Fintech, green finance alliance to address investment woes

China's efforts to combine financial technologies with green finance will effectively fix the pain points of green finance and investment, although the country still faces several challenges in using financial technologies to promote the development of green finance, experts said on Friday.

In the past, green finance was mainly focused on supporting large green infrastructure projects, such as solar energy, wind power and wastewater treatment projects, which can be easily identified as environment-friendly projects, said Ma Jun, director of the Institute of Finance and Sustainability.

"In the future, a growing number of green activities that need green financial support will emerge from the areas of consumption, housing, agriculture and small businesses. It is hard to identify their green and sustainable features, so we need instruments and methods to identify the green features of these activities more accurately. Otherwise, we'll face the risk of greenwashing－the process of conveying a false impression or providing misleading information about how a company's products are more environmentally sound.

"To solve the problem, we need to use technologies like big data, the internet of things and artificial intelligence, to make it possible to identify green economic activities and reduce identification costs," Ma said.

According to research conducted on 41 fintechs specializing in green finance technology in China, financial technologies are quite widely used in the areas of environmental, social and governance data assessment, environmental benefits calculation, risk monitoring, information sharing systems and financial institutions' green credit information management systems. Next, financial technologies will be applied to some other areas, such as green asset identification and tracing, quantitative assessment of environmental and climate risks, and credit risk management, said a report jointly issued by the Chicago-based Paulson Institute and the Beijing-based Institute of Finance and Sustainability on Friday.

"Fintech, supported by artificial intelligence and big data, can collect, process and analyze environmental data to provide much more accurate information on green investment. And this leads to more capital coming from the private sector, which is much needed to help meet the ambitious goals that countries have set for climate change," said Deborah Lehr, vice-chairman of the Paulson Institute.

Some financial institutions and companies have already used financial technologies for the development of green finance.

Harvest Fund Management, an asset manager based in China, has built an ESG rating system to evaluate risk exposure and opportunities that Chinese listed companies face. With the help of artificial intelligence and natural language processing systems, the asset manager is able to sift ESG-related information from the web more efficiently and at a lower cost. It included key ESG risks into its investment research process and issued a series of investment strategies accordingly, said Han Xiaoyan, head of ESG research at Harvest Fund Management.

Currently, big data, artificial intelligence and cloud computing are the three main technologies promoting China's development of green finance. Looking ahead, blockchain and the internet of things are expected to be applied to the collection of real-time information in the whole process, the report said.

Liu Jialong, head of the ESG investment research center at the Institute of Finance and Sustainability, advised regulators to build regulatory sandboxes to encourage relevant market players to innovate green financial technological products and services.