Why Financial Institutions Should Invest in Blockchain, Cryptocurrencies, and AI
The opinions and opinions expressed in this article are those of the author.
The growing global challenges of climate change, inequality, human rights violations and social injustice are felt by us all. The need for urgent and rapid change is widely accepted, as is the fact that all of us – governments, businesses and civil society – have a role to play in achieving a better future.
Ahead of the gathering of world leaders in Glasgow for COP 26, the 26th United Nations Climate Change Conference, we are reminded that the framework for change is defined at the intergovernmental level.
As with the Paris Climate Agreements and the United Nations Sustainable Development Goals, which set critical goals for climate action, zero poverty and the achievement of gender equality; with these frameworks comes the hope, not the expectation, that companies will rise to the challenge of delivering positive results for the planet and its people.
ESG standards at the heart of the company
At the heart of it all is the financial industry. Certainly, COP 26 leaders will have their eyesight on the role financial institutions can and must play in unlocking the trillions of dollars in private and public sector funding needed to secure net zero emissions globally.
Beyond that, the financial sector exerts a significant leverage effect on all commerce in the form of environmental, social and governance (ESG) standards – and the investment decisions these standards drive.
Essentially a value proposition that assesses the ability of any business to safeguard and sustain its long-term success through measures that go beyond its ability to generate profits and returns for shareholders, ESG standards have the potential. to influence the way any business thinks, organizes, operates and behaves.
In traditional business thinking, ESG has been viewed as distinct from the “core” functions of a business; an important complement to investor relations, but still too often seen as a way to present an organization’s ESG credentials rather than as an opportunity to adopt new working methods.
Yet, with a new line of investor thinking suggesting that companies with the best ESG credentials are best positioned to respond to the exponential change they are currently facing, there is an opportunity to put ESG at the heart of business transformation initiatives. companies.
The financial sector is uniquely positioned to lead this change. By complementing and continuing the transition of physical products and services to digital, and ensuring that the companies it works with adopt clean technologies, the financial sector can help reverse negative environmental and social impact while creating of value for businesses and investors. .
Technology enables ESG in the financial sector
Blockchain and other distributed accounting technologies have a key role to play in validating the ESG credentials of companies in the financial industry and beyond.
Modern supply chains are complex, with materials, manufacturing and services alternating between multiple locations. For a lender looking to decide whether or not to finance a business, it is extremely difficult to track and analyze whether the business is ESG compliant.
Blockchain automates the process, allowing an organization to seamlessly trace materials and processes from source to end product – and investors to favor companies that offer the greatest chance of creating sustainable value.
Machine learning data analysis software can also help financial institutions identify sustainable investments that generate long-term value. Virtually all of the world’s banks have made some form of large-scale commitment to sustainable investments in recent years.
However, this naturally cannot be done to the detriment of their operations as a value-generating company. As a result, thousands of working hours are spent finding viable investments that comply with ESG standards.
Machine learning software could be trained to analyze primary and secondary data sources to identify investments in a fraction of the time it currently takes.
More and more consumers are moving from physical to digital
In retail financial services, there is a strong case to encourage consumers to continue to move away from physical cards and tickets and embrace rapidly evolving digital alternatives – payment services that exploit biometric identification and tokenization, to crypto-currencies such as Bitcoin and Ethereum because they optimize to use less energy-consuming security systems.
The Covid pandemic has shown how easily consumers can go from physical to digital. In 2020, Link, the UK’s largest cash payment network, saw the number of ATM transactions drop 43% and the value of cash withdrawals drop 36%.
Meanwhile, contactless payments and payments made with digital devices are increasing. A UK Finance study showed that the number of contactless payments made in the UK increased 12% to 9.6 billion payments last year.
Standing at the crossroads
Rapid action is needed to tackle the challenges of the climate crisis and social injustice. ESG is an opportunity to develop, coordinate, implement and monitor creative responses to pressing global issues.
The implementation of this type of thinking in transforming an organization will depend on its use of technology, and by more effectively implementing digital solutions within their very structure, companies will be able to bridge the gap between what consumers and governments expect and what traditional business models can deliver.
- Nigel Vaz is the CEO of technology consulting firm, Publicis Sapient