Philippine fintechs are more than ready to advance the global ESG agenda

FROM contributing to much-discussed financial inclusion to diminishing geographic and social imbalances, financial technologies have created a stellar track record in providing positive impact on the lives of Filipinos.

Today, another burgeoning factor (or set of factors) that will further illustrate how fintech directly contributes to society is its growing role in advancing ESG (environmental, social and governance) principles.

An important element of the global financial and economic system, the ESG agenda of companies are assessed by special independent ratings, which affect the value of its shares. The number of companies implementing ESG-oriented strategies and receiving this rating have been steadily growing (according to Vanguard). The importance of ESG as a factor in investment decisions is also rising. It is significant, for example, that there are hundreds of specialized ESG funds and exchange-traded funds operating in the world (which already have close to $400 billion under management). Twenty-six percent of global investors report that ESG is a focal point of their investment approach (ESG Global Study 2022). In general, Bloomberg’s assessment perfectly characterizes the global ESG market and its prospects. It claims that global ESG assets could exceed $41 trillion in 2022 and $50 trillion by 2025, which is a third of the projected total AUM (assets under management) worldwide.

In Asia, the penetration of ESG investment among wealthy investors this year may more than double, already up to 70% (Accenture). On the other hand, compared to Western countries, Asian businesses are clearly lagging behind in ESG development, even causing concern on the part of some researchers (Morrison Foerster).

Locally, ESG is gaining recognition from both businesses and consumers. A survey from a research and advisory company saw 41% of CEOs reporting a significant impact of the pandemic on appetite/demand for ESG in their business whilst a Statista and PWC study revealed a solid 38% of online shoppers in the Philippines were impacted by companies’ environmental actions.

Aside from ESG principles being an effective way to attract investments, these data sets make it clear that more Filipinos continue to go beyond the simplicity, convenience, and accessibility offered in choosing its roster of day-to-day fintech services such as e-money services, digital lending and basic savings accounts. This is good news for companies that already or are working on a clear plan to pursue a more socially responsible and sustainable way towards profitability.

ESG AND FINTECH: A NATURAL SYNERGY
Foundational steps towards this direction were laid down by international organizations, illustrating the natural synergy between fintech and ESG. At the beginning of 2020, UNICEF launched the Fintech for Impact pilot program in the country, with the goal of studying the social impact of innovative financial technologies. It placed a spotlight on several fintech startups which create solutions that can help vulnerable citizens, and provided them with access to ample investment. The winners included projects that offer agricultural loans to farmers and fishermen, and loans to students, projects that control the use of remittances from migrant workers and overseas foreign workers (OFWs), and those that promote women’s employment.

Coupled with country-wide initiatives aimed to spur the financial sector towards ESG and longstanding efforts to combat natural disasters, the Philippine fintech industry is increasingly producing initiatives of these kinds. Prime examples include bespoke financial instruments dedicated to the MSME sector, green bonds, and creating digital agri-lending platforms for farmers. At this stage, opportunity remains to have activities that address socio-environmental issues such as plastic waste, air and sea water pollution, and access to cleaner energy. These can be partially solved by funding startups that specialize in electric vehicles, sorting and recycling of waste, as well as the operation of alternative electricity such as renewables.

Within organizations, practical starting points could be the integration of environmental concerns and impact into its decisions and activities, promoting the reduction of waste and recycling, purchasing products and services that do the least harm to the environment, training and educating employees on environmental matters, and communicating its environmental commitments to the customers.

Another would be to utilize platforms that reveal the impact companies have in accomplishing the United Nations Sustainable Development Goals (SDGs), as already seen in other countries.

In conclusion, all signs point to the Philippines becoming a leading voice not only in fintech growth but in the wider ESG agenda. A long process, of course, but one that has the potential to further create meaningful social good.

Kirill Kalashnikov is the regional director for APAC at Robocash Group, which operates in the Philippines through Digido Finance Corp.