurs.
In general, startups are quicker in adopting innovative technologies than mature
firms. Furthermore, advanced techniques in accessing climate data allows news agen-
cies and climate-related institutions to access various kinds of reports related to
the weather, including geo and heat maps. In addition, data sciences are helpful in
analyzing the overall economic impact of climate-related risk. For example, with
heat maps, investors or lenders are able to identify high-risk climate areas before
making any decision on allocation funds for an investment purpose. The application
of FinTech is not only limited to the analysis part but enhances the GF products.
The application of green bonds is a clever idea whereby it is more flexible and more
credible in terms of its verification. One example of the efficiency of using FinTech in
green bonds is that by applying a blockchain-based smart contract, the issuance and
monitoring costs of the green bonds can be greatly reduced and become smoother.
With this flexibility, green bonds can reach a wider spectrum of investors, including
retail investors.
In addition, use of blockchain enables the security of transfer value and enhances
the credibility of the transaction procedure. Leveraging blockchain, Internet of things
(IoT), and artificial intelligence sensors in solar panels allows the transaction or
investment details to be updated into the distributed ledger. This is useful for investors
to obtain the real-time data on the environmental impact of their investments. In fact,
the World Bank (2017) highlighted that blockchain is widely used in financial sectors
ranging from financial services infrastructure, agriculture, and humanitarian and aid
applications mainly used for tracking and delivery of aid. Chapron (2017) showed
how blockchain could help in validating cryptography and enhances the effectiveness
of bookkeeping entries, hence facilitating modern economic activities. Moreover,
Gupta and Knight (2017) mentioned that mobile money services such as M-Pesa
shows how developing countries are proactively adapting to its usage. This mode of
payment is expected to create hyper-efficient infrastructure and better opportunities
for citizens in accessing financial assistance in formal credit markets. The operating
costs are much lower, while the quality of goods is not compromised.
14.3 Examples of FinTech and Digital Currency for Green

Financing
The application of FinTech and digital currency has widened and is becoming increas-
ingly popular with the objective of upgrading green financing mechanisms to become
more accessible, efficient, and resilient. Given its potential, many countries started to
adopt FinTech and digital currency to assist the development of green finance. This
sub-section highlights some of the examples of FinTech and digital currency for green
financing as highlighted in the report of United Nations Environment Programme
(2018). For example, Sun Exchange is a blockchain company that operates a solar
panel micro-leasing platform. As part of a crowd-sale, investors can purchase solar
cells on the exchange. Following the installation of solar panels, investors are entitled
to current–time rental revenue for every kWh. The main objective of this platform is
to make solar energy systems more reachable to everyone. The solar cells donated
by participants are used to power businesses or communities of their choice. The
participants have the option of paying by wire transfer, bank transfer, or Bitcoin.
After purchasing solar cells, the solar installation company will begin the installation
preparations. After the installation, Sun Exchange collects and deposits the monthly
lease rental payments of the participants into a convenient wallet. The amount of
power generated by participants’ solar cells is used to calculate earnings. Owners of
community roofs can typically save money on their electricity bills. Sun Exchange
acts as a service provider by commercially and technically validating solar projects,
marketing them as investment opportunities, and arranging leases. Sun Exchange
gains a fee ranging from 5 to 25% of the value of each successfully funded solar
project, as well as a 2.5% annuity for each project’s loan period. Within its first
2 years of operation, the company has gained the interest of various investors in
more than 50 countries.
Powerledger is an Australian startup software company that offers a marketplace
for peer-to-peer renewable energy. The services offered include peer-to-peer trading,
carbon product trading, micro grid trading, electric vehicle settlement, and virtual
power plants. In addition, it provides installation of rooftop photovoltaic (PV) cells
and resells the energy to local consumers, which can benefit both households and
businesses. The company has complete control over the surplus energy, and pricing
is not bound by the retail price. Consumers who buy energy directly from their neigh-
bors benefit from clean, low-cost energy. POWR and Sparkz are the two tokens used
by Powerledger. POWR is a cryptocurrency that can be acquired through cryptocur-
rency exchanges, and the consumers must participate in the platforms’ activities.
POWR tokens are also used to compensate prosumers who generate electricity (with
a preference for renewable energy sources) and consumers who buy electricity from
the platform. Sparkz purchases are made in fiat currency, whereby one Sparkz is
equal to one unit of electricity and is used to pay for electricity. POWR can be traded
for Sparkz or used directly in peer-to-peer transactions, and Powerledger utilizes a
hybrid Ethereum public/consortium blockchain. The former is used for POWR token
operations, whereas the latter is the core layer, incorporating the processes required
for peer-to-peer trading, such as meter readings, Sparkz management, and payments.
Powerledger earns money by charging a fee for all peer-to-peer transactions.
WePower is a crowdfunding platform for renewable energy projects. It is head-
quartered in Lithuania, with offices in Australia, Estonia, and Spain. Investors can
invest in the expansion and development of renewable energy investment using the
WePower platform. This platform is a simplified investment process and low admin-
istrative costs can help generate higher expected return on equity. Energy prices
that are lower than traditional markets benefit energy consumers. Consumers can
be assured that they are purchasing green energy and benefit from increased trans-
parency. Excess energy can be sold using WePower’s blockchain-based platform. On
the platform, tokens are created to trade the energy generated (1 token = 1 kWh).
WePower has formed a partnership with a transmission operator, and is now legally
operating as an independent energy supplier that purchases and sells energy in the
wholesale energy market. Energy producers looking to fund a new project through
the platform can sell a portion of future energy to investors through smart contracts
for each token. Energy must be delivered at a specific time, and power purchase
agreements are established using smart contracts.
SolarCoin is a solar energy generation incentive program that focuses on the open
community project and is operated by volunteers under the auspices of the SolarCoin
Foundation. This foundation is a Delaware-registered US Public Benefit Corpora-
tion with 24 partners around the world. Solar PV owners receive one SolarCoin for
every MWh of electricity generated. This coin is tradable to purchase goods and
services from participating merchants or exchanged for fiat currency or cryptocur-
rencies on online exchanges. Income is also received as a regular feed-in tariffs or
net metering, and shortens the payback period for solar installation. SolarCoins, like
Bitcoin, operate on a public blockchain, but transactions are verified using solar
energy generation and proof-of-stake.
GREENEUM blockchain is a peer-to-peer smart green investment platform that
employs digital contracts and a consensus algorithm of artificial intelligence (AI).
This Israeli startup connects and optimizes the performance of energy market partic-
ipants. Producers are rewarded with GREENEUM tokens and certificates, and the
energy prices may be slightly higher because of the transaction fee associated with
each grid transaction. Consumers benefit from lower energy prices and can purchase
carbon credits through the GREENEUM platform. Utility companies can improve
their operations by gaining insight into additional energy consumption forecasts.
GREENEUM compensates them for distribution and service, and charges a validation
fee on each platform transaction.
14.4 Concept and Importance of Islamic Green Finance
A key component of Islamic green finance (IsGF) is green Sukuk (GS), which is
a Shariah compliant investment tool for achieving sustainable environment. The
investment scope of GS is linked with green bonds, climate bonds, and other bonds
that are designed for achieving environmental protection. The main objective of
emphasizing IsGF from the green bond market is to tap the financial resources of
investors who want to follow Islamic Shariah principles. Investing in IsGF is also in
line with the practices of Islamic ethics and values that uphold the protection of the
environment.
The term “green” is well matched with the principles of Sukuk for raising capital
to finance green projects. Islamic investors are motivated by Islamic values and
prefer GS over green bonds. In addition, the global Sukuk market, which has become
increasing popular over the past few years, can be converted to GS to complement
the global green bonds that stand at a value of US $2 trillion. Malaysia remains at
the forefront among Islamic countries since the introduction of GS in 2017 by Tadau
Energy to finance US $62 million in various solar energy-related projects. Since then,
many other countries have issued GS and the global GS market’s cumulative value
from 16 issuers reached US $8.8 billion, namely from Indonesia (40%), UAE (29%),
Saudi Arabia (16%), and Malaysia (15%) (Climate Bond Initiative 2021).
The global GS market has created a platform to finance projects related to
renewable energy (32%), low-carbon buildings (22%), low-carbon transport (14%),
sustainable water management (12%), waste management (5%), land use (5%), and
other projects (10%) (MIFC 2021). The large growing market for global GS has been
playing a greater role toward achieving the UN 2030 Agenda for Sustainable Devel-
opment. Along with the conventional GF, IsGF can be more effective by following an
integrated approach that can boost the growth rate of GS by financing green projects
with the objective of environmental protection and ecological balance.
14.5 Traditional Islamic Contract for Green Finance
In general, significant progress has been recorded for green projects since the Paris
Agreement was acknowledged by 194 countries and the European Union. It now
sets the benchmark for countries to undertake action to fight climate change, in
tandem with the global rise of the green agenda. Together with this initiative, other
environmentally friendly agendas were brought to mainstream concern with the goal
to achieve economic prosperity, supported by efforts to strive for social inclusion,
avoid environmental deprivation, and safeguard the natural ecosystem.
The “winner-takes-all” society breaks down social solidarity, erodes trust, and
creates barriers to social mobility for current and future generations. Islamic finance,
on the other hand, aims to provide an alternate perspective to the winner-takes-all
society by promoting an economy based on risk sharing, entrepreneurship, and a
shared prosperity. Islamic finance provides an option to the winner-takes-all society

and is one of the fastest-rising sectors in the financial industry globally, with assets
projected to reach US $3.8 trillion in 2022 (Thomson Reuters 2017).
A total of US $2.2 trillion is recorded as the aggregate investment in renewable
energy worldwide since 2010 (Frankfurt School of Finance and Management 2018).
According to Climate Bond Initiative (2017), the global green bond industry in 2017
reached US $155.5 billion of new issue in contrast to US $81.6 billion in 2016. In
addition, the annual investment in clean energy globally has increased by 3% from
2016 to US $333.5 billion in 2017. ISRA and UKIFC (2020) asserted that the value
of worldwide gross private sector financial assets is more than US $200 trillion. This
shows that the worldwide financial system has the potential of suitable scale, size,
and level of sophistication to fund sustainable growth. However, accessible funding
is not being utilized at the magnitude and pace needed to achieve the SDGs. Hence,
the projected value of financing to realize the SDGs in developing nations is around
US $2.5–3 trillion annually.
Financial resources are essential to execute the emerging green-related projects,
and Sukuk is designed to be the alternate catalyst for acquiring financial resources
in a Shariah-compliant manner. The fundamental nature of the Shariah-compliant
structure is similar to a green bond structure; that is, specifying the use of profits
and procedures to manage profits, and other attributes are based on the unbiased
intellectual views of Shariah scholars.
Examination of the distribution of total Sukuk issuance worldwide by Statista
Research (2019) in 2019 found that in terms of assets, the Sukuk issued in Malaysia
constitutes 36.8% of the worldwide Sukuk market in 2019. This was followed by
Saudi Arabia (14%), Indonesia (13.5%), Turkey (8.7%), Kuwait (7.2%), UAE (5.9%),
Iran (4.4%), Bangladesh (3.3%), Qatar (3.1%), Bahrain (2.4%), Brunei (0.5%),
Netherlands (0.3%), Oman (0.1%), UK (0.03%), and Gambia (0.01%). A total of
2164 Sukuk were issued by banks, sovereign issuers, diversified financial institutions,
real estate corporations, and other entities (Statista Research, 2019).
The global Sukuk issuance possesses a distinct framework whereby the struc-
ture is tailored in accordance with the classifications and usage of the financing
facilities. The dual features of Sukuk rank it as a feasible alternative in funding
sustainable development ventures (Aassouli 2016). First, the asset-backed feature
enables it to link with the real economy, broadening the reach of sectors accessible for
funding ventures that aim for climate change, access to clean energy, refugee matters,
women’s empowerment, minor farmers, education, and others. Second, Sukuk can be
arranged by employing single or hybrid Islamic contracts, such as Wakalah (agency),
Musharakah and Mudarabah (partnership), and Ijarah (leasing). The Ijarah concept
was popular in global Sukuk offerings from 2010 to 2015, equivalent to 35% of
total Sukuk issuance. From 2015, an exponential shift from Ijarah to Wakalah was
reported, representing 51% of global Sukuk offerings in 2017. In domestic markets,
Murabaha has traditionally remained the dominant structure, accounting for 63%
between 2010 and 2015, followed by Ijarah, amounting to 16% for the same period
(International Islamic Financial Market 2018).
Fig. 14.1 Green Sukuk issuing process (Source Securities Commission Malaysia and World Bank
Group 2019)
Figure 14.1 illustrates the process involved in the issuance of green Sukuk. Essen-
tial stakeholders include the Sukuk-holder, principal adviser/lead arranger, solic-
itor/trustee, and Shariah adviser. These stakeholders then work with the independent
expert in green agenda projects such as green power plant projects, green climate
transformation, and other environmentally friendly projects that can reduce pollution
and fossil fuel consumption.
Figures 14.2 and 14.3 depict the Sukuk structure based on Commodity Murabaha
sales. Figure 14.2 is an example of Islamic green Sukuk issuance for power industry
operation that generates electricity from solar energy. The total project cost for this
venture is estimated at 1.252 billion RM with the Sukuk issuance valued at 1 billion
RM in nominal value. Figure 14.2 also shows the parties involved in the ventures
such as the Sukuk-holders who appoint the Sukuk trustee (sale agent) as an agent
to purchase and sell the commodities. Then, the buyer (QSP Semenanjung) enters
into a sale agency agreement to execute the buying and selling of commodities with
the commodity trader (Bursa Malaysia Islamic Services Sdn Bhd). Pursuant to the
Commodity Murabaha agreement between the buyer (QSP Semenanjung) at point 2,
the Sukuk trustee (agent) and the sub-agent shall issue a purchase order to the agent
and the sub-agent with an irreversible undertaking to buy the commodities from the
Sukuk-holders via the sub-agent at the deferred sale price.
Figure 14.3 illustrates the Sukuk structure applied for real estate, renting, and
business activities, specifically for the construction of PNB Merdeka 118 tower. The
Sukuk was issued in 2017 with a facility limit of 3.65 billion RM and will mature
in December 2032. PNB Merdeka Ventures Sdn. Bhd. was the issuer that utilized
the Islamic concept of Wakalah (between Sukuk-holder and trustee) and Murabaha
sales, while MIDF was appointed as the lead/facility arranger and AmanahRaya as
their trustee/facility agent. Various sustainable features were intended under this
venture such as water efficiency, energy and atmosphere optimization, material
Fig. 14.2 Sukuk structure based on commodity Murabahah (Quantum Solar Park Sdn Bhd) (Source
Quantum Solar Park [Semenanjung] Sdn Bhd 2017)
Fig. 14.3 Sukuk structure based on commodity Murabahah (PNB Merdeka Ventures) (Source PNB
Merdeka Ventures Sdn Bhd 2017). Legends; 1. Appoint as Wakeel to act on behalf of Sukukholders.
2. Issue Purchase Order. 3a. Pay Purchase Price. 3b. Appoint the Commodity Trading Participant
to Purchase the Commodities on spot basis at Purchase Price. 4. Sell the Commodities on behalf
of Sukuk holders to the Issuer on deferred payment basis. 5. Issue Merdeka Sukuk Murabahah to
represent Sukuk holders’ entitlement to receive the Deferred Sale Price. 6. Appoint the Commodity
Trading Participant to sell the Commodities to Bursa Malaysia Islamic Services Sdn. Bhd
Fig. 14.4 Sukuk structure based on Wakalah concept (Source Dubai International Financial Centre
2009)
resource conservation, well-regulated indoor environmental quality, and sustainable

construction.
Besides Murabahah, other concepts in the issuance of Sukuk are available.
Figure 14.4 shows the sample operation of Sukuk structure based on the general
Wakalah concept. A key concept in this Sukuk structure is the agency concept
whereby the principal (issuer) entrusts the agent (SPV and trustee) to raise the finan-
cial resources. After issuing Sukuk certificates to the investors, in return, the issuer
will receive the Sukuk proceeds. Then the Wakalah agreement is signed by the agent
and the issuer/SPV. The agent then manages the investment of the Sukuk proceeds by
buying and selling a pool of Wakalah assets. Later, the return on investment is chan-
neled through the agent and SPV to the investors according to agreed periodic distri-
bution amounts. At the same time, the sale/purchase undertaking is placed between
the obligor and the issuer/SPV, which details the exercise price and the Wakalah
assets. Finally, the dissolution amount is detailed out between the issuer/SPV and
investors.
Figure 14.5 illustrates the operation of Sukuk based on the Wakalah concept by
Perusahaan Penerbit SBSN Indonesia III (PPSI-III). Wakalah is based on the agency
concept arrangement whereby the principal entrusts another party to act as an agent
on its behalf. In general, the investor appoints the agent, usually a fund manager, to
manage the Sukuk issuance for a certain period, and both parties agree on a certain
rate of return on the investment. The PPSI-III is a legitimate institution formed by
the Indonesian Government aimed to cultivate the issuance of Shariah-compliant
securities in foreign denominations. The underlying assets for Wakalah Sukuk
involve (i) state-owned assets such as land and buildings (51%), and (ii) project
Fig. 14.5 Sukuk structure based on Wakalah (Indonesia Sovereign Green Sukuk) (Source Perusa-
haan SBSN Indonesia III 2016)
Fig. 14.6 Sukuk structure based on Waqf model (Source Securities Commission Malaysia 2014)
properties that are under construction or going to be constructed (49%). The Sukuk
was issued in March 2016 at a value of US $1.75 billion, and will mature in March
2026 with a 4.55% profit rate (Perusahaan Penerbit SBSN Indonesia III 2016).
Another concept based on charity is the application of Waqf apparatus. As an
example of Waqf Sukuk issuance, Fig. 14.6 shows the Majlis Ugama Islam Singapore
(MUIS) initiative for the Bencoolen Street development. The process begins with the
agreement of Musharakah between MUIS (Baitulmaal), Warees (professional fund
manager), and MUIS (Waqf ). This is followed by the issuance of Sukuk Musharakah
with a value of US $35 million to investors. Finally, once the proceeds are realized,
they are used for the Bencoolen redevelopment project and channeled to MUIS
(Baitulmaal).
14.6 Literature of FinTech, Digital Currency and Islamic

Green Finance
As highlighted in the previous section, FinTech and digital currency are rapidly
growing in providing sustainable financial solutions related to green finance. They
provide various advantages in promoting the agenda of inclusive and sustainable
financial solutions. FinTech and digital currency assist in assimilating financial
decisions together with environmental protection, and supporting environmentally
friendly business models. The incorporation of advanced technologies such as artifi-
cial intelligence, smart contracts, and blockchain applications has helped investors to
redirect their investment portfolios into economic activities that bring a good balance
between economic, environmental, and social objectives. This is to promote the well-
being of humanity and to mitigate climate change, biodiversity loss, and inequality.
Given its potential and rapid development, Islamic green financing can leverage the
use of FinTech and digital currency in enhancing its role to support environmental
protection and environmentally friendly business models. Indeed, by leveraging its
potential, it can tap into the power of finance and technology to help create a more
sustainable planet.
IsGF is a fast-growing sub-sector of Islamic finance that is contributing to
sustainable economic development across the globe, particularly in Islamic coun-
tries. Despite its fast growth, the gap between demand for and supply of IsGF is
also widening because of the diverse nature of green projects in recent times. The
increasing demand for IsGF remains unmet by the existing mechanism, whereas
conventional green finance has experienced exponential growth over the past few
years, catapulted by the adoption of FinTech. The huge demand for GF projects
provides an opportunity for IsGF to utilize the innovative tools of FinTech/digital
currency as the impetus for financing green projects. There is a need for an inte-
grated model that combines FinTech/digital currency with Islamic green financing
instruments such as green Sukuk. This triangular approach is expected to foster the
success of green projects by achieving the efficiency and effectiveness of IsGF.
Literature on FinTech and Islamic financial institutions is growing rapidly and
this indicates that the innovation for the financial institutions helps in widening the
financial inclusion to a broader spectrum of customers. Although FinTech is still in a
pioneering stage, the utilization in the context of the Islamic finance industry is quite
significant, particularly in the development of Shariah-compliant financial products
that are increasingly becoming more competitive compared to conventional financial

products. Although FinTech is not entirely comparable with Islamic products, the
emergence of FinTech furnishes Islamic financial institutions with a better framework
to capture the opportunities, product offerings, and infrastructure development (Jamil
and Seman 2019). The literature about FinTech in the Islamic finance sector shows
increasing momentum, looking into its various dimensions (Biancone et al. 2019;
Jamil and Seman 2019; Abojeib and Habib 2019).
Interestingly, Baber (2019) reported that unlike crowdfunding services, FinTech
did not contribute to customer retention, especially in Islamic banks in Malaysia and
UAE. However, Aisyah (2018) showed that Islamic FinTech contributes significantly
to increasing customer loyalty for Indonesian banks. FinTech firms play an important
role to ensure the business models are compliant with Shariah rules and regulations,
and this is crucial for the integration between FinTech and Islamic finance. As such,
auditing is conducted annually and this augurs well for increasing customer loyalty
in Indonesia. Biancone et al. (2019) argued that some of the Shariah-compliant
crowdfunding business models do not fulfil the Shariah rules because the element of
interest is involved in the investments of the businesses.
In another study, Biancone and Radwan (2019) emphasized the importance of the
prohibition of interest for FinTech and Shariah-compliant business models. With this
arrangement, FinTech subsequently leads the IFIs to be transparent by creating a good
linkage between customers and the investors from the beginning of the project. Bouri
et al. (2017) reported that Bitcoin remains a good hedge option for diversification
purposes, which is similar to stocks, bonds, gold, and other commodities. This claim
has been criticized by Dorfleitner and Lung (2018), who argued that cryptocurrencies
are considered as investment tools rather than a payment mode, and most cryptocur-
rencies are held as a portfolio diversification mechanism by investors; the risk and
return for such currencies are volatile, especially on weekends. Cryptocurrency-
based economies with an increasing number of crypto asset investors will lead to
new ways to raise capital to fund blockchain-based projects.
A new mechanism to raise funds from public investors for new companies and
startups is by selling tokens. A token refers to a record in the blockchain or other
distributed information system that certifies the ownership of a particular asset. The
mechanism of selling tokens is also called the initial coin offering (ICO) (Demidenko
et al. 2018). Most of the time, an ICO starts with the announcement of projects to
be financed and the requested marketing activities. According to Momtaz (2021),
ICO concepts present new business proposal ideas to the public. These are explained
thoroughly to the public via white paper, target funds, and tokens that will be chan-
neled to the subscribers at pre-determined exchange rate when the cryptocurrencies
are set out. The market for the ICO at the pioneering stage is relatively small but has
the potential to expand incrementally.
Existing literature on FinTech mainly focuses on Bitcoin and its prohibition by
Shariah rules. According to Shaykh Shawki Allam, the grand Mufti of Egypt, most
activities related to Bitcoin do not comply with Shariah rules (Abubakar et al. 2018).
This view is consistent with fatwas in Turkey and Palestine, which stated that a
transaction involving electronic currencies does not comply with the Shariah rules
and it is subjected to excessive speculation (Gharar). One of the main weaknesses

of Bitcoin is a lack of monitoring whereby it is difficult to track the details of the
issuers, making the system undependable and defective. The FinTech using Bitcoin
fails to clear the test of intrinsic value because it is not backed by real assets and is
created out of nothing.
On the other hand, some literature claim that FinTech and cryptocurrencies are not
against Shariah rules and argue that its volatile exchange rate is the main reason for
speculation that leads to excessive risk (Gharar) and speculation (Maysir). Thus, the
elimination or adjustment of the Bitcoin exchange rate can lead to Shariah compli-
ance. For example, if the allegation that Bitcoin and FinTech are used for illegal
activities is removed, they can be considered as Shariah compliant (Abubakar et al.
2018), and this can be done by applying blockchain-based solutions and tight moni-
toring. According to Kahf (2015), transactions using FinTech and cryptocurrencies
are good for society because they eliminate the risk of exchange rate fluctuation and
can overcome the speculation problem.
A triangular approach that blends FinTech, digital currency, and IsGF is expected
to increase the capital flows and fulfil the financing requirements for diverse green
projects. It is also expected that this approach will play a significant role in safe-
guarding the future IsGF industry, in competition with conventional green finance
industry. This triangular approach can contribute to the 2030 UN aim of sustain-
able development. Adoption of this approach will be a key to future success of
the IsGF sector because it can: (a) foster economic and environmental benefits, (b)
gain global competitiveness through efficiency and productivity, and (c) increase the
flow of information with adequate analytical capacity. This approach is expected
to create additional support by increasing the capital flow for green projects and
enable sustainable economic development. In addition, Islamic financial institutions
will also gain global competitiveness by adopting this approach through increasing
efficiency and productivity of green investments. This approach is expected to miti-
gate the problem of information asymmetry and enhance the analytical capacity to
make long-term and short-term investment decisions. Based on the literature, it is
evident that there is an increasing number of published articles and books related to
Islamic FinTech. However, very few studies relate FinTech and digital currency to
Islamic green financing. In addition, the present Islamic green financing contracts are
mainly based on a traditional framework. At the same time, the efforts in the industry
to embrace the FinTech and digital currency wave have yet to integrate these prac-
tices into Islamic green financing. This section fills this gap through an explorative
study and develops a seminal model for Islamic green financing providers to integrate
FinTech and digital currency.
14.7 Proposed FinTech and Digital Currency for Islamic

Green Financing
Currently, most contracts used for the Islamic green financing projects are based on
a traditional framework. The efforts in the industry to embrace FinTech and digital
currency have not been successful in integrating FinTech and digital currency into a
viable model that utilizes the latest financial technology.
Efforts to support environmental protection and environmentally friendly business
models face an infrastructure investment gap. This is where FinTech and digital
currency can emerge to fill the gap and become a viable solution for Islamic green
financing. In fact, FinTech and digital currency further support the development
of financial infrastructure by creating new markets and trading systems for green
financing. They connect the public and private financial systems with sustainable
development, in which Islamic green financing industry players are lacking. Both
systems can integrate financial decisions with environmental protection and support
environmentally friendly business models by focusing on clean energy, improved
water and air quality, disposable plastics, and other green activities. In addition, they
can help investors access asset management companies selling green and sustainable
investment products.
This section highlights the proposed FinTech and digital currency for Islamic
green financing and its modus operandi. Figure 14.7 shows the proposed framework,
where FinTech and digital currency aim to be integrated into Islamic green financing
and bring significant impact focusing on sustainability considerations and long-term
positive impacts.
Fig. 14.7 General

framework of integrated
FinTech and digital currency,
and Islamic green financing Islamic
Green
Financing
Fintech &
Digital
Currency
Integrated Smart Contracts

Green Based Activities:
1 3
Sukuk-based
Renewable energies contracts
2a 2b
Building/Housing Debt-based
Transportation/Mobility Equity-based
Fintech & Digital Investors
Telecommunication Digital Ijarah-based
Currencies Charity-
Electricity/Water Currencies
Agriculture/Forestry Platform based
Healthcare
Other infrastructures
Fig. 14.8 Proposed model of integrated FinTech and digital currency for Islamic green financing
Figure 14.8 provides detailed explanation of the general framework. Based on

the traditional contract explained earlier, Fig. 14.8 shows an integrated model for
Islamic green financing after taking into consideration the roles of FinTech and
digital currency. In the first step, contracting parties create messages that contain
valuable information related to the nature of the projects (e.g., green-based projects
such as renewable energies, building/housing, transportation/mobility, and others)
to the firms, which are based on FinTech and digital currency. This firm will play a
significant role by engaging with the issuer and investors.
Over-reliance on the traditional way of raising funds has created a financing gap
between industry players and investors of green financing. Hence, FinTech and digital
currency become important entities to connect the issuer and investors. In steps 2a
and 2b (Fig. 14.8), contracting parties will engage through integrated smart contract
transactions. In this step, traditional Islamic contracts, particularly Sukuk, will be
integrated and issued using instruments such as digital currencies in the form of
blockchain, tokens, coins, or crypto assets. These instruments are asset-backed (based
on green-based projects) and are linked with Sukuk. The nature of Sukuk also depends
on the type of contracts used, namely, debt-based (Murabahah, Tawaruq), equity-
based (Mudharabah, Musharakah), lease-based (Ijarah), or charity-based (Waqf ).
The firms that are based on FinTech and digital currency will perform the trans-
action authentication to ensure that the transactions of the contracting parties are
valid and fulfil Shariah principles. Using their platform, the firms will act as service
providers to ensure and validate the green-based projects commercially and techni-
cally, market them as investment opportunities, and arrange the relevant agreements.
Through the issuance of Sukuk, the investors can purchase Sukuk as part of their
investment and earn investment return. Investors can choose their portfolio based on
their interest and personal preferences toward maximizing return or benefitting the
community.
14.8 Significance and Challenges of Proposed Integrated

FinTech and Digital Currency for Islamic Green
Financing
The utilization of FinTech and digital currency can provide significant impact by
offering specific solutions for pressing ecological and social challenges. For this
reason, FinTech and digital currency are expected to continue to gain global impor-
tance. Demographic changes, urbanization, globalization, lack of resources, and
climate change have become major driving forces of green technology adoption.
FinTech and digital currency have the potential to minimize the financing gap that
can be leveraged by Islamic finance industry players and help transform the society
toward a green economy. The proposed model shows that FinTech, digital currency,
and Islamic green financing can complement each other. Islamic industry players
need to revamp their traditional way of transacting for green financing and absorb
the significant impact of FinTech and digital currency to enhance the viability of
Islamic green financing. Thus, from a broader perspective, the proposed model can
bring a significant impact in various perspectives.
Using FinTech and digital currency will enable Islamic green financing industry
players to save time and costs of issuance. They also can help to establish a harmo-
nious relationship between the issuer and investors. FinTech and digital currency can
replace various parties in the Sukuk process. By using the so-called smart contracts
for Sukuk, it brings greater transparency and reduces the risks for issuers, investors,
and underwriters, because other parties such as brokers and listing agents can be
removed from the process. This can significantly reduce the role of traditional banks
in managing investor relationships.
In addition, FinTech and digital currency will assist Islamic green financing
providers to achieve efficiency in the settlement process. For instance, FinTech
and digital currency smart contracts can assist in performing two-way transfer of
value and assets without the need for a separate settlement process by transfer-
ring a digital asset (green-based activities) in exchange for a token or a security.
Blockchain, tokens, and coins in a Sukuk can indicate the maturity and settlement
values between investors and issuer automatically and thus removes intermediaries
and the manual process. Furthermore, using smart contracts can also facilitate the
dividend distribution. However, Sukuk is a complex instrument with many elements
such as profit rate, term, risk rating, and other features. In addition, Sukuk is usually
sold to investors through brokers or over the counter on secondary markets, which
require tedious paper review process. Engaging FinTech and digital currency in Sukuk
issuance simplifies the bidding process and the issuance and distribution can be fully
automated. Furthermore, green financing instruments using blockchain and smart
contracts can remove human oversight and financial fraud.
This chapter also highlights the challenges that would be faced by the proposed
integrated model. Among them are IT infrastructure, human resource development,
educating issuers and investors, security features, and the role of the third party.
To implement this integrated model, a good IT infrastructure is needed to support
and improve communication, create efficiency, and increase productivity. Without

proper IT infrastructure, this integrated model would face connectivity, productivity,
and security problems. There is also a need for effective human resource development
to materialize the proposed model. Presently, many green finance providers indicate
that their human capital is not properly trained to handle disruptive technologies.
Therefore, they will need to be trained to keep abreast of the development in FinTech
and digital currency toward green financing.
In addition, there is a need to educate the issuers and investors about the new
products or services. Generally, issuers and investors are conservative, but when they
realize that the new products or services are simple to understand and cost–benefit
effective, they will quickly accept and adopt them. Therefore, aggressive campaigns
and advertisements about the good features of FinTech and digital currency need to
be made to the issuers and investors, focusing on the advantageous and incentives of
migrating to the new products and services.
Meanwhile, security features will also become a concern for issuers and investors.
Although the technology promotes transparency, there are reported cases of fraud
involving FinTech and digital currency. Thus, enhancement of security features is
needed for this model. Similarly, the involvement of a third party is also becoming a
concern, given the fact that smart contracts are normally irrevocable. Therefore, the
role of third-party arbitration is paramount in this model.
14.9 Conclusion and Preliminary Policy Recommendations
Advancements in technology and FinTech in particular have affected the Islamic

finance industry in the areas of Robo-advisory, sandboxes, payment systems, and
investment. Despite this progress, the applications of Islamic green financing using
FinTech and digital currency are limited, resulting in a need for proper and viable
integrated business models.
This chapter has developed a model for the integration of FinTech and digital
currency for Islamic green financing. FinTech and digital currency offer great oppor-
tunities for more efficient Islamic green finance markets by diversifying investors’
portfolios, increasing investors’ confidence, and reducing transaction costs. Adop-
tion of the proposed model will enable Sukuk to tap into and create new markets at
both ends of the investment pipeline. Indeed, its applicability can help in promoting
the development of new technology and recast existing ones. This area provides
large untapped opportunities for Islamic banking and finance, allowing resources to
be directed into this segment and carving a niche market for Islamic finance.
Preliminary policy recommendations for the proposed model are:
• Development of FinTech and digital currencies
Policymakers must keep abreast of the current development of FinTech and digital
currencies. This is vital because these sectors are progressing rapidly with various
initiatives that are directly and indirectly related to green finance and SDGs.
Several interventions are required at the early stage for FinTech and the support
system such as better policy and regulations that are embedded in the business
model. This can reduce the cost and improve the prospect of achieving the SDGs,
and subsequently improves the transparency, financial inclusions, property rights,
renewable energy, carbon credit trading, and climate finance accessibility.
• Progress and active engagements
Policymakers must work closely with FinTech companies because the field is
rapidly developing, especially during the pandemic period, in tandem with the
real economy. Policymakers must keep pace with the changes that are taking
place because FinTech implementation is going to produce new opportunities
that are essential for global financial, economic, and technological development
within the realm of complex and decentralized networks. With good progress and
engagements, FinTech is going to be a true game changer in providing oppor-
tunities to improve green finance for low-carbon, climate-based investment and
achieving the SDGs.
• Shariah regulations
Online dispute resolution is a key aspect in the ongoing implementation of FinTech
in Islamic financial services and products. Our proposed model is governed by
Shariah rules and regulations, whereby it must comply with this rule to ensure the
processes and outcomes are in line with the principles of Islamic finance trans-
actions. However, the integration between FinTech and Islamic finance requires
further study and scrutiny, particularly on Takyif Fiqhi, focusing on the peculiari-
ties of FinTech and its role in disruptive innovations. This matter has been recently
proposed by the Dubai Financial Services Authority whereby they incorporated
this regulatory aspect in introducing Islamic crowdfunding.
Acknowledgements This work was financially supported by the International Islamic University
Malaysia (Grant ID: KENMS-RG21-010-0010).
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Chapter 15
A Framework for Digitizing Green Bond
Issuance to Reduce Information
Asymmetry
Keun Jung Lee and Hong Jeong
Abstract Green bond issuance is a highly technical and challenging procedure

involving many parties with conflicting goals. In this chapter, a framework for
digitalization of green bonds is provided. We propose a blockchain-enabled green
bond-issuing platform that will provide an adaptive and efficient system that lowers
intermediary costs by reducing information asymmetry and facilitates compliance,
scalability, disclosure, and security by increasing transaction transparency. We
utilize a separate smart contract to integrate forensic services within the smart
contracts designed to adapt bond issuance operations to a blockchain-enabled
framework and recommend the use of smart contract technology in blockchain
environments to cope with the agency problems and risk aversion of the main
players in green bonds (green bond issuers, green bondholders, validators, and
regulators). Participants in the green bond market can use smart contracts to increase
transaction transparency and avoid the problem of moral hazard (overbilling,
fraudulent environmental–social–governance activities, and misappropriation of
funds). We believe that the proposed architecture could be of significant value to
researchers and practitioners in the financial domain. Further research is needed to
identify barriers to blockchain adoption as well as its main vulnerabilities.
Keywords Green bonds · Blockchain · Asymmetric information · Sustainable

investment · FinTech
JEL G23 · G15 · O16 · O18 · Q01
K. J. Lee (B)
School of Business and Logistics, Inha University in Tashkent, Tashkent, Uzbekistan
H. Jeong
School of Information and Computer Engineering, Inha University in Tashkent, Tashkent,
Uzbekistan
https://doi.org/10.1007/978-981-19-2662-4_15
310 K. J. Lee and H. Jeong
15.1 Introduction
A green bond is a fixed-income instrument created to fund initiatives with benefi-

cial environmental and climatic impacts. Like conventional bonds, green bonds are
financial instruments whose issuer offers a contract providing repayment at a certain
interest rate (Sanderson 2018). Green bonds have become more popular since 2010.
Even though they account for just 2% of total bond issuance globally, they are
nevertheless regarded as an essential financial tool because they enable sustainable
investment for a wide range of institutional investors (Foster 2019). Transitioning to
a low-carbon economy demands a massive capital shift away from carbon-intensive
systems and processes and toward net-zero models across all sectors. The global total
of US $1 trillion in green investments was achieved in December 2020, more than a
decade after the first green bond was issued in 2007. In addition, total annual green
investment (green bonds, green loans, and green Sukuk) hit a new high of US $297
billion in 2020 (Climate Bonds Initiative 2021).
In particular, green bonds are essential for funding environmental projects using a
low-carbon financing strategy (Reboredo 2018). Sartzetakis (2020) sees green bonds
as a crucial tool for the world’s transition to low-carbon economies, notably attaining
the UN’s 17 Sustainable Development Goals (SDGs) by 2030. The bonds adhere to
the Green Bond Principles proposed by the non-profit International Capital Market
Association (ICMA 2018). The revenues from their issue are to be utilized for pre-
specified categories of projects.
To encourage a low-carbon transition and align their economies with the Paris
Agreement and the 2030 Agenda, countries throughout the world must urgently
increase their investments in sustainable infrastructure, particularly renewable energy
infrastructure. The International Monetary Fund recently predicted that extra yearly
public investment in infrastructure, low-carbon technology, and other sectors will be
more than US $20 trillion over the next two decades to meet the SDGs. According
to the Climate Bonds Initiative (2020), the total market value of green bond issuance
from 2007 to 2019 was US $754 billion. For comparison, the global bond market (as
of August 2020) was worth roughly US $128.3 trillion (ICMA 2018).
Green bonds provide investors with the satisfaction of knowing that their money
is being put to good use and the opportunity to make large financial profits. Recent
research has found that issuing green bonds benefits a company’s current shareholders
(Tang and Zhang 2020). Corporate issuers especially benefit financially, and this trend
continues in the secondary market (Gianfrate and Peri 2019). However, increasing
green awareness among investors and governmental tax-based incentives is required
to scale up the green bond market (Agliardi and Agliardi 2019).
The impact of corporate social performance (CSP) disclosure on the spread of
new corporate bonds issued in the US primary market was studied by Ge and Liu
(2015), who find that firms disclosing favorable CSP reduced bond spreads. Insti-
tutional investors utilize the notion of environmental, social, and governance (ESG)
activities to evaluate a company’s corporate social responsibility (CSR) performance
(McGuigan et al. 2017; Ruggie and Middleton 2019). The lack of environmental
15 A Framework for Digitizing Green Bond Issuance … 311
information disclosure by borrowing businesses, on the other hand, hinders investors

from knowing the true environmental impact of a project and increases search costs,
decreasing investors’ interest in ESG initiatives (Fosse et al. 2017). In terms of a
company’s financial status, information asymmetry has an impact on a company’s
investment policy. As the ESG projects, when it is difficult for purchasers to get
information to verify the long-term viability of a product or a company’s behavior,
information emerges. Buyers do not obtain the products they paid for when a bond
issuer offers false information regarding its ESG operations.
In light of this, this chapter discusses how blockchain-based solutions can help
mobilize domestic resources for long-term investments while also improving infras-
tructure project implementation throughout the lifecycle by streamlining processes
and increasing transparency. We propose using blockchain-based project bonds to
raise funds and to record and certify the use of proceeds, sustainability impact, and
revenue streams of projects using a combination of timestamp, public and private
key mechanisms, and smart contract technologies.
Blockchain technology has been viewed as a catalyst for accelerating the transi-
tion to a low-carbon, sustainable, and climate-resilient economy, therefore meeting
the goals of the Paris Agreement. By improving the traceability of overall issuance
procedures and enabling the verification and auditability of applicable criteria,
blockchain technology is projected to ease green bond issuance processes. Further-
more, blockchain technology is projected to make it easier for many stakeholders
to comply with and enforce various climate-related laws and financial regulatory
frameworks cheaply and in a timely way (Zhang et al. 2018).
For example, the Commonwealth Bank of Australia (CBA) Blockchain Centre of
Excellence built the World Bank’s Bond-i blockchain platform. Our proposal makes
use of this experience of the CBA’s blockchain team, which has spent a significant
amount of time evaluating and using blockchain in capital markets. In principle,
blockchain and distributed ledger technology will provide for the safe storage of
information in a completely traceable and immutable way. This infrastructure has
the advantage of allowing individuals to bypass traditional intermediaries in their
transactions, thereby lowering or eliminating extra expenses. Another benefit is that
it streamlines transactions and improves transparency, both of which are critical in
the financial sector.
The COVID-19 pandemic is also presenting a compelling argument for digitizing
bond issuance using blockchain technology. Companies have made persistent efforts
to acquire funds to stay afloat throughout the pandemic, but the issuance process
has been delayed because of the use of antiquated technologies. This suggests that a
significant technology shift (smart contract) is required to normalize the issuing of
blockchain bonds. Smart contracts are a digital version of traditional contracts that
run on top of a blockchain network. A smart contract is a self-enforcing agreement
that comprises a set of rules and conditions that the parties to the smart contract
agree upon (An 2020). Once the predefined rules/conditions are satisfied, the smart
contract’s code is immediately executed. Users can utilize smart contracts to deploy
applications within a blockchain network, where they provide extra functionality by
enhancing transaction legitimacy, automation, and efficiency (Casino et al. 2019).
Our major objective is to create an adaptive and efficient system in the blockchain-
enabled system that minimizes intermediate costs and provides compliance, scala-
bility, confidentiality, and security against information asymmetry. Our framework
takes into account the numerous features and complexities of bond-issuing oper-
ations, as well as the unique requirements of green bonds. As part of the smart
contracts, we adapt bond issuance procedures to a blockchain-enabled architecture.
15.2 Literature Review
15.2.1 Asymmetrical Information in Conventional and Green

Bonds
Information asymmetry occurs when information is not equally and fully distributed
among individuals involved in the economic process (Fosse et al. 2017). Because
the parties have different interests and management has more information than
debtholders, shareholders cannot ensure that managers are always acting in their best
interests. The conflict of interest between management and shareholders/investors
can lead to suboptimal allocation of resources within the firm (Jensen and Meckling
1976). In particular, the conflict of interest between the shareholders and bondholders
arises with the possibility of default. Bondholders value a risk-averse strategy because
they do not benefit from higher profits, while stockholders are willing to take on more
risk and the potential for higher profits. If a risky project succeeds, the shareholders
will get all the profits, whereas if the project fails, the risk could be shared with
the bondholder (although the bondholder has the higher priority for repayment in
the case of bankruptcy than the shareholder). Because bondholders are aware of this,
they often put in place large, costly contracts prohibiting management from taking on
risky projects or simply demand a higher interest rate, increasing the cost of capital
for the company. To reduce these conflicts, management will take on less debt or
avoid risky projects.
A firm’s investment policy is affected by information asymmetry in regard to its
financial position. Adverse selection and moral hazard are two difficulties that might
arise as a result of information asymmetry. Adverse selection results from asymmetric
information prior to entering into a contract, whereas moral hazard occurs after a
contract is already established (Rauchhaus 2009; Waller 1993). In the context of
CSR, adverse selection arises when it is difficult or impossible for buyers to obtain
information to verify the sustainability of a product or a company’s behavior, while
moral hazard emerges when a firm provides misleading information about its CSR
activities and buyers do not receive the goods they paid for (Poret 2019).
Bondholders analyze and assess all the downside risks of green bonds, including
environmental hazards. This is all the more relevant for socially responsible investing,
because CSR leads to better credit ratings (Goss and Roberts 2011; Jiraporn et al.
2014) and strongly affects a company’s default risk reduction (Sun and Cui 2014).
However, no unequivocal conclusions have yet been reached on the positive relation-
ship between bonds and CSR (Magnanelli and Izzo 2017; Menz 2010; Stellner et al.
2015). Ge and Liu (2015) focus on the effects of CSP disclosure on the spread of new
corporate bonds issued in the US primary market and establish that firms reporting
favorable CSPs enjoy lower bond spreads.
ESG activities is a concept used by institutional investors to evaluate a firm’s CSR
performance (McGuigan et al. 2017; Ruggie and Middleton 2019). With regard to
green bonds, KPMG suggested that investors with a focus on ESG performance would
potentially invest in green bonds. Furthermore, as a growing number of investors are
starting to incorporate ESG factors into their investment decisions, ESG can help to
support the development of the green bond market. If information asymmetry restricts
buyers from assessing the quality of investment products, there is an opportunity for
the seller to propose and sell non-green products as green (Fosse et al. 2017).
Bond issuance is a highly technical and challenging procedure involving several
untrustworthy parties who often compete for goals (van der Wansem et al. 2019).
When it comes to bond issuance, the global bond market is now experiencing some
issues. For example, while capital-raising methods are similar across countries,
there are differences in market practice and applicable legal frameworks that regu-
late bond-issuing operations (International Organization of Securities Commissions
2019). Limited traceability and auditability are also major stumbling blocks in the
bond-issuing process. It is exceedingly difficult to track a person’s information to a
financial instrument because of the growing number of intermediaries (such as issue
agencies, paying agents, and “bill and deliver” agents) that hold records of financial
instruments in a central place. Bond returns are further limited by issuance expenses
(such as regulatory, certification, transaction, reporting, verification, systemic, settle-
ment, and back-office expenditures). The many operational and counterparty risks
involved with bond issuance include settlement failures, disagreements, conflicts of
interest (allocation conflicts), and reconciliation mistakes (International Organiza-
tion of Securities Commissions 2019). Finally, existing bond-issuing methods rely on
processes that are inefficient, manual, multi-step, time-consuming, and error-prone
(Shaikh and Zaka 2019).
Many authors address the characteristics and performances of green bonds, which
are a fast-growing financial instrument, by evaluating the main differences between
green and conventional bonds.
Zerbib (2019) focused on the yield differential between green bonds and identical
synthetic conventional bonds and found that the yield on green bonds is lower. Green
bonds have a small negative premium. The main determinants for the difference are
the rating and sector. Specifically, bonds with low ratings tend to have a greater
negative premium, which is neither risk nor market premium of bond. However,
Zebib mentioned that the quality of his data was a limitation of his study because
yield may not reflect the fair value of a bond because some of them are not frequently
traded.
Bachelet et al. (2019) used a procedure to match green bonds with their closest
non-green neighbor to examine the three main characteristics of bonds: yields,
volatility, and liquidity. Their findings suggest that the difference in yield could
arise from two main parameters: type of issuer (specifically issuer reputation) and
third-party verification of the greenness of the bond. However, their analysis of green
bond yield was not based on the issuing company’s CSR rating because the green
bond label is associated with the funded projects and not with the issuer type (HSBC
2016).
Hyun et al. (2019) found no significant difference between green bonds and paired
conventional bonds, but green bonds that obtain a CBI certification have a green
discount of around 9 basis points. In addition, institutional green bonds (Ehlers
and Packer 2017) may have a small negative premium and are very liquid, while
private green bonds have positive premiums but less favorable characteristics in
terms of volatility and liquidity compared to their closest non-green counterpart.
Moreover, the issuer’s reputation and third-party verification are the keys to reducing
information asymmetry, mitigating the greenwashing effect, and creating a more
convenient and favorable financing condition (Ehlers and Packer 2017).
15.2.2 Green Bonds in Blockchain
Multiple stakeholders in the conventional bond market find it difficult to track cash
flow, collect or offer real-time updates on development progress (the projects funded
by the bonds), or explain the impact of green bonds (Banga 2019). Despite the rapid
expansion of the green bond market, investors are concerned about transparency
(Kyriakou 2017; Linsell 2017; Santibanez et al. 2015). However, blockchain has a
lot of potential to assist in improving system transparency and capital traceability.
The use of blockchain technology in issuing green bonds may be divided into three
categories, according to the HSBC and Sustainable Digital Finance Alliance (2019):
i. A blockchain-based bond issuance platform could digitalize the whole bond
issuance process (structuring, issuance, and distribution).
ii. Converting manual reporting into data tokens will allow investors to commu-
nicate in real time and create a common asset history on the ledger for project
aggregation (transfer of ownership, payment, and settlement).
iii. Security issuance methods necessitate a large amount of data (such as records of
financial instrument holdings, contract conditions, and payment information),
which trusted third parties currently handle in a centralized way.
iv. People may use blockchain technology to produce low-cost green bonds and
sell them on particular marketplaces using security tokens. Smaller organi-
zations (such as medium-sized businesses or towns) will issue green bonds
without the requirement for banks to provide comprehensive services.
Smart contracts are used on the blockchain to automate transactions and improve the
stability and efficiency of the system (Peters and Panayi 2016). The legal components
can be included in code that is designed to list and apply conditions to every potential
transaction (Clack et al. 2016).
Smart contracts can help to mitigate asymmetric information risk. The bond-
issuing company can record bond issuance, registration, and certification information
in the blockchain network using blockchain technologies such as timestamps and
public and private critical systems, enhancing the credibility of projects (Cong and
He 2019). Blockchain can be used to fund infrastructure projects openly and manage
them after they are up and running, such as through metering and invoicing apps
(Downes and Reed 2020). Corporate bond issuance has also received special attention
from investors. Market participants are looking at adopting blockchain technology to
issue and trade corporate bonds, mainly to automate coupon calculation and payment
(Workie and Jain 2017).
15.3 The Framework of Green Bonds Issuance Based

on Blockchain Technology
The key characteristics of the bond market are: (a) standard repositories across
different untrusted players, (b) multiple additional charges by the central interme-
diaries, and (c) a time-consuming method for issuing the bond. Furthermore, the
requirement for processing transparency and bond chain of custody, particularly in
green bonds, necessitates a decentralized approach (Malamas et al. 2019).
We provide a green bond-issuing architecture that is enabled by blockchain. The
objective of the suggested approach is to build an adaptive and efficient system that
lowers information asymmetry costs. The technology also functions as a decentral-
ized authority that is transparent yet wholly controlled. The several features and
complexity of bond-issuing procedures and the unique needs of green bonds are
covered in our suggested framework. This section presents our framework and the
resources involved in the system and procedures.
15.3.1 Participants in a Green Bond Market
The green bond system incorporates various players, many of whom have conflicting
interests; as a result, the system must foster trust among them. Capgemini (2016)
described the following key actors in the green bond system. Issuers develop and
manage green assets and disseminate quantitative impact reports based on well-
defined measures and units. They are also capable of incorporating external audits
and evaluations. Issuers could be a bank, a company or a syndicate. Validators such
as green bond rating agencies are in charge of verifying impact reports at the project
and framework levels and ensuring that green pledges and green debt plans are
met. Investors develop investment portfolios, make investment discoveries, manage
assets, and keep track of asset impacts. Regulators ensure compliance and regulatory
control by overseeing the establishment of consensus. When misbehavior is detected,
the regulator has veto power and is permitted by the participants to terminate a
block formation. Regulators include legal counsel, government, and ESG- or CSR-
monitoring institutions.
We presume that the green bond participants have agreed to a blockchain-based
access policy implemented during transactions. Furthermore, each stakeholder acts
as a validator or issuer and maintains a node of the system. In addition, green bond
rating agencies or regulators engage in the process of issuing the bonds as external
observers.
15.3.2 The Process of Green Bonds Issuance
The blockchain-based issuing procedure is simple to comprehend and consists of a

sequence of stages. The bond is issued in a tokenized form in the first stage. In the
second stage, when an issuer approaches an investment bank, the latter will begin a
digital term sheet, which the issuer will sign. In stage three, individual single views on
the master book, which essentially consists of bids and orders from possible investors,
will be delivered to lead managers and syndicate banks. The issuer must submit KYC
information for investors so that they may be included in the bond blockchain in stage
four. As the agreement nears completion in stage five, transactions will take place.
Custodians or banks will function as token keepers during the settlement process,
transferring cash to recipient accounts according to the instructions. In stage six, cash
will be tokenized in the cash ledger to complete the transaction.
The process is as follows. First, a book-runner receives the mandate by a prospec-
tive issuer. Then they discuss the terms of the issuance, such as the type of bond,
adjusting the maturity, the number of coupons, and so forth. Finally, the book-runner
organizes the managing group (syndicate) and prepares to shape credit opinions about
the issue if an independent authority does not rate the bond. The announcement of
the issuance terms starts the book-building process. However, details about the bond
characteristics are defined in the origination phase and are released just before the
book-building starts. At the end of the book-building period, final terms are decided,
and the bond is priced.
15.3.3 Smart Contract of Green Bond
An important point when dealing with corruption perpetrated by fraud in transition

of business is using technology to avoid wrongdoing or reduce its impact. Contracts
are the main way governments transfer money to other organizations, including
private ones. According to economic principles, a contractual arrangement presents
an agency problem, which can have two consequences. The first is a moral risk
of a consequence caused by asymmetric information, which is the lack of ability
of the principal to observe and verify the actions of the agent. The second is an
incomplete contract caused by the difficulty the parties might have in considering all
the situations that might happen during the contract term. An incomplete contract can
also be caused by asymmetric information among the parties when one of them might
not have access to all information related to the contract. Therefore, all the parties
must have the information necessary to reduce the risks associated with contracts. The
lack of information can hinder trust among the parties as well as increase opportunity
for corruption.
Smart contracts can reduce asymmetric information because they are more open
than other types of contracts and self-executed, which means that once established
and in operation, their information is available to all parties. If one party is a public
organization, information about contracts is supposed to be available to the entire
society. Moreover, it is hard to change a smart contract because of its transparency.
Therefore, smart contracts may be used to enhance transaction transparency and
minimize overbilling in all government payments, given that contracts and bids are
familiar places for avoiding fraud and money misappropriation. In addition to the
increase in information access and transparency, the self-execution characteristic of
contracts can reduce the expenses of manual payments, the number of errors and
delays, and vulnerability to fraud and misconduct (Malamas et al. 2019).
15.3.4 Security of Green Bonds
A smart contract with a specified standard is used to produce the digital token. The
participants in green bond markets then perform the bond tokenization method. The
tokenization then describes the current state of affairs, using the Green Asset Wallet as
a security initiative that connects green bonds to the blockchain. Green bond issuers,
validators, and investors are the three primary participants in the system (see https://
greenassetswallet.org/technology). The issuer of a green bond offers information or
reports on the bond’s impact. The validator then verifies the information and generates
an account, which is double-checked by another validator before being published as a
trusted second opinion. This data access enables the investor to compare, choose, and
follow their investments. Even though it is still possible to submit false data, the data
would remain on the blockchain indefinitely, and validators or other stakeholders
would be able to identify erroneous information.
To adapt bond issuance procedures to a blockchain-enabled architecture,
tokenizing the bonds for green bonds issuance based on blockchain technology is
necessary. In previous attempts at blockchain use, investors used a digital wallet
to swap their money for tokens. The method concludes with reverse tokenization
(redemption), in which the tokens are exchanged for actual cash. The bond is ready
for tokenization once the system’s validators have validated the legal papers.
15.4 Digitalization of Green Bonds to Minimize

Information Asymmetry
The blockchain approach aims to eliminate middlemen while maintaining the sustain-
ability and legitimacy of the services provided. The blockchain-enabled framework
in Sects. 15.2 and 15.3 presents one of the most well-known applications of infor-
mation asymmetry in economics based on the principal–agent theory. Delegation
of tasks creates a principal–agent relationship between the project owner and the
contractor in green bond projects, where the principal (project owner) relies on the
agent (contractor) to do a job on the principal’s behalf.
As shown in Fig. 15.1, the connection between project owner (Issuer) and
contractor (Investor) is expanded to include their respective project managers (Valida-
tors and Regulators). The overarching principal is the project owner, while the others
are agents.
When it comes to the project manager, the contractor is the boss. Every green
bond initiative requires these four participants (Issuers, Investors, Validators, and
Regulators). It should be emphasized, however, that there is no contract between
the investors; the project stakeholders (the issuer is the project stakeholder) check
the contractor’s project manager’s performance, and the latter notifies the former of
the project manager. Validators’ actions are governed by two contracts apiece, but
their direct connection with one another is not. This connection is based, at best, on
Fig. 15.1 Participant network

the rules offered by professional organizations involved in project management and

similar disciplines. It is worth noting that, according to principal–agent theory, all of
the contract’s major actors are also governed by self-interest.
Blockchain is useful in bond issuing, but it is also prone to errors. A number of
technological problems exist, including how to incorporate blockchain into the regu-
latory system and what role legislation should play in ensuring no unexpected effects.
Most blockchain networks appear to require fundamental technical expertise and a
solid infrastructure setup to function properly. This means that, at the outset, a thor-
ough understanding of information technology as well as sound investing strategies
are necessary when setting up bond issuance in blockchain.
The adversarial character of the participants leads to a slew of functional and secu-
rity requirements, particularly in terms of procedural efficiency and inviolability. For
example, validators want to ensure that all procedures are carried out in accordance
with a predetermined policy, whereas investors require security that their investment
would contribute to green growth.
In this blockchain system, the participants are bond issuers, bond validators, and
investors. The blockchain system is driven by cybercurrency, data, and the code,
which is executed by the various nodes, such as participants as well as miners.
Specifically, there are three types of blockchain database applications: public, consor-
tium, and private. Anyone may read or contribute transactions and participate in
the consensus process in a public blockchain database. A consortium blockchain
database is governed by a predetermined set of nodes and consensus criteria. The
ability to read the blockchain can be made available to the general public or restricted
to a small group of recognized users. However, in markets with asymmetric infor-
mation, lack of transparency has consequences that go beyond basic technological
functioning, resulting in hidden information in the pre-contractual stage and hidden
action issues in the post-contractual stage (Akerlof 1970; Hellmann and Stieglitz
2000).
Following the network configuration shown in Figs. 15.1, and 15.2 shows the
principal–agent theory framework for green bond projects for up to four project
parties. The investors and stakeholders, surrounded by the principal and all the agents,
defines each network. The network structure, on the other hand, stays topologically
consistent throughout.
Figure 15.2 presents a framework for implementing blockchain technology in
green bond project management. Figure 15.3 depicts the relationships between the
major project members. During the green bond phase of the project, there are five
project participants: issuers, validators, investors, bond-rating agencies, and ESG-
rating agencies. The project validators and regulators are not included in the corporate
governance structure. Figure 15.3 assumes self-interest among all parties.
Figure 15.3 depicts the relationships between the three parties involved in a
project. Although they are not legally related, the project validators are monitored
by the project owner’s investors. However, the validators or the agency have no
contractual relationship.
In Fig. 15.4, even when there are just three project partners, the relationship
between validators and each rating agency (bond rating and ESG rating) demonstrate
Fig. 15.2 Principal–agent theory framework for green bond projects
Fig. 15.3 Principal–agent theory framework for green bond projects with three parties
Fig. 15.4 Framework for blockchain implementation: relationships between main project partici-
pants
that non-contractual connections begin to dominate contractual ones. In the case of

difficult projects that take a long time to finish, the project team becomes increasingly
autonomous from the project issuer and investors.
Blockchain technology has the potential to eliminate knowledge asymmetry and
foster more trusting connections among project participants. Blockchain technology
can assist in reducing information asymmetry resulting from the complexities of
green bond projects and the vast number of players involved. Blockchain is a
distributed, immutable, verified, secure, and pseudo-anonymous database (Bambara
and Allen 2018). It is a database (distributed file) with a specified data structure.
Blockchain networks can be open to the investors, allowing every investor to read
and write, or private, allowing only trusted members, such as validators, to read and
write (Heiskanen 2017).
In this case, the main goal is to reduce information asymmetry through fostering
trust among project participants. Communication protocols should establish and
sustain confidence among project partners from the beginning to the end of a green
bonds project. Blockchain technology may be utilized in communication protocols
to ensure that all project participants have access to all information shared between
them during the project’s lifespan.
The blockchain system is a robust framework for realizing Central Bank Digital
Currency for major countries, such as China, the USA, Japan, Korea, and the EU
countries. Likewise, the green bond system also can be realized with the blockchain
system. In this context, the greatest impact of blockchain is not its digital currency
but the smart contract capability. The blockchain ledger has evolved from a way to
keep transaction records to a way to program transactions. The blockchain system
is suitable for a trustless system because of its properties of transparency, security,
reduced costs, traceability, speed, and efficiency. Transparency is guaranteed by
decentralization in peer-to-peer networks, removing any information asymmetry.
Security is guaranteed by ledger immutability, which prevents malicious modification

by small-sized participants. Hash functions and asymmetric keys are the leading
programming technologies for ensuring security. Removing intermediate agents in
the supply chain results in reduced costs. Small fees are required for promoting
miners who build legitimate blocks with submitted transactions. The fees also enable
every party to trace every detail in the transactions they are involved in. Blockchain
addresses time-consuming transaction processes and automates them to maximize
efficiency and speed. It also removes human-based errors with the help of automation.
The digital ledger makes these advantages possible by providing a single place
to store transactions. In addition, the ledger has evolved to include the execution of
programming included in the transaction. The ledger has become a smart contract.
In this chapter, we propose a method of realizing green bond issuance with smart
contracts in the blockchain. We understand the Green Bond Smart Contract (GBSC),
which processes the contract code and distributes interest payments to bondholders
on a regular basis and par value payback when the bond reaches maturity. Forensic
services are deployed in a separate smart contract. In practice, as an example of DAPP
(Decentralized Applications), the smart contract can be programmed with many
programming languages, such as C++, Vyper, Solidity, JavaScript, Java, Golang, to
name a few (Ethereum.org 2021).
In Fig. 15.5, an issuer deploys the contract to the blockchain and becomes the
contract owner. The contract is open immediately after the contract deployment.
Investors purchase the bond and the bond transaction begins. Validators monitor the
state of the bonds. They intervene by saying whether the procedures are correct. All
the green bond system functions can be realized with the smart contract in Ethereum
and deployed on the public network. The contract code in blockchain technology is
the core in realizing this system and is characterized by the following properties. First,
each category of participants are the owners of their functions in the code. Issuers own
the functions of monitoring, information observation, performance, and investment.
Validators are characterized by the functions of monitoring and information. Investors
Fig. 15.5 Smart contracts in the blockchain-based green bond issuance

must execute functions for information, performance, and investment. Second, as

with any cryptocurrency, processing fees must be defined and provided to promote
transaction verification and block building by miners.
15.5 Discussion
The blockchain-enabled system’s numerous smart contracts reduce the total handling
of bond issuance operations while increasing automation and speeding up transaction
execution. As a result, issuance costs are reduced, and the self-executing features of
the smart contract ensure that all parties involved can trust one other. Transparency
in issuing green bonds may also be ensured using blockchain, making it a tool for
accelerating sustainable transformation. Aside from disclosure and transparency, the
proposed framework also provides substantial advantages in auditability of transac-
tion records that regulators can verify because of concerns about asymmetric infor-
mation and the agency problem. In addition, the entire green bond system takes
into account different regulatory compliance instruments and improves regulatory
bodies’ access to issue data. This system can maintain all bond issuance operations
and provide strong guarantees of integrity, increasing regulatory compliance while
avoiding opportunistic conduct on all sides.
Although blockchain is projected to play a critical role in the financial industry,
several challenges remain unresolved, including barriers to the wider implementa-
tion of blockchain-enabled green bond issuance frameworks. To comply with the
numerous legal requirements, regulatory frameworks must be modified to accom-
modate blockchain technology. There is currently a lack of regulatory clarity on
digital assets and tokens in the blockchain-enabled bond-issuing process (HSBC
and Sustainable Digital Finance Alliance 2019). The lack of uniformity is another
major impediment to blockchain implementation in the bond market. Given the
different operational and economic restrictions, the complexity of replacing existing
legacy systems and creating interoperability with current infrastructures should not
be underestimated when it comes to blockchain standards.
This study offers an efficient blockchain-enabled system for managing green bond
issuance. We used a set of smart contracts to automate the whole bond-issuing
process. The risks from climate change analytics are one of the most important types
of risk in green bond projects, and trust is one of the most effective methods to miti-
gate the risks from climate change analytics in terms of financial system hazards. The
lack of high-quality or readily available ESG data and analytics is the most significant
impediment to the widespread adoption of impact or sustainable investment. There
is a lack of uniformity in defining what constitutes green and sustainable practices

and openness in monitoring and reporting results.
Green bond issuers explicit about four key elements: the use of proceeds, the
process for evaluating and choosing projects, the management of proceeds, and timely
investor reporting.
The risk of the bonds themselves as opposed to the risks of the project the bonds are
funding. A scenario in which one party is more informed than the other and does not
have the same interests is known as information asymmetry. Owing to the complexity
of green bond projects and the number of participants involved, blockchain tech-
nology can help decrease information asymmetry. Utilizing blockchain technology
to create interconnected protocols guarantees that green bond project participants
can access all information shared during the project. The blockchain facilitates the
development of more trusting connections among project participants.
Thanks to blockchain technology and smart contracts, digitization can also consid-
erably cut upfront issuance and continuing administrative expenses, which have
limited access to traditional bond markets to more prominent issuers hitherto. Some
policy recommendations that will enable wider adoption of blockchain.
The proposed blockchain-enabled framework provides other substantial benefits.
It can increase efficiency in bond issuance procedures by simplifying ownership
registration and green bond investment (e.g., coupon bond) processing. The scala-
bility difficulties that plague large-scale blockchain systems are barriers to adoption
(especially to public blockchain networks). Block size, response time, and transac-
tion volume are examples of blockchain scaling concerns. As the network expands
and the number of users in various real-world blockchain applications grows, such
circumstances present significant difficulties for blockchain developers.
The adoption of transparency with the reduction of information asymmetry will
increase climate-related investments in green finance.
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Chapter 16
Role of Banks and Other Financial
Institutions in Enhancing Green Digital
Finance
Namita Vikas, Percy Venegas, and Sourajit Aiyer
Abstract Led by investor action, policies, and products, sustainable debt issuance
has seen traction in recent years, to reach a cumulative US $1.7 trillion as of 2020.
However, the flows still pale in comparison to the annual investment gap of US $5–7
trillion to achieve the sustainable development goals. The challenge lies in devising
ways to ensure that all the target beneficiaries can access capital at the right price
and terms. In addition, the perceived risks need to be mitigated, and impact needs
to be monitored using verified data. Inability to devise these ways leads to diver-
gence between finance flows and impact, dissuading greater mobilization of sustain-
able finance. Financial product intermediation using technology platforms can be
instrumental in bridging this gap to some extent to create an enabling ecosystem.
This chapter looks at how banks and financial institutions can do this by linking
finance, technology, and sustainability. This will promote green finance intermedi-
ation, enhance financial inclusion, and bring about green capital mobilization. The
chapter identifies the challenges and opportunities that banks may face, both on the
supply side and demand side, while working toward green fintech solutions. Apart
from secondary research and leveraging the authors’ industry experience, it incor-
porates primary interview findings. As the green fintech space grows, banks need
to position themselves favorably to ride the curve. This chapter seeks to find some
answers to help them take those decisions.
Keywords SDGs · FinTech · Green finance · Impact · Banks · Emerging

technologies · Financial institutions
JEL Classification I3 · O1 · O3
N. Vikas · S. Aiyer (B)

auctusESG, Mumbai, India
N. Vikas
P. Venegas
Economy Monitor, London, UK
e-mail: [email protected]; [email protected]
https://doi.org/10.1007/978-981-19-2662-4_16
330 N. Vikas et al.
16.1 Introduction
The Decade of Action has put in momentum the formulation and implementation of
several policies to achieve the sustainable development goals (SDGs). In response,
green, social, and sustainability debt issuances, driven largely by financial institutions
and governments, reached US $1.7 trillion on a cumulative basis as of 2020 (Climate
Bonds Initiative 2021). However, despite such efforts to accelerate green finance,
flows to the SDGs remain inadequate. This shortfall occurs in terms of quantum and
impact, in front of the annual financing gap of US $5–7 trillion (IISD 2019). Within
the gamut of climate-driven uncertainties, research shows climate change may be the
greatest long-run threat to financial stability, inflation, biological hazards, and human
productivity (Dmitrieva and Randow 2021). Considering this, more and more banks
and financial institutions (FIs) globally need to hasten strategic decisions to embed
environmental, social, and governance (ESG) and climate parameters into their risk
frameworks and credit decisions. This is required to accelerate green finance to the
desired quantum and impact (Dmitrieva and Randow 2021). A major solution lies in
bringing technology-led innovations into the financing ecosystem. This needs to be
done in terms of greening and digitalizing the financial products supplied by banks, as
well as the finance being demanded by the borrowers. In short, there is a requirement
to use green FinTech to promote “green finance intermediation,” both for investors
and companies.
Technological innovations in finance lead the discussion to FinTech. Led by star-
tups, the FinTech industry has grown rapidly in recent years (Soni 2021). Emerging
technologies are being leveraged to bridge access to a variety of financial needs like
credit, investment, and payment and protection solutions for a wide demography of
people across the unbanked, low-income, middle class, and high-income categories.
Banks are responding to the breakthroughs in technology (Hommel and Bican 2020),
but more initiatives are required to further the objectives of financial inclusion and
socio-economic development. Increased interaction between FIs and FinTech players
would provide fertile ground for the uptake of green finance, not just conventional
finance. At this juncture, it is important to state that this chapter defines “green” as
all financing activities that are aligned to meet the SDGs; that is, activities that aim
to combine returns along with impact.
Combining returns and impact brings the discussion to the issue of scalability
and measurement. This is a must if the financial system is to meet the vast invest-
ment requirements for the SDGs, especially with capital predominantly sourced from
private sector sources. The lack of robust monitoring and data-driven approaches
has translated into incongruity between impact and finance flows. This dissuades
private sector banks and FIs from looking at financing SDG-based projects. Large
datasets that are asymmetrical and lack transparency and consistency in definition
do not exude confidence in the bankers’ minds. This is a challenge whilst deter-
mining if the project being borrowed for is indeed using the proceeds for a green
outcome or achieving green impact. It may also act as an impediment to mobi-
lize investor interest to allocate their savings to SDG-oriented products offered by
16 Role of Banks and Other Financial Institutions … 331
the bank. Digital technologies within financing decisions are crucial to bridge such
gaps in data measurement, which can then offer the evidence to scale up from both
perspectives.
For example, blockchain ensures transparency, traceability, immutability, security,
and unique identification for projects (Casino et al. 2018), thus creating an ideal
solution for banks that are tightly regulated owing to their fiduciary duty. Artificial
intelligence (AI) and machine learning can help build predictive models for scenario
analysis. Big data helps in analyzing a wide range of data and identify relevant
metrics, which can be used to formulate forecast models. From an ESG lens, FinTech
can be useful in environmental assessment, data analysis, risk–benefit analysis, and
credit information (Xueqing 2021). These applications can be leveraged by banks
and FIs to connect relevant investment opportunities with investors, thus directing
more capital into the green ecosystem to combine impact and returns.
However, this process must occur in a methodical manner. Banks cannot adopt
an all-at-once solution; they must take a step-by-step approach. Primary research
conducted for this chapter suggests that instead of buying a startup outright, banks
should first develop partnerships with open-source platforms or niche providers.
This is essential to avoid clashing work-cultures or values and to avoid the arduous
process of developing in-house expertise. Apart from this, partnerships will enable
a process of experimentation, adaptability, and customization. All of these will aid
in serving a target financial need for a target demography; for instance, extending
more credit to small and medium enterprises (SMEs) (Abisuga-Oyekunle et al. 2020)
before making larger commitments in green digital finance. Such incremental efforts
or approaches may stand the test of time.
Apart from extending credit using digital channels for green outcomes, the
products offered by banks and FIs also need to ensure appropriate use of proceeds.
This will motivate depositors/savers keen to contribute toward a greener planet to
leverage those products. For example, innovations from FinTech startups need to
be embedded into traditional financial systems to facilitate green digital savings
(Puschmann et al. 2020). The Monetary Authority of Singapore has also stressed the
importance of harnessing technology, finance, and FinTech to serve a sustainable
purpose (R. Menon 2020). With FIs launching green fixed deposit products, the task
now is to add the technology enabler. Proper systems for measurement, monitoring,
and verification of data are integral to scaling this segment as well.
This situation raises questions for banks looking to integrate startup-led solutions
into their offerings. Do they acquire a startup or build it in-house? Do they hire
talent organically or buyout teams? Do they showcase the benefit or the technology?
Do banks need to create explainability of the technology? This chapter incorporates
primary interview findings to find answers to some of these questions from leading
industry practitioners.
In summary, initiatives to combine sustainability, technology, and finance provides
incredible opportunities to increase the uptake of green FinTech by banks and FIs.
Despite their old-guard attitude, banks are slowly embracing innovations. These
initiatives must seek to enhance the credibility of green financing via effective impact
332 N. Vikas et al.
measurement, both in terms of supply and demand of that finance. The green FinTech
phenomenon is growing and banks and FIs are in opportune positions to use this to
meet returns, along with the SDGs.
16.2 Greening of the FinTech Landscape
As the awareness of climate change improves, increased pressure from international

investors is driving market demand toward green initiatives. The appetite for green
assets, both real and financial, is on the rise. However, the enormous funding gap
cannot be bridged with the extant operations that rely on a formulaic and bureau-
cratic processing of funds (Marsh and McLennan Companies 2017). In this context,
FinTech innovation can help.
FinTech segments are emerging with sustainability innovations. Underlying tech-
nologies include AI, blockchain, cloud computing, big data, Internet of things, and
much more. Globally, banks and FIs, especially in Europe, the USA, and China, are
attempting to integrate FinTech and green finance to make SDG financing more trans-
parent, data-driven, efficient, and effective. Digital challengers, neo-banks, impact
investing, and enabling tech platforms are some of the segments that have increased
their focus on the green agenda by putting forth climate-conscious initiatives. The
Global FinTech Index 2021 shows that the USA, the UK, Israel, Singapore, and
Switzerland are the top five nations on the basis of the number and quality of privately
owned FinTech companies and the local business environment. It further reveals that
the digital push created by the pandemic has translated into new countries entering
the FinTech rankings. Five of these are from Sub-Saharan Africa alone (Findexable
2021). FinTech has reached the poorest regions in the world with two cities from the
Horn of Africa (Mogadishu and Hargeisa), one of the most vulnerable regions glob-
ally, entering the City FinTech Index in 2021 (Findexable 2021). With 700 million
people opening bank accounts for the first time between 2011 and 2014 (World
Bank 2015), FinTech services have been largely instrumental in facilitating financial
access. This is more pronounced in the Asian, Latin American, and African markets,
which have the largest proportion of unbanked people in the world (World Bank
2018). In essence, emerging technologies can boost a new generation of financial
services to create major developmental impact, and this phenomenon must be further
expanded in scope and depth.
For this to happen, FinTech companies need the right regulatory environment to
collaborate with banks. This will help bring green FinTech from the periphery into
the mainstream and earn the trust of people who often remain skeptical of digital
financial services. A shared vision of collaboration between governments, FinTech
companies, banks, and civil society is the need of the hour. This will help ensure
that the benefits of digital finance are extended to all sections of the society, and the
broader SDGs.
16.3 Challenges
While mainstream finance at banks and FIs is seeing uptake of digital technologies,
a disconnect remains between FinTech and sustainable finance (UN Environment
2018) because of a number of challenges. These need to be addressed.
Research suggests inadequate financing toward SDGs is not so much a result of
insufficient finances (Walker et al. 2019). Capital is available, including with banks,
but the mechanisms for the right beneficiaries to access it at the right price and terms
are lacking. This, along with the deficiency of ways to mitigate the risks perceived by
the investors, especially private sector capital, and measure the impact often create
an impediment. This in turn is largely caused by the non-availability of sustainability
data, or inconsistent recording, reporting, and a lack of consistency in the definition of
“green.” As a result, incidents of misrepresentation, inaccurate impact measurement,
and benefit fraud have been reported. The dearth of talent to comprehend insights
from this data is an added strain. As an example, lack of data records, transparency,
and accurate measurements has led to stagnant financing in biodiversity conservation
(Ang 2021). This is despite scientific proof that 25% of all flora and fauna species
now face the threat of extinction. However, lending based on fractured data is near
impossible, and, even if it does occur, it may lead to reputational and credit risks for
the bank or FI in question. A transparent, data-driven monitoring system needs to be
put in place. This is a key challenge hindering green FinTech uptake by banks and
FIs currently.
Aside from this, there is an ongoing debate on whether banks and FIs need to
acquire entire startup-led teams or grow in-house teams organically. While large
banks may have the wherewithal to set up teams to build in-house digital solutions,
small banks face challenges to do so (Fuscaldo 2018). The lack of enabling conditions
and a national regulatory policy adds to this challenge. While efforts from Singapore,
Switzerland, the EU, and recently China have led to the formation of special groups
to provide funds to enhance technology expertise toward green finance (International
Development Finance Club 2020), a lot more is needed. An extension of the FinTech
vs. bank debate is also about smooth inter-operability or operational integration
between the platforms of the two entities. This is a challenge because it can impact
customer experiences.
Another challenge exists with expanding the ecosystem of investors to comple-
ment bank financing and understanding how digital innovations can help make that
happen. Sustainable financing has largely bypassed developing countries (UNCTAD
2020), who need the most support. Apart from conventional banks, participation
of a range of asset owners (institutional investors like pension funds, insurance
companies; as well as endowments, philanthropies, high-income individuals, and
more) to unlock capital from the private capital markets is essential. Leveraging
digital technologies to rein in more types of long-term investors to complement
the banking network and achieve impact in long-gestation development projects is
another challenge facing the industry.
334 N. Vikas et al.
Research shows that it is nearly impossible to achieve the SDGs without mate-
rial financial inclusion (Klapper 2016). This is more so in low-income countries
where banks are the predominant source of financial services. For example, World
Bank data shows only 15% of adults in Sudan own a financial account. Government
programs aimed at enhancing social protection, livelihood, and employment, have
played a vital role in financial inclusion. This has translated into banking services
being adopted by ~69% of the global population (World Bank 2018). However, a
large proportion, especially women, of low-income communities, and informal sector
workers, remain unbanked. This is largely because traditional credit scoring methods
make them ineligible for banking services. Even in countries where bank accounts
have increased, financial inclusion levels in terms of banking activity/usage are not
at corresponding levels. In India, for example, under the Pradhan Mantri Jan Dhan
Yojana, the banked population reached 80% in 2017 from just 35% in 2011 (Abraham
2019). Despite this, data from India’s central bank shows very little improvement
observed on account usage (Reserve Bank of India 2018). This indicates that owning
a bank account does not equate to being financially included.
Here, technology innovations and digitalization can be used to create a mecha-
nism to develop newer ways of credit scoring for low-income populations. In this
manner, FinTech can be instrumental to drive actual account usage and activity where
80% or more people already have account ownership in India. Similar trends were
observed in countries like China, Thailand and Kenya (World Bank 2018). Along
with that, aligning SDG objectives to those accounts would marry digital and green
objectives with financial inclusion. One way of doing this would be to ensure credit
availability for SDG-aligned activities. However, such packages and operations are
associated with peculiar challenges and are difficult to design. The main challenge
is the absence of a classification system. In the absence of a taxonomy that creates
a consistent definition of what is green, or SDG-oriented, there is little guidance
for local banks and FIs in their capital allocation decisions. The lack of such a
standard unlocks scope for greenwashing by banks, investors, or other issuers of
sustainable debt. This has led to a criticism of the global ESG movement because
not everything termed as ESG is actually ESG in the true sense. Greening the finance
extended by the institutions, depends a lot on a consistent standard or classifica-
tion system in the market. Following the European Union’s EU Green Taxonomy
and ASEAN’s Green Taxonomy launched in 2021, India is also putting in place a
Sustainable Finance Taxonomy. However, these efforts would need to be combined
with conducive regulations for greater uptake of green FinTech, which remains a
challenge.
Token, a banking payment platform authorized by the German Federal Financial
Supervisory Authority, BaFin, opened capital access opportunities, especially for
small businesses. It democratizes the way people have been investing due to its
unrivalled API connectivity (Finextra 2021c). However, regulations around open
banking pose a challenge.
On similar lines, the Bond-I, or Blockchain Operated New Debt Instrument project
was developed by the World Bank and Commonwealth Bank of Australia to launch
the first public bond created and managed by blockchain. It was designed to test how
technology might improve the decades-old bond sales practices (CommBank 2019b).
However, the biggest issue stemmed from the lack of conducive regulations, which
made the bond expensive even though the technology has been white-labelled. Such
examples serve as testimony to how developing the enabling policies and regulation
remains a fundamental task for green FinTech adoption.
Microfinance institutions offer low-hanging fruit in terms of combining digital-
ization with social objectives. Defined as “the supply of financial services to poor and
low-income households and their microenterprises, microfinance institutions offer
financial tools such as savings, credit, leasing, insurance, and cash transfers” (FAO
2005). The challenge is that the microfinance model is extremely operationally inten-
sive, making it expensive and susceptible to data inconsistencies. In many countries,
microfinance institutions still visit homes to evaluate the collateral value for sanc-
tioning loans. Digitalizing these operations to reduce operational intensity and costs
is a challenge. Moreover, small-ticket loans make lending operations more expensive.
This challenge can be extended to SMEs as well, despite their prominence and rise
in developing countries. Banks are the predominant source of debt finance for SMEs
in such countries. However, the banks are often observed limiting their exposure
to SMEs due to the risks and barriers to growth. Apart from the size of small-
ticket loans, the risks include relatively higher costs of servicing and transaction
costs, limited ability to provide immovable collateral, and the inability to verify
the creditworthiness of applicants for longer historical periods. Therefore, despite
their immense potential (UNDESA 2020), the accomplishments of SMEs toward the
SDGs have been limited with hardly any evidence of SME contribution to the 2030
Agenda (Rubio-Mozos et al. 2019). Using traditional tools to reduce their cost of
capital, improve credit access and terms, ensure better monitoring, and understanding
of their sectoral risks by financiers poses a major challenge.
16.4 Opportunities
In a world where emphasis on digital financial inclusion and sustainable development

is growing, green FinTech can be ideal to combine these goals and achieve returns
with impact. As major banks and FIs holding trillions in assets begin aligning them-
selves with net-zero initiatives, the future of green digital finance looks promising.
Moreover, as investor groups turn climate centric, banks will need to meet their
demands with innovative financial solutions wherein digital technologies will play
a vital role. This scenario offers certain needs that translate into opportunities for
service providers.
Technological advancement offers opportunity for banks and FIs to target specific
needs of the customer. The needs include payments, credit, investment, and protec-
tion solutions, aimed at targeted segments of demography, viz, low-income, middle
class, and high-income customers. Green FinTech tools would help enhance the
ability of banks to match target needs and target demography. For instance, while the
low-income communities need access to small-ticket credit, the middle class needs
336 N. Vikas et al.
access to financial planning to achieve life goals. Emerging technologies may be used
by banks in ways to match the consumers with their most critical financial needs.
This could be to combine digital pathways to achieve better user experience, client
engagement, and create impact, whilst managing risks and returns.
Recent sluggish economic growth in most parts of the world has impacted the
growth trends in bank deposits. This has compelled many banks to turn to external
sources of capital to raise funds they can lend out. While many developing country
banks are raising funds in the global centers of capital, those markets are increasingly
demanding their debtors meet green criteria in terms of use-of-proceeds. Therefore,
there is a need for measurable, monitorable, and verifiable data. FinTech solutions can
enable better tracking and recording of data, which would help effective and efficient
monitoring and impact reporting. Not only can FinTech solutions enable visualization
of the intervention and its outcomes, the presence of verified and monitored data also
helps in better risk pricing. Such knowledge is important for banks and FIs when it
comes to structuring transactions and helps in more informed decision-making. In
addition, with a proper risk pricing mechanism in place, private sector capital will
be encouraged to participate in sustainability or social oriented projects.
Around 70% of senior banking executives believe that a major opportunity for
banks lies in distributing FinTech-enabled products and services through the bank’s
marketplace to generate non-interest revenue (Statista 2018). If the bank earns fee
as a percentage of assets managed rather than mere distribution commission per
transaction, it adds predictable, annuity-driven revenue for the bank. Distribution of
green financial products using FinTech platforms can be a significant opportunity in
this context. The FinTech segment is expected to grow at a compound annual growth
rate of 23.4% from 2021 to 2026, to a market value of US $324 billion (Market Data
Forecast 2021). Despite the fault lines of the traditional banking system exposed by
the global pandemic, the FinTech space showed resilience, with investments more
than doubling in the second half of 2020 (KPMG 2021a). This expected growth can
be leveraged by banks to drive non-interest revenue channels.
FinTech can target niche needs and demography where there is a dearth of prag-
matic solutions. This unlocks an opportunity for inorganic growth, or acquisitions by
banks that have a commoditized, universal approach, and seeks to add niche offer-
ings to their portfolio. Studies have shown that nearly 80% of FinTech firms are
well positioned to digitalize the financial services sector. JPMorgan, with US $2.8
trillion in assets under management (AUM) acquired OpenInvest, a San Francisco-
based FinTech startup that specializes in ESG products (Reuters 2021). According
to a PwC survey (PwC 2016), over 80% of FinTech participants believed they are
customer centric, as opposed to only 53% from the banking sector. The numbers will
change if banks view FinTech from an enabling, and not disruptive, standpoint. It
will help foster partnerships with FinTech firms to meet customers’ niche demands
(McKinsey 2020). Moreover, a digital offering can cater to a larger audience at
reduced per-transaction costs (Riemer et al. 2017). However, such acquisitions or
partnerships may require a regulatory push (i.e., a push from the top) to create an
enabling ecosystem.
At the same time, primary interview responses suggest that blind acquisitions
may not be best suited. Each bank and FI has its own nuances when it comes to its
work culture, values, and methods of operation. Many times, acquisitions have failed
because the acquiror and acquiree’s work culture, values, and methods of operation
did not match. Hence, a layer of customization is required even in inorganic acquisi-
tions. In such scenarios, it might be more prudent to build an offering organically, else
the internal functioning of the bank gets disturbed, which may lead to reputational
risks. The flipside of this is organic growth, which often takes time.
An opportunity exists for green capital raising, or ESG or climate-smart capital
raising, by leveraging green FinTech solutions. For example, using technology to
securitize the financial product would enable more liquidity and tradability. That
encourages more investors because there is a visible exit medium. Another way is to
create a mechanism against which capital is raised, say tokens. This will help green
the finance demanded by borrowers by combining digital and green goals. It also
presupposes that green criteria, such as ESG and climate risks, are integrated within
the credit and financial decision-making process of the issuing bank or FI. As climate
risks continue to increase, considering just traditional risks for capital raising may
not be prudent. The other side of this discourse is to develop a standard classification
for use of proceeds into consistent SDG avenues, to avoid instances of greenwashing
when it comes to capital deployment.
There have been initiatives in the industry that offer examples in terms of being
emulated or replicated in other geographies.
GainForest, a rainforest conservation project in Brazil’s Amazon, used blockchain,
IoT, and remote sensing to record and verify data from the fields. Based on the
verified data on conservation of rainforest patches, incentive payments to the farmers
were credited. This process helped the farmers access more finance in a model that
leveraged technology whilst achieving green goals.
In Spain, EthicHub created a peer-to-peer credit marketplace for smallholder
farmers using blockchain technology. This involved digitalization and greening to
achieve credit inclusion outcomes for low-income farmer communities. Similarly, the
USA’s WeTrust uses blockchain to operate a retail investment platform for granting
access to savings, lending, and insurance products to retail customers. Such initiatives
encourage the alignment between green FinTech target needs and demography.
Germany’s Tomorrow Bank is focused on driving investments into a sustainable
sector, a classic case of a bank combining digital innovations to achieve the SDGs.
The bank aims to revamp sustainable investing with its Tomorrow Funds. It provides
a platform for investors to invest directly into sustainable bond and equity funds. Such
banking models can be replicated to digitalize and green products supplied by the
bank. The bank has also launched Ecolytiq’s Sustainability-as-a-Service solution,
which provides customers with the carbon footprint of their purchases (Finextra
2021a). Such banking models must be replicated in more and more countries.
South Korea’s Pan Impact Korea, a social bond designing agency backed by the
government, launched an innovative blockchain-based social impact bond that aimed
to securitize an otherwise illiquid bond structure. The bond was aimed at achieving
health-based outcomes for children suffering from borderline intellectual functioning
338 N. Vikas et al.
in the Seoul Metropolitan Area. It used a blockchain-based database ledger to create

the platform for investors to trade and exchange bond units. This securitizes the
social impact bond, which otherwise is often illiquid and non-tradable because most
social impact bonds are essentially private loan contracts. Adding an element of
securitization enhanced demand from a broader base of investors, thus leveraging
the opportunities that lie in digitalizing and greening the products supplied by the
financier.
India’s Yes Bank developed India’s first-ever green retail financial product, Green
Future Deposit. This was a green fixed deposit product (or term deposit as some
countries call it), with the bank earmarking the proceeds raised toward SDG-aligned
sectors. Another green initiative by a bank was the biodiversity credit marketplace
solution to promote ecosystem protection. This scheme, launched by Commonwealth
Bank of Australia and BioDiversity Solutions Australia, allowed landowners in New
South Wales to create digital tokens. These tokens, named BioTokens represent
biodiversity credits that can be then traded in the blockchain marketplace to be
bought by developers for carbon offsetting, thus combining technology, finance, and
sustainability. The scheme has developed into an alternative source of income for
New South Wales’ landowners, encouraging them to preserve biodiversity on their
land and marine resources (CommBank 2019a). Such instructive blockchain-enabled
marketplace platforms can be replicated in other geographies around the world for
conservation of ecosystems in line with the SDGs.
Refugees may not be an area conventionally thought of when it comes to green
FinTech. However, the World Food Programme successfully launched a blockchain-
enabled food coupon reimbursement process for Syrian refugees in a Jordanian camp.
In this case, reimbursable food coupons can be viewed as a substitute to finance. The
tool requires biometric screening of the beneficiaries and IoT-based devices at the
grocery stores ensure the right beneficiaries are being catered to. The blockchain
matches the reimbursements as per the stores and the device data to ensure there is
no instance of benefit fraud. In the same vein, subsidies may also be viewed as a
substitute for finance. The IXO Foundation’s Amply blockchain-based tool ensures
monitoring of student enrolment and outcomes in South African government schools
before school subsidies are sent out. Such initiatives go a long way in matching
finance with impact.
Collaborations and partnerships, or SDG 17, is another opportunity that must be
leveraged to create enabling ecosystems for technology, finance, and sustainability to
foster together. The Green Digital Finance Alliance is one such platform. Launched
by ANT Financial Services and UNEP FI, its Advisory Council encompasses finan-
cial and sustainable development institutions committed to using technology toward
sustainable finance. It promotes financial inclusion, access to credit, social enter-
prise and community-level initiatives, promotion of mini-credit, mini-insurance, and
more, which developing and underdeveloped nations can benefit from. The Swiss
Federal Council, to establish Switzerland as the global leader in green digital finance,
launched the Green FinTech Network in 2020. The network aims to enhance the
operating environment for startups at the intersection of sustainable finance and
technology. The action plan is spread across five broad categories: cultivating new
startups; boosting the ecosystem and innovation; easing access to capital; fostering
access to data; and promoting access to clients, again which developing nations can
benefit from (Federal Council 2021).
16.4.1 Green FinTech in Banks and Other Financial

Institutions
The FinTech boom promises unique possibilities for banks to tailor their services.
Meeting the SDGs adds another layer of possibilities. The traditional banking
industry has begun to lose ground to a fast-growing FinTech ecosystem. Driven
solely by financial risk and returns earlier, banks are now fast realizing the potential
and scale at which FinTech can create impact. As a result, many banks are also making
conscious efforts to build their services on risks, returns, and impact using digital
technologies. The Netherlands-based Triodos Bank, for example, is an ethical values-
driven bank focused on sustainable investing. A member of the Net-Zero Banking
Alliance, Triodos was a co-founder of Sustainalytics, an ESG research platform that
offers solutions powered by AI and big data. The firm recently launched its Principal
Adverse Impact (PAI) data solution in line with the EU’s Sustainable Finance Disclo-
sure Regulation. The PAI data solution is an extensive ESG dataset that will guide
investors to understand the sustainability impacts of their investment value chain
(Sustainalytics 2021). Such sustainable values-driven banks and ESG platforms that
harness the benefits of technology play a vital role in mobilizing finance for the
SDGs. Other focus areas of banks are highlighted in the following sections, along
with use cases.
16.4.1.1 Identification and Assessment of Risks
Climate change is rapidly becoming a priority for banks and FIs globally. Banks
are establishing climate-related strategy targets and there has been an increasing
trend toward climate-related disclosures (KPMG 2021b). European FIs, specifically,
are witnessing climate-related governance mechanisms like setting up of climate
committees for providing oversight (ECB 2020). As a result, climate risk is being
viewed as a driver of traditional risk categories of a bank, like credit, operational,
market, reputation, IT, compliance, or liquidity risk. Banks are also growing wary
about lending money to companies that are more vulnerable to climate risks, owing to
issues like stranded assets and asset impairments. As regulatory pressures increase,
the financial sector needs to formulate a structured approach for effective climate-
related financial risk management, wherein FinTech could play an enabling role.
Sensor-based technology, such as IoT, coupled with other technologies could be a
powerful tool to help banks assess risks better. Technological tools could help build
forecasts based on present and expected scenarios, as opposed to relying solely on
340 N. Vikas et al.
historical data for decision-making. This would also help allocate green capital based
on proof and transparent systems, made possible by FinTech. As it is, 84% of IoT
deployments are addressing the SDGs in some way (WEF 2018). A combination
of technologies could revamp the traditional way of looking at risks to incorporate
the potential outcomes or effects of a particular financial transaction with respect to
climate-related risks.
Sust Global, a technology-based climate science and sustainable finance startup,
develops climate risk analytics and emission insights across global assets. Its prod-
ucts help gauge climate risks associated with businesses, drive decision-making and
capital allocation that serves the achievement of SDGs. While Sust Global’s primary
markets have been asset management companies, insurers, and large corporates, the
firm is now expanding into real estate and banking services (Finextra 2021b). Collab-
orating with such technology-enabled climate data science firms would aid banks to
drive their green agenda forward.
16.4.1.2 Convergence of Financial and Non-Financial Information
A major obstacle to mobilizing green finance for SDGs is the lack of decision-
support tools that converge financial and non-financial information. In the absence
of a taxonomy, overflow of non-verified and differently interpreted non-financial
data has been a key constraint in the green finance space. While some efforts, such as
the EU Taxonomy, have been made toward developing standards and coordinating
actions, storage and easy access to data still impedes green finance flows. This is
where a tech-enabled platform would be useful. Artificial intelligence, specifically,
has been instrumental in matching data from various sources to one client. Avail-
ability of a dedicated “aggregation” platform would enable investors to access all
non-financial data available on a particular client, making it easier to compare and
sift through data. In conjunction with banks, such platforms would promote the cause
of green lending activities toward businesses, in turn promoting savings into such
products.
16.4.2 Behavioral Nudging to Push Demand
The entrenchment of behavioral economics within the financial services sector has
engendered nudging as a tool to promote sustainable investing behavior, especially
with individual investors. Experts argue while awareness of sustainable investing
amongst people is picking up, the challenge lies in overcoming their pre-established
mindset blocks. A nudge is defined as “any aspect of the choice architecture that alters
people’s behavior in a predictable way without forbidding any options or signifi-
cantly changing their economic incentives” (Thaler and Sunstein 2008). It leverages
the choice architecture to provide recipients with subtle interventions that influence
financial decision-making. Such “nudge” tools have gained ground as public policy
tools as well as in financial services and have a major role to play in advancing
FinTech solutions to bring underserved communities into mainstream finance and
individual investors into mainstream sustainable investing to achieve the SDGs.
The Human Development Cash Transfer program funded by the World Bank
was piloted in the Betafo district of Madagascar, one of the poorest countries in
the world. As a part of this program, behavioral nudges were designed with the
help of IDEAS42, a leading behavioral science research institution, to make women
participants emphasize on the long-term well-being of their families. Behavioral
interventions were created to “nudge” people into making better decisions toward
productive uses, such as spending money received from the government on nutri-
tious food or to educate their children. The project entailed identifying the poorest
of the households, especially women, who were then trained on topics related to
leadership, citizen engagement, nutrition, family planning, and more. The purpose
of behavioral nudges was to link the learnings from the training sessions to cash-
spending decisions. The program also focused on providing regular cash benefits to
the mothers of children aged 0–12 years. As an outcome, the project covered ~80,000
poor recipients, of which over 75% were women. Food diversity and consumption
saw an increase along with the school attendance rate, which stood at 97% for the
beneficiary children (World Bank 2016). Such interventions that combine behav-
ioral studies with SDG-aligned spending will be useful in local implementation and
monitoring of SDGs.
16.4.3 Targeting the Bottom of the Pyramid

with Microfinance Institutions
Technologies like AI are being increasingly used for data collection, streamlining
credit decisions, and bringing down overheads to reach economies of scale for micro-
finance institutions (Murray 2019). Use of technology can reduce transaction costs
and increase the speed of service delivery, thus connecting low-income populations
to the formal financial sector.
MoKash is a collaboration of MTN Telecom and Commercial Bank of Africa
in Uganda. It offers digital credit and savings products in Uganda and caters to
low-income communities. The uptake has been significant in rural areas, especially
amongst women. Offering access to savings and loans from the Commercial Bank
of Africa, this innovative cash management product enables financial access for
Ugandans with only a screen-touch. AI tools help with history checks and maintaining
loan records for the recipients (PHB Development 2017). Similarly, in Bangladesh,
bKash, a joint venture of BRAC Bank and Money in Motion also offers money
deposit services through mobile accounts, apart from payments services.
342 N. Vikas et al.
16.4.4 Promoting Impact Investing
Research studies reveal that SDGs align more closely with impact investing, which
seek “double bottom line of financial returns and measurable social or environmental
improvements” (PitchBook 2021). The potential of impact investing to bridge the
SDGs financing gap is visible, with AUM reaching US $2.1 trillion in 2020 (Annan
2021). However, given that impact investors usually operate in developing markets,
they face problems unique to such markets owing to ineffective legal institutions and
insufficient institutional frameworks. In addition, impact investing has been largely
limited to large investors. If FIs, like impact investors, collaborate with FinTech
providers, then impact data measurement, assessment, and usage of impact tokens
can be potential areas through which FinTech could promote impact investing.
16.4.5 Blockchain for Financing
Decentralized models, such as those provided by blockchain, can be used by banks

and FIs to allow access to financial services. Blockchain allows for recording
of immutable data records, reduction in transaction fees, and facilitating banking
services to all sections of the society. It ensures that no intermediaries are involved,
and complete transparency and traceability is assured. The application of blockchain
is relevant to green assets as well, where the transaction costs of debt issuances may
be higher as compared to traditional assets. Therefore, employing blockchain for
green asset capital raising will help in reducing the issuance costs, in addition to
ensuring monitoring and reporting of outcomes in a verifiable manner.
Blockchain-based concepts like tokenization can be useful in this context.
Tokenization is the conversion of physical and digital assets and their ownership
rights into a blockchain-based token along a distributed ledger technology/blockchain
system (EY 2020). Market tokenization of real estate assets, physical commodities,
and metals, especially those that are inherently illiquid in nature deterring investor
appetite, help enhance liquidity, tradability, and faster settlements (EY 2020).
Blockchain-based tokens find significant potential in financing SMEs, which
constitute 95% of the global business ecosystem (Jiménez et al. 2021). Financing
SMEs is important because they are uniquely placed to facilitate outcomes oriented
toward sustainable development. These include poverty reduction, promoting social
equity, and improving access to capital (Abisuga-Oyekunle et al. 2020). Financing
SMEs also increases the number of bankable projects and aggregating these projects
will aid in risk diversification for investors (ADBI 2020). However, there are signif-
icant challenges to finance SMEs. These largely stem from the small-ticket loans,
lack of creditworthiness, and their limited access to evolving technologies, skills, and
know-how to ramp up market share. Blockchain-based tokens can help. Tokeniza-
tion allows for asset fractionalization with investor ticket sizes of a few hundred US
dollars. This unlocks the SME financing market for retail investors, thus greening
and digitalizing the finance supplied by the bank as well as the finance demanded by
borrowers.
An example of this is Italy’s Azimut Group, one of the leading asset managers in
Europe. The group tokenized its first portfolio of loans to Italian SMEs. In a part-
nership with Sygnum Bank, Azimut Group created a US $5.9 million loan portfolio
(Sygnum 2021). With Sygnum’s market issuance platform, Desygnate, investors can
engage in high-growth investments across venture capital, mid cap, real estate, and
art. In this way, blockchain tokenization provides alternative means to raise capital
and build liquidity while building diversified investment opportunities. This is a
real-world example of how emerging technologies can be leveraged to close the
SDG financing gap, in this case, by funding SMEs that face impediments to finance
in the conventional banking sector, which is more geared to serve large companies
and customers.
16.4.6 Blockchain for Data
Recording and collection of verifiable datasets, like those related to biodiversity, can
be streamlined using emerging technologies. This will enhance due diligence and
impact measurement, directing more capital into biodiversity conservation. Inno-
vation in blockchain can help in this context. It can enable timely sharing of data
between industry, scientists, and financiers, thus reducing biodiversity risk (UNEP
FI 2020).
Blockchain tokenization is also instrumental in extending credit to smallholders,
who may not have ready access to traditional asset-based collateral. This has become
possible as traditionally illiquid asset classes are made liquid and units of ownership
are made smaller. This helps projects that would have otherwise found it tough to
raise finance. It also helps encourage inclusion by enabling savers to invest in asset
classes conventionally out of their reach. With current investments touching US $1
billion (ADBI 2020), the future of blockchain tokens for financing looks promising.
Platforms like Liquid Token offer liquidity opportunities to funds and asset owners
through tokenization. It offers investment opportunities into tokenized sustainable
development projects with an annual return of 7–12% (ADBI 2020). The firm screens
all assets, ventures, and funds to drive truly sustainable impact. It currently has a
potential joint venture with a large securities broker–dealer in the USA. Given the
illiquid nature of long-term assets, Liquid Token offers innovative opportunities to
drive financing toward the SDG agenda.
344 N. Vikas et al.
16.4.7 Artificial Intelligence as a Credit Facilitation Tool
AI applications are wide-ranging, from monitoring real-time data, informed decision-

making, investor reporting, capital allocation to risk pricing and consequently, better
financial management for SDG projects. Banks and FIs can integrate AI and big data
into their credit management system. This will help identify green projects in a stan-
dardized manner, in terms of the use and management of proceeds. Empowered by
AI and deep learning, banks can determine quickly and accurately whether a project
is eligible for green credit by incorporating sets of standards. These technologies can
classify environmental and social risks for credit and help banks disclose relevant
information. This is tantamount to constructing a digitalized green credit system that
covers lending, and can relate to the original credit and risk systems. As investors
globally look to mainstream ESG, standardization in terms of format and metrics
for ESG reporting is also a growing need. AI, big data, and blockchain provide
an avenue for information compilation from various sources and its processing to
generate more standardized and comparable data. For example, large amounts of
satellite data available on the EU’s Copernicus network and the US Landsat network
can be processed to track the exact amount of air pollution. This would also help
to double-check emissions information provided by companies (Vergara and Agudo
2021).
Blackrock is one of the world’s largest asset managers with US $9 trillion in
AUM. Being at the forefront of the sustainable finance movement, the firm has been
partnering with technology companies that can accelerate Blackrock’s achievement
of net-zero targets. Its partnership with Baringa Partners, a leader in climate scenario
modelling, led to the integration of Baringa’s Climate Change Scenario Model into
Blackrock’s Aladdin Climate Technology. The latter is a software analytics tool
to manage climate risks, and better understand climate impact and risks (Blackrock
2021). Such technologies can help other banks and FIs develop climate-smart sustain-
able portfolios as well. With the help of Baringa Partners, Blackrock can now build
predictive models that define long-term targets to accelerate the transition toward a
low-carbon economy.
16.4.8 Embedding SDG Data
Another avenue for banks and FIs lies in embedding SDG data into their services
to co-create green FinTech solutions. Today, US $185 trillion in AUM sits with
global capital markets and ~US $30 trillion of that is already subject to ESG-oriented
screening (Zadek 2021). Innovations such as big data, AI and robo-advisory plat-
forms depend on cheaper, faster, smarter SDGs data linked to financial service inno-
vation. Digital innovations can move the needle on sustainability goals at greater
scale and speed. However, this will require embedding greater volumes of verified
and measurable data to effectively price risk and assess impact.
16.5 Recommendations
The need for technological integration in traditional financial systems is apparent,

more so in the context of achieving the SDGs, or green goals. Pressure from civil
society, regulators and institutional investors will only compel more banks and FIs
toward this avenue. At the same time, much depends on the buy-in from the top.
The first step for that is to create an enabling policy and business environment that
encourages banks, FIs, FinTech, and sustainability stakeholders to collaborate and
create solutions.
This section looks at putting forth some recommendations from the perspective
of policymakers, banks and FIs, and FinTech providers, which may offer building
blocks to create such an enabling ecosystem.
16.5.1 For Banks and FIs
Banks and FIs must put in place enabling procedures to enable smooth inter-
operability or operational integration with FinTech platforms. This will help combine
forces to offer workable green FinTech solutions.
Traditional banking models may soon be disrupted as users choose faster, easier,
safer, and cheaper ways to perform banking functions. This is what users are looking
for, especially in countries with a young population, like India, as well as those
with an aged population, like Japan. In short, banks looking at FinTech must look at
this from the customers’ perspective. In addition, FinTech-based financial providers
can adapt to changes in consumer behavior and tailor credit offerings in a targeted
manner. Such a client-oriented approach is quite opposed to traditional financial
services providers, who follow a more product-based approach. This flexibility is
also responsible for the greater uptake of FinTech. Therefore, there is a need for
banks to be user-focused and adapt the technology offering, while working within
the boundaries of regulatory requirements.
To deliver digital solutions that rank high on user experience and satisfaction,
banks need teams that can translate business needs into technology solutions. In short,
these teams need to act as a bridge between the two domains of banking operations
and technology development. This could be done by either honing homegrown talent
in-house or buying-out entire teams from outside while acquiring startups. Outright
acquisition often shows mixed results. This is because much depends on adding a
layer of adjustment as per the bank’s work culture, values, systems and processes,
and methods of working. A startup may not always align directly with these values
because banks typically operate within a highly regulated environment. Alterna-
tively, developing in-house teams and solutions is often time consuming. Hence,
the answer will depend on the solution being aspired for, mechanisms required to
achieve that solution, and how the banks and FinTech institutions stack up against
those mechanisms.
346 N. Vikas et al.
Partnering with open-source platforms where software services are available and
can be repurposed in accordance with the banks’ needs is another solution. Such
experiments at a lab scale will help identify specific challenges, before taking them
to scale. Research studies show banks and FIs have started investing in FinTech. A
survey showed 63% have set up accelerators or startup venture funds (Tien 2016). US
banks have invested a staggering US $3.6 billion in 56 different FinTech startups (CB
Insights 2021). While it is common to partner with FinTech accelerators, the degree
of success in such programs varies. Banks looking at such avenues need to strive
for an appropriate balance by partnering with an external FinTech infrastructure and
testing it. This provides a better value proposition that is cheaper and the bank/FI can
anticipate initially how it needs to respond differently to customer demands (Acar
and Çıtak 2019). Moreover, considerations of cost materiality reveal it is easier to
collaborate and use external solutions, rather than to acquire FinTech companies
right at the outset. High entry costs for banks can also be mitigated by leveraging
well-developed shared services infrastructure in the market.
16.5.2 For FinTech Service Providers
The expanding scope of FinTech has found applications across sectors and across
financial needs. These range from savings and investment to credit, and protection
solutions, thus promoting financial inclusion at scale. As the traditional financial
services sector pivots toward technological advancements, the role of FinTech service
providers will become more prominent.
To help establish the bridge between green finance and technology, FinTech solu-
tion providers need to speak the consumers’ language. This will make the consumers
understand the risks and benefits of the solution being offered. Resorting to a tech-
nical language or approach may deter customers from actively opting for FinTech
services. This is a key recommendation for FinTech service providers that are building
solutions in green FinTech.
Primary research revealed that while green FinTech is still an immature market,
elucidating the benefits of it to the customer, will lead to faster adoption. The explain-
ability and benefits of the technology are not such a concern for the customer, although
they might be for the bank adopting it at the back-end. This distinction is impor-
tant to understand. For low-income populations specifically, incentivizing them to
adopt solutions by showcasing their benefits will help overcome their pre-established
mindset blocks to use FinTech.
Energy usage is a major problem with FinTech solutions, especially with solutions
built on blockchain. These technologies are significant consumers of energy and lead
to high emissions, especially in countries where the predominant source of electricity
is coal. FinTech companies must analyze the entire value chain to ensure it also aligns
with green objectives, to the best extent possible; for example, ensuring the electricity
used is from green sources like solar or wind. If adequately supported by regulations
and inter-operability, there are huge opportunities to drive positive change across the
extended carbon footprint. For example, proof-of-work algorithms and other energy-
intensive distributed ledger technologies used in public blockchains are being phased
out in favor of energy-efficient alternatives. In this context, establishing a taxonomy
for market participants to converse in a common language despite disparate systems
will also drive green digital finance.
There is potential for many FinTech-based platforms when it comes to enhancing
the data processes involved in impact monitoring and measurement systems. This is
because, for SDG monitoring, a combination of technology is often used, as opposed
to a singular technology. FinTech platforms must, therefore, build on platforms that
combine appropriate technologies to maximize impact.
With the proliferation of green initiatives, policy reforms will help align technology
and finance. This will create a conducive ecosystem for the benefit of societies,
especially the underserved. Policymakers must engage to facilitate FinTech solutions
in FIs with supportive policies and regulations. Regressive policies with retrospective
effect may deter industry stakeholders to move forward.
The pace of FinTech can be impacted by emerging cybersecurity and data risks,
which means corrective policies and regulations are needed. Banks and FIs are also
vulnerable to cyberattacks. In fact, even utility-scale renewable energy projects are
categorizing terrorism-backed cybersecurity risks as a major threat. Cybersecurity is
expected to be one of the key risks of the next decade (WEF 2021). Thus, policies are
needed to address such risks in the context of technological and green advancements
in the financial sector. Developing countries need to proactively build secure and
accountable data protection systems, which will be conducive to green FinTech
growth in banks and FIs. The need is to take cue from new regulations like the
German Second Payment Services Directive (PSD2) and the European General Data
Protection Regulation (GDPR). These have been instrumental in boosting FinTech
development.
Policies that facilitate creating a digital identity for customers can reduce costs and
operational intensity related to customer onboarding. Digital identities can provide
financial information and account-related information remotely. This is particularly
useful for populations still dependent on banks but are spread far across vast land-
scapes. Remote document verification for such populations will help banks improve
risk management, fraud management, customer experience, overall productivity, and
business target achievement (McKinsey 2019). However, this will need collaborative
efforts by financial supervisors, consumer protection, and data privacy authorities.
Regulatory frameworks that bring standardization in specific avenues would help
improve market share. For example, the European Commission’s Financing Sustain-
able Growth Action Plan and FinTech Action Plan for Digital Finance aims to mobi-
lize funds for SMEs. Focused plans, such as these, can help overcome the barriers
in specific avenues while unlocking new opportunities for banks.
348 N. Vikas et al.
Policies that support digital payments, both by retail financial clients as well
as public agencies, are needed. Digital payments make it convenient to send and
receive remittances and transfers. However, policies must bring down the high trans-
action costs associated with these payment systems. This challenge is not limited to
private money, because even government programs entail such transfers, like subsi-
dies. Cheaper and easier money transfer, backed by supportive policies, is key to
extend financial inclusion to low-income communities in developing countries. For
instance, MicroSave, a firm working in over 65 countries, facilitates government-to-
person payments in India that amount to US $35 billion each year (Brooks 2018).
The firm is collaborating with India’s small finance banks to deliver digital finance
products. Such systems can be emulated to cater to the needs of further low-income
populations, as long as policies allow it to do so.
Lastly, regulatory frameworks aimed at instituting an authorization process will
provide FinTech companies with increased credibility. It can modify or prohibit
certain activities deemed dubious. In some settings, current rules and regulations
require a custodian for blockchain. This is despite the fact that every member on a
blockchain network could be deployed as a legally separate and independent entity.
There is a need to make regulations facilitative for appropriate authorization toward
usage and designing of FinTech services. That would help align their operational
procedures with banks.
As efforts are being scaled toward green digital finance, creating a level playing
field is essential. This will help nurture technology innovation, increase financing
flows, ensure risk management, and achieve SDG outcomes, especially in the light
of climate-driven uncertainties. There needs to be a holistic system for banks and FIs
to leverage FinTech solutions to achieve SDGs. This would start from the FinTech
solution’s ability to collect and monitor data to ensure that foolproof sustainability
impact is delivered. This holds true both for the products supplied by the banks and
the finance demanded by the borrowers, across various target needs.
Emerging technologies hold tremendous potential to help borrowers mobilize
greater volumes of sustainable financing from banks. These technologies can help
banks mobilize greater volumes of saving deposits from investors toward achieve-
ment of SDGs. Toward this, a lot will depend on how policymakers, banks, and
FinTech providers work in collaboration to create such an enabling ecosystem.
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Chapter 17
Roles and Tasks of Peer-to-Peer Lending
Platforms in Activating Green Finance
Yooshin Jung and Kimin Lee
Abstract The peer-to-peer (P2P) lending platform utilizes new processes to provide
financial resources from fund providers to financial consumers. In Korea, the “Online
Investment-Linked Financial Business Act” was enacted for the first time globally
to vitalize the P2P lending platform. Through this, a legal definition for P2P finance
was “online investment-linked finance business.” As seen in the cases of P2P lending
platforms in Korea, Sweden, the United Kingdom, and the United States, P2P lending
platforms can contribute to the vitalization of green digital finance because they
utilize information technology and the Internet in the lending market. However,
given that the P2P lending platform is a new financial service, it will take time to be
activated because of various regulations and obstacles. In the case of green digital
finance, the P2P lending platform is a new industry business model, so it is necessary
to gather information as a fundraiser from the beginning. It is considered that P2P
lending platforms will create a productive synergy by combining new technologies
such as the Internet of things, big data, and artificial intelligence.
Keywords P2P lending platform · Online investment-linked financial business

act · Green digital finance
Y. Jung (B)
Sogang University, Seoul, South Korea
K. Lee
Fintech Center Korea, Seoul, South Korea
https://doi.org/10.1007/978-981-19-2662-4_17
354 Y. Jung and K. Lee
17.1 Introduction
17.1.1 Background and Concept of Emergence of P2P

Lending Platforms
This chapter discusses the roles and challenges that peer-to-peer (P2P) lending plat-
forms must adopt or face to revitalize green digital finance. When many concerns
about insolvency due to the high delinquency rate are raised, the P2P lending plat-
form can seek a new direction by being grafted onto green digital finance. Through
this action, the P2P lending platform can contribute to green digital finance, so its
importance must be recognized. This chapter examines the emergence of the P2P
lending platform and considers the current status and legal issues of P2P lending plat-
forms in Korea. After analyzing the advantages and disadvantages of P2P lending,
we discuss the roles and challenges of the P2P lending platform in revitalizing green
digital finance. Finally, we state our policy recommendations.
The world’s first P2P lending platform was Zopa, which was established in the UK
in 2004 (M. Lee 2018). It is known that Giles Andrews, who worked at Egg Bank (an
Internet-only bank in the UK that was established in 1998), was thinking about how
to create a bond market for individuals and built a website for lending (M. Lee 2018).
Following Zopa, Prosper Marketplace and LendingClub were established in the
United States in 2006 and 2007, respectively (Zopa 2016). In Korea, Money Auction
was introduced as the first P2P lending platform in August 2006 (M. Lee 2018).
The P2P lending platform provides assets from a fund provider to a fund consumer
by utilizing a new financial system rather than through a traditional financial
company. This new dimension to financing, sometimes called alternative financing,
is mainly base on crowdfunding and P2P finance with various business models in
place. Functionally, the process is a fund brokerage centered on the supply of credit,
but the key element is that risk–return scenario between the money user and the
supplier is matched within the platform and the individual chooses it.
The P2P lending brokerage platform can be seen as a representative example of
the use of information technology and the Internet in the lending market. The inter-
mediary role of the P2P lending brokerage platform is divided into the borrower
side and the investor side. In terms of borrowers, a P2P lending brokerage plat-
form is like a private issuance market where borrowers can list debt securities online
(Balyuk 2016). Listing means that the P2P lending brokerage platform publishes the
borrower’s loan information online and provides it to investors. From an investor’s
perspective, a P2P lending brokerage platform is like a financial company that
provides risk management services and investment opportunities for investors to
loan assets. Here, risk management for loan assets means that the P2P lending plat-
form determines the credit risk of the borrower in accordance with the investor’s
investment propensity and purpose, and then it manages the overall profit and risk
(Sb Lee 2018).
17 Roles and Tasks of Peer-to-Peer Lending Platforms … 355
17.1.2 Comparison Between P2P Lending and Crowdfunding
P2P lending is a type of crowdfunding. Crowdfunding is broadly defined as a financial

investment method that raises public funds. Crowdfunding can be classified into
loans, equity investment, and donations.
P2P lending is loan-type crowdfunding. When funds are raised through crowd-
funding, the money must be paid back with interest within a set period. The loan
period and interest rate are fixed, and investors who participated in the funding collect
interest and principal according to the set period.
Equity-investment crowdfunding is a concept similar to an initial public offering
of a company. Investors look at the ideas and business plans of startups or specific
projects and execute the investment if they think they have a high probability of
success. There is no maturity for the investment, and the investor is provided with a
share, beneficiary certificate, or separate reward. While P2P loans are for a certain
period of time, equity-investment crowdfunding has a stronger aspect of investing
based on the company’s future value. If equity investment goes well, it can yield
higher returns than P2P loans, but conversely, if the idea does not materialize, there
is a possibility of a loss of principal.
Unlike the two types of crowdfunding described above, donation-type crowd-
funding is funding purely for donation purposes (M. Lee 2018).
17.2 Korea’s P2P Lending Platform Status and Legal

System
17.2.1 Status of P2P Lending Platforms in Korea
P2P finance in Korea has continued to grow since 2016. However, the delinquency
rate has risen sharply since 2018. The high delinquency rate of 16.6% as of June 2020
was attributed to the prolonged COVID-19 pandemic and contraction of the real estate
market. The number of domestic P2P finance companies and the size of loans have
continued to increase. As of June 2020, the number of P2P lending companies was
241, and the accumulated loan amount was US $8.7 billion. The delinquency rate was
5.5% at the end of 2017, increased to 10.9% by the end of 2018, and rose to 16.7%
as of June 2020. This delinquency rate is significantly higher than that of savings
banks (4.0%) and and loan business (8.3%). Real estate-related loans account for
68% of total loans, and this sector has driven the growth of P2P loans. In addition,
personal credit loans account for 13% and personal property loans account for 8%.
The number of borrowers is about 20,000, and 73% of them are individual credit
borrowers (based on the number of loans) (Financial Supervisory Service 2020).
The interest rate is generally in the range of 12–16%, and the brokerage fee is 4% of
the loan amount. In particular, fees for personal finance loans are high. In 2021, the
delinquency rate rose to 22.1% as of June 2021 as the economy contracted because
of the COVID-19 pandemic, and the amount of new transactions decreased because
of the government’s real estate regulations.
17.2.2 Comparison of Overseas P2P Lending Brokerage

Platform Models
The overseas P2P lending brokerage platform business model is somewhat different
from Korea’s P2P lending system because business models must meet the regulatory
situation of each country.
In the UK, a P2P lending brokerage platform company provides services that are
necessary for both the borrower and the investor. The contract is in the form of a direct
contract between the borrower and the investor. Instead, the platform company will
sign a contract with the investor to provide services such as repayment management,
management agency, and credit information confirmation and provision. RAO Article
36H stipulates that P2P is subject to FCA regulation. Here, P2P is defined as an
operator that plays the role of an intermediary between loan investors and borrowers
(G-B Lee 2019).
In the United States, the P2P company is associated with a partner bank that
provides the loan. After the P2P company matches the borrower and investor, the
borrower receives a loan through the P2P partner bank. In this situation, the P2P
company provides a loan under the agreed conditions of loan period and interest
rate, and the investor chooses to invest in the loan. After providing the loan, the
partner bank sells the loan bond to the P2P company, and the P2P company issues
securities based on the purchased loan bond and provides it to investors.
In Japan, P2P companies provide loans after receiving investment from investors
through an undisclosed associative contract. A P2P company makes a loan as a
lender, and the funds are financed by investment from investors based on an undis-
closed associative contract under the Commercial Act. A P2P company performs loan
business as a business operator, and the investor receives the principal and interest
as a dividend.
In terms of differences across countries, P2P platforms are stipulated as sepa-
rate business entities in Korea and the United Kingdom, and can operate only after
obtaining authorization from the financial authorities. In the United States and Japan,
no separate authorization is required. However, in the United States, securities-related
laws can be applied to P2P businesses without a license for P2P loans because
investors purchase securities issued by P2P lending brokerage platform companies.
From a borrowing perspective, a partner bank provides a loan, and because a P2P
lending company is a third party that has been soliciting loans, a management obli-
gation is imposed on the third party. In Japan, a P2P lending company registers as a
lending business, and at the same time registers as a second-class financial product
business and conducts the business of an anonymous cooperative. Compared with
other countries, Korea has a solid business model based on well-regulated system
with regulations for each separate business. However, blind spots in user protection
may arise in situations that are not covered by the applicable law. In other countries,
it is possible to apply necessary regulations to protect investors and users in the
existing laws, since separate business rights laws have not been created.
17.2.3 Overview of the Online Investment Linked Financial

Business Act
In August 2020, Korea was the first country in the world to provide a legal definition
for P2P finance by enacting the “Online Investment Linked Financial Business Act.”
P2P lending, now defined as “online investment-linked finance”, lends funds from
investors to borrowers through an online platform (hereinafter “linked loans”), and
provides investors with the right to receive principal and interest according to the
linked loan. Investors acquire principal and interest receivables, and the application
of principal and interest receivables is excluded so as not to be regarded as a financial
investment product under the Capital Markets and Financial Investment Business Act.
On the other hand, linked financial business entities are required to manage linked
loan receivables arising from linked investment contracts. In addition, it is clearly
stipulated that investors should have the right to preferential repayment from the
linked loan receivables. The legal structure of P2P lending is defined as an indirect
loan type rather than a structure in which investors directly lend to borrowers, which
can be seen as reflecting the current business model. In addition, the indirect loan
type has a problem that investors can bear the risk of bankruptcy of P2P lending
companies.
As an entry regulation, online investment-linked financial business requires regis-
tration with the Financial Services Commission, and the capital requirement for
registration is 500 million won or more, which is set by the Presidential Decree in
consideration of the scale of the linked loan. As a major business regulation, interest
rates are to be received below the maximum interest rate (24%) according to the Act
on the Registration of Loan Business and Protection of Financial Users, and commis-
sions received from borrowers from affiliated finance companies are included in the
interest rate calculation. For loans linked to Korea, mismatch between investment and
loan maturity is prohibited. Regarding capital, in the process of discussing the bill,
the Financial Services Commission requested 1 billion won in terms of consumer
confidence building and financial soundness, and there was an opinion that it should
be 700 million won as a compromise at a higher level than crowdfunding. There
was an opinion that it was too relevant and too much for FinTech companies to set
500 million won or more, but in the end, 500 million won or more, considering the
scale of linked loans, was adopted. In the case of fees, borrowers often repay earlier
than the contract period, so when converted into annual terms, the maximum interest
rate, including fees, was often exceeded. As a result, the provision of Article 11 was
introduced. The industry has argued for the exclusion of fees because the manage-
ment cost is the same even if the loan is repaid early. However, the P2P Finance
Act stipulates that the maximum interest rate is basically included in the fee and
that some incidental expenses prescribed by Presidential Decree can be excluded.
Unlike loan brokers, who were not allowed to receive commissions from borrowers,
it was clarified that brokerage commissions could be received for linked financial
institutions while stipulating that the protection of borrowers was more critical.
In August 2021, the Financial Services Commission registered 28 companies as
the first online investment-linked financial companies, and approximately 40 compa-
nies are still applying for registration. Through this, it is expected that P2P financial
users will be more protected and contribute to enhancing the credibility of the P2P
financial industry and healthy development in the future. In addition to the 28 compa-
nies registered so far, the Financial Services Commission will review whether the
registration requirements are met and confirm the results of the review. Many compa-
nies have applied for registration, but some are under review pending supplementary
registration requirements.
Although the P2P loan platform is institutionalized, the P2P loan platform for the
revitalization of green finance can be a new alternative even if its delinquency rate
increases.
17.3 Advantages and Disadvantages of P2P Lending

Platform for Activation of Green Finance
17.3.1 Advantages of P2P Lending Platform
The P2P lending platform has the flexibility to respond to the diverse needs of
consumers and suppliers in the green industry. In addition, it is possible to connect
a large number of small investors who want to invest in green industries. In the P2P
lending platform, even if borrowers with very high credit risk exist, the brokerage of
financing can be accomplished if an investor is willing to participate in the loan. In
other words, P2P lending allows borrowers and investors to enter into financing
through the platform’s intermediary without the direct intervention of financial
companies such as banks. In the case of borrowers, they provide their information to
the other party and wait for the participation of a large number of investors who are
willing to lend to them. The borrower is not bound by the decision-making of the
bank and does not have to fear the bank’s credit allocation. Investors can participate
by adjusting borrowing conditions or transparently providing information about their
credit risk. Investors can also invest in P2P loan assets with the expectation of a high
return on investment even if there is a loss of principal instead of depositing in a
bank with a low interest rate in return for guaranteeing the principal. In addition,
investors can efficiently manage loan assets by utilizing the diversified investment
and risk management services provided by the P2P lending platform. In doing so,
borrowers and investors can enjoy more convenience using a P2P lending platform
than when using a bank.
The P2P lending platform shows high cost-effectiveness by efficiently and quickly
processing work online rather than offline. In addition, it is possible to connect
finance consumers and investors in the green industry in real time compared to
analog on the platform. All procedures of the lending brokerage service provided
by the P2P lending platform are automated and performed online. In particular, the
automated service of the P2P lending platform is known to increase the decision-
making efficiency of not only borrowers but also investors. For example, according
to the survey results of the Cambridge Center for Alternative Finance, the platform’s
fast loan review service is found to increase the level of satisfaction of borrowers. In
addition, when individual investors invest in loan assets through the platform, it is
found that the simplicity of the loan-related procedures helps them make investment-
related decisions. It is considered that speed and simplicity are the characteristics of
the P2P lending platform that differentiates it from banks.
From the borrower’s perspective in the green industry, it is possible to reduce
search costs and have transparency in funding. By utilizing information technology
and the Internet, an online borrower’s loan information is concentrated on the plat-
form. By helping investors make investment decisions on loan assets and managing
investors’ investment risks, it is possible to reduce search costs and matching costs
between borrowers and lenders. In addition, because the P2P lending platform does
not directly take over the borrower’s credit risk, it does not have the problem of
monitoring the service, unlike the bank.
17.3.2 Disadvantages of P2P Lending Platform
There is a risk of fraud and default on P2P lending platforms. When P2P loans
for activating green finance are provided online, they are provided as non-face-to-
face services, so investors must decide whether to invest only with the interest rate
evaluated by the platform and the information provided by the borrower. Because
the platform cannot verify all information provided by borrowers, there is a risk
of fraud by malicious borrowers. In addition, even if the P2P lending industry for
the activation of green finance strictly evaluates borrowers, there is a possibility of
default because of inevitable structural characteristics. Given that most loans are
credit loans, there is a disadvantage in that it is difficult to recover the investment
because of insufficient protection measures such as collateral in case of insolvency.
There is a chance that the P2P lending platform for activating green finance may
temporarily close or go bankrupt. Because repayment of the loan is made through the
platform, recovery of the investor’s funds may not be performed or the borrower’s
willingness to repay may decrease. It is possible to reduce the impact of platform
bankruptcy by taking over the business with the use of separate accounts and business
agreements with third parties. In addition, given that P2P lending is an online service,
there are cybersecurity risks. Users may take risks depending on the capabilities of
P2P companies such as personal information leakage and account information theft.
While demand increases because of the interest of institutional investors, it may
reduce investment opportunities for individual investors because the number of
borrowers is limited. P2P lending platforms are likely to handle loans with a higher
risk of default in order to meet investor demand.
17.4 Role of P2P Lending Platform for Activation of Green

Finance
17.4.1 Causes of Sluggish Greenhouse Gas Reduction

and the Traditional Financial Industry
Reductions in greenhouse gas emissions are far below the planned level because
major emission sources such as energy, industry, and buildings are not making
the decisive transition to a low carbon structure. In the conversion sector, there is
still no conversion to eco-friendly operation, as typified by the expansion of coal
power generation, and demand for heating and cooling has increased in line with
income levels, leading to increased demand for electricity. Although industrial struc-
tures centered on energy-related industries such as steelmaking, petrochemicals, and
cement are continuously maintained, the adoption of new technologies and invest-
ments that reduce greenhouse gases in these industries is sluggish. In particular,
the proportion of electricity consumption has continued to increase, with electricity
consumption in the industrial sector increasing more than 3% annually over the past
decade. The building sector is not much different, but the total energy use has been
steadily increasing in recent years because of abnormal weather conditions when
energy efficiency is still low (Kim 2020).
Another reason for the sluggish greenhouse gas reduction is that the traditional
financial industry is not playing its role. Traditional financial industries are essentially
a function of brokerage that connects demand and supplier of funds. Historically, the
financial industry has led the development and restructuring of the industry through
the function of intermediation and distribution of funds. However, the traditional
financial industry is not playing a role in coping with climate change and economic
growth. Many in the industry claim that environmental problems such as reducing
greenhouse gas emissions should be viewed a social contribution issue or simply a
problem for the government and industry to solve (Kim 2020).
17.4.2 Issuing Green Bonds Through Digital Platforms
All over the world, funds have been rapidly flowing into the green bond market, which
is focused on eco-friendly projects. According to the Climate Bonds Initiative, the
amount of new green bonds issued by governments and companies in 2020 reached
US $270 billion, and the global issuance balance is nearly US $1 trillion. Therefore,
P2P lending platforms can play a role in raising green bonds.
P2P finance can be used to issue bonds to raise funds on a national or local scale.
In issuing green government bonds in the UK, a P2P company called Abundance
successfully raised £2 million.
As the preference for green bonds, which are oriented toward investments
in renewable energy and clean technology, has strengthened, the “greenium”
phenomenon has emerged. Greenium, a compound word of green and premium,
refers to the gap between borrowing costs for green bonds and traditional general
bonds. In the future, as growth models of sustainable finance and economy become
more important, along with data accumulation, investors’ ESG preference and
acceptability will increase and the greenium phenomenon will continue.
17.4.3 Financing of Eco-Friendly Startups
Eco-friendly startups generally have low credit ratings, making it difficult to obtain
loans from traditional financial institutions. The P2P platform can secure funds for
new venture companies that develop new and renewable energy estates and develop
eco-friendly technologies. In the long term, P2P lending can serve as a funding source
for various environmental conservation projects, establish a virtuous cycle in society
as a whole, and play a significant role in a sustainable society.
17.4.4 Construction of Green Industry Big Data Through

P2P Platform
In green finance, it is important to connect a P2P platform without time restrictions

because of the characteristics of the environmental industry (importance and accuracy
of real-time measurement). In the measurement and monitoring of environmental
systems, securing accurate and stable real-time data determines the success of the
system. In this regard, it is possible to build big data for the green industry through
data from consumers and suppliers and environmental measurement data. Such big
data in the green industry can be used to develop financial products and improve the
environment by connecting the P2P platform.
17.4.5 Examples of P2P Lending Platform for Activation

of Green Finance
Root Energy, a Korean FinTech company, provides a P2P financial service that
enables local residents and the public to invest in new and renewable energy power
generation projects such as solar and wind power. As of May 2021, the cumulative
loan amount for 74 power plants stood at US $38 million. In particular, preferential
interest rates are provided to local residents to share the profits of local development
projects. This arrangement can be seen as a new financial model in which resi-
dents participate (invest) in new and renewable energy projects requiring large-scale
funding and the cooperation of local residents. This scenario provides local residents
with opportunities to make long-term investments with relatively high returns while
responding to the challenge of climate change.
As such, Root Energy realizes sustainability in a way that helps solve environ-
mental and energy problems and revitalizes the local economy. Until now, it was
difficult to raise funds for small and medium-sized renewable energy power plants
before their completion. Several financial services were provided to them that were
in a blind spot in the financing. Also, Root Energy provides a greater rate of return
to local residents to solve the problem of resident acceptance. The completion of
projects like bioenergy power plants also contribute to revitalizing the local economy
through the localization of assets and emphasizes the contribution to sustainability by
the local community. Root Energy’s community funding has converted much power
generation capacity to renewable energy, thereby reducing greenhouse gases and air
pollution and saving water.
Root Energy received the CEO’s Award from the Korea Deposit Insurance Corpo-
ration at the SK Social Performance Incentive Awards, recognizing its contribution to
the spread of resident participatory renewable energy in 2021. It was highly praised
for contributing to the creation of Green New Deal outcomes and balanced regional
development by raising funds from local residents to construct a renewable energy
power plant and then returning the profits generated by the power generation project to
the local community and residents. Root Energy completed a public fund contest for
Taebaek citizens in the Taebaek Gadeoksan wind power generation project (a large-
scale resident participatory wind power project in Korea). While most of Korea’s
renewable energy resident participation projects depend on bank loans for all of
their investment, the Gadeoksan wind power plant provided innovative services to
encourage residents to directly invest their own funds, making an exemplary outcome
of maximizing local benefits and social value (M-g Song 2021).
Swedish FinTech company, Trine, provides a P2P financial service that helps indi-
viduals invest in solar projects in developing countries such as Africa. Founded in
2015, Trine, headquartered in Gothenburg, Sweden, is a startup that helps customers
invest in solar energy projects while providing profits. It supports the develop-
ment of eco-friendly infrastructure to eliminate energy poverty through solar energy
projects. The company raised a total of US $64 million, gathered 11,952 individual
investors, and achieved an average annual return of 7.8% with a total delinquency
rate of only 1.5%. Trine’s services are meaningful in that individuals can contribute
to economic redistribution and eradication of energy poverty through cross-border
impact investments.
British FinTech company, Clim8 Invest, provides a P2P financial platform for
individuals to invest in climate change projects. This allows individuals to invest in
clean energy, smart mobility, and recycling projects. The FinTech gathered a total
investment of US $18.4 million, and through this, only high-quality climate change
projects were carefully selected. More than 400 eco-friendly companies are registered
on the platform. The service can also be linked to a UK individual savings account
(ISA). Individuals can receive tax savings on financial income up to £20,000 per
year through their investment. Clim8 Invest also operates in partnership with the
UN Paris Climate Agreement, so it is expected to contribute to the systematization
and quality of green P2P investment. Clim8 says it will use the new cash to feed
its growth strategy, following the recent launch of its app in March 2021, and focus
on growing its user base. This includes a soon-to-be-launched Junior ISA and Self-
Invested Personal Pension (SIPP) in the UK. The Clim8 app has been reportedly
downloaded by “thousands” of investors. It currently offers a General Investment
Account and standard stocks and shares while ISA offers exposure to companies
helping to mitigate climate change. This includes companies working on renewable
energy, clean technology, sustainable food, electric mobility, clean water, and the
circular economy.
The P2P platform of American FinTech ProducePay provides cash flow to farmers
in the United States, Mexico, and other Latin American countries. This service allows
farmers to obtain finance before buyers pay for their products. ProducePay provides
production funding to farmers up to 12 months before crop harvesting. Funds are paid
up to 80% of the crop market value. This reduces the burden on farmers. ProducePay
connects farmers and distributors through an online platform under the terms and
conditions agreed between the two sides. When crops are harvested, farmers sell crops
to pre-connected distributors. Through this, the goal is to form a stable distribution
relationship that can last for many years. Distributors sell crops to retailers and
pay ProducePay for sales. ProducePay recovers the subsidies paid in advance to
the producer, deducts 1% of the total sales amount as a fee, and pays the producer
the remaining money. Farmers and distributors are provided with information on all
transaction processes for transparency in transactions.
The great advantage of ProducePay is that it does not hold farmers’ farmland as
collateral. Previously, production funds have been borrowed from external institu-
tions using farmland as collateral, but bankruptcy often occurred due to failure to pay
them back. However, ProducePay allows farmers to start cultivation relatively freely
by utilizing the prepaid subsidies because the land is not secured. In addition, given
that ProducePay only collateralizes crops, even if farming is ruined, the crops have
already been realized as sales through distributors, so there was no reason for farmers
to fear the risk of bankruptcy immediately. If a farmer fills out an application form at
ProducePay, up to US $5 million in funds can be made available within a few days.
This process is an attractive advantage for farmers because necessary documentation
can be conveniently submitted online, rather than using offline notarized documents.
Sales analysis and daily market reports are also supported through P2P data. So far,
the number of buyers from nine countries is over 800, the number of daily report
subscribers is 6000, and the total investment amount is more than US $1.5 billion.
This innovation is significant because it prevents farmers from going bankrupt due
to liquidity problems and supports them to farm data based on data.
17.5 Challenges of P2P Lending Platforms for Activation

of Green Finance
We recognize the power of the platform in technologies that lead the future. Digital
systems interact because networks connect them. Even industries that are already
stable will experience changes according to external influences. If the network effect
of positive responses is large, the industry will rise again, and if the network effect
of negative responses is large, the industry will fall. At the moment, the P2P lending
platform creates a positive response for green digital finance, and, if it succeeds, it will
provide stability. However, if adverse reactions prevail, a fall is inevitable. Industries
in the digital world need survival strategies to survive on the edge of this chaos, and
they must respond with agility to cope with the evolving flow of technology. We
need to develop the ability to predict the pattern of technological development and
understand how we will change in the future.
In the private sector, there is an obvious role for P2P loan platforms to build low-
carbon climate infrastructure. Its financial function is that of intermediary between the
supplier and the user of funds, and it performs pricing and risk management functions
to this end. P2P loan platform companies can support the growth and development
of green industries by effectively distributing capital to green industries and green
enterprises. However, the traditional financial industry has been looking at environ-
mental and climate response issues from a cost perspective or social contribution
perspective rather than an investment and revenue perspective.
The P2P lending platform lacks information and data construction, so it has not
been able to play the role of an efficient financing platform. However, as the P2P
loan platform in green digital finance, it is necessary to gather information from the
beginning. It is expected that it will create productive synergy by combining new
technologies such as IoT, big data, and AI.
From the point of view of FinTech, most of the users of P2P loans are SMEs or
individual entrepreneurs with relatively poor credit ratings. As mentioned before, P2P
finance should function as inclusive finance in connection with vulnerable sectors
such as agriculture or small-scale power generation.
The infrastructure to promptly connect P2P consumers and suppliers should be
established by analyzing big data collected through IOT with AI. This enables correct
financing through timely and accurate analysis.
Financial institutions also partner with P2P companies to help P2P companies
preemptively create and operate loan products in environmental industry areas where
direct investment or loans are difficult to obtain. It is considered that financial
institutions should actively invest or lend to verified P2P companies.
P2P lending platform companies can prioritize maximizing shareholder profits

through stable revenue generation. They should also play a major role in the society’s
economic development and risk management. However, shareholder-centeredness
leads P2P lending platform companies to fall into a focus on short-term perfor-
mance. Therefore, the financial supervisory institutions should provide supervision
that extends a broad framework of sustainability, integrity, and strong accounting
standards. In addition, financial authorities should encourage responsible innovation
with emphasis on the protection of consumers and stability of the financial system. It
is necessary to create a regulatory environment so that financial companies, FinTech,
and others can establish internal control and governance in terms of legal compliance,
consumer protection, and prevention of financial accidents. The supervisory body
should create a regulatory environment so that a balanced business strategy between
innovation and risk management can be established.
It is considered that P2P loan platforms will contribute to the spread of sustainable
finance by checking and reflecting customer preferences for environmental protection
when selling financial products. In Korea, six major sales principles, including the
conformity principle, are enforced through the Financial Consumer Act, so it is
necessary to consider the green financial preferences of customers. In the European
Union, the Sustainable Financial Action Plan announced in 2018 suggested a plan to
include customer ESG management preferences in the suitability test of the financial
advisory process.
It is also necessary that efforts be made to discover and support startups that
innovatively contribute to the transition to a carbon–neutral society by expanding
the target of regulatory sandboxes promoted by the government. In the case of the
financial sector, the UK held the Green FinTech Challenge in 2018 by converting
the existing FinTech industry support to green FinTech support. Through this action,
various support measures such as supporting regulatory sandboxes, designating dedi-
cated advisors, and simplifying approval procedures have been implemented by
selecting innovative startups that develop low-carbon and low-energy solutions. In
the process, pilot tests were conducted to determine the extent to which new finan-
cial products related to sustainable finance can arouse consumer interest, which is
expected to contribute to the growth of sustainable finance.
References
Balyuk (2016) Financial innovation and browers: evidence from P2P lending. Rotman School of
Management Working Paper, No. 2802220
Financial Services Commission (2021) Financial Services Commission 2021 work plan
Financial Supervisory Service (2020) Global Fintech trends and supervisory policy
Kim D (2020) The Green Swan is coming. Hanul M Plus, Paju
Lee G-B (2019) Overseas trends and institutions for P2P lending. Presented at a public hearing on
the current status of overseas P2P loans and domestic legislation. Korea Institute of Finance
Lee M (2018) What is P2P investment? ISTORY, Seoul
Lee S (2018) A study on the financial intermediary role of P2P lending brokerage platform. J Money
Fin 32:21–62
Lee Sb (2018) Analysis of the P2P loan brokerage market and its implications: Focusing on the role
of financial brokerage. Research Report by the Capital Market Research Institute
Song M-G (2021) Recognized for the contribution of root energy to the spread of resident-
participatory renewable energy. Today Energy. https://www.todayenergy.kr/news/articleView.
html?idxno=236449
Zopa (2016) Fintech Pioneer Zopa announces plan launch “Next Generation” Bank. Press Release

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Economics, Law, and Institutions in Asia Pacific

More information about this series at https://link.springer.com/bookseries/13451

Green Digital Finance

ISSN 2199-8620 ISSN 2199-8639 (electronic)

We are grateful to the Graduate School of Environmental Finance of Yonsei Univer-

Green Digital Finance and Sustainable Development Goals

to engage with sustainability-conscious consumers, invest in sustainable firms at

and security by increasing transaction transparency. The proposed architecture could

Part I Prerequisite for Facilitating Green Digital Financing

Part II Recent Progress in Green Digital Finance in Asia and

8 The Role of Green Digital Finance in Achieving Sustainable

Part III Role of FinTech and Financial Innovations in Scaling up

Dr. Farhad Taghizadeh-Hesary is an associate professor of economics at Tokai

capital market development, and financial integration in Asia. He has a bachelor’s

Vijay Kumar Singh

Keywords Green digital finance · Climate change · Green finance · Sustainable

1.2 Historical Background and Synergy with the United

1.3 The Concept of Green Digital Finance

1.4 Regulation and Policy Framework of Green Digital

1.4.1 Digital Ecosystem/Platforms

1.4.1.1 Big FinTechs and Their Regulation

1.4.1.2 Regulatory Sandboxes

1.4.2 Machine Learning and Artificial Intelligence

on patterns of data and a consequent response to climate change risks. An analysis

1.4.3 Big Data

1.4.4 Blockchain Technology and Cryptocurrency

Distributed ledger technology (DLT), commonly referred to as blockchain, has

1.4.4.1 Tokenization of Digital Assets

1.4.5 Internet of Things

In simple words, the Internet of things (IoT) is a network of “things” (including

1.5 Major Stakeholders of the Regulatory and Policy

1.5.1 Private Sector and ESG Reporting

Private enterprises would play an important role in promoting GDF. Generally

1.5.2 International Framework and Response to Green

1.5.2.1 The Group of 20

1.5.2.2 The Financial Stability Board (FSB)

1.5.2.3 Bank of International Settlement (BIS)

Established in 1930, BIS is owned by 63 banks representing countries across the

1.5.2.4 International Monetary Fund (IMF)

1.5.2.5 The Organisation for Economic Co-operation and Development

1.5.2.6 Stock Exchanges and Securities Regulator

1.5.2.7 World Economic Forum (WEF)

1.6 Private Initiatives and Frameworks on Green Digital

1.6.1 Green Digital Finance Alliance (GDFA)

GDFA is an initiative to explore the potential of digital finance to catalyze green

1.6.2 The Network of Central Banks and Supervisors

1.6.3 The International Capital Market Association (ICMA)

1.6.4 Financial Centres for Sustainability (FC4S)

The FC4S is a network of 16 financial centers with a mission to exchange experience

1.6.5 International Development Finance Club (IDFC)

1.6.6 National Efforts

in improving adoption of green finance through effective monitoring and scenario

1.7 Conclusion and Policy Direction

Green digital finance or green FinTech as a concept is still evolving as is evident

1.7.1 Clarity of Concept/Taxonomy/Standardization

1.7.2 Data Collection—Information Symmetry

1.7.3 Addressing Potential Regulatory Risks and Challenges

1.7.4 Mitigating the Risk of Green Digital Finance

To enable digitalization of financial services for achieving SDGs, it is important