Sustainable Finance in the Technology Era: A Double-Edged Sword?
Dr Firdous Mohd Farouk and Associate Professor Dr Lai Kee Huong
As the increasing use of digital technology and the urgency for sustainable development become two significant trends in today’s society, companies are quick to jump on the digital transformation bandwagon. Technologies such as data analytics, blockchain and artificial intelligence that allow better tracking and assessment of environmental, social, and governance (ESG) factors are leveraged to essentially contribute to sustainable finance and development.
Financial institutions can now employ data analytics to provide valuable recommendations to companies in designing new products that meet the demand for sustainable investments. Blockchain technology, on the other hand, serves as an advanced database mechanism that ensures enhanced security and transparent information sharing.
Projects related to renewable energy benefit from smart contracts, which are self-executing programs that translate terms of agreement into code. The pool of funds available will be incrementally released once specified milestones or tangible, measurable outcomes are met. Such contracts greatly assist in automating the investment process by eliminating the need for intermediaries.
Redefining industries
The enhanced transparency and efficiency enabled by these innovative uses of emerging technologies allows stakeholders to make informed decisions and invest in environmentally friendly projects and companies. Moreover, the advancement of technology is increasingly redefining industries, making processes more streamlined and less resource-intensive, where resources are allocated more efficiently to minimise cost and waste, and maximise profit and impact.
However, amidst these promising advancements and the exponential growth of the adoption of technology that has greatly transformed the landscape of the finance sector, there exists the looming shadow of rising inequality. The discussion on sustainability may be very much skewed towards the environment and governance, making organisations overlook the “S” in ESG.
While the potential for innovative technologies boasts inclusivity and equality, there exists a risk that certain segments of the population are left behind. As finance and many other crucial sectors become more reliant on sophisticated algorithms and automated processes, the risk of reinforced biases and widened gaps between those with access to technological advancements and those without becomes increasingly evident.
Greenwashing
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Additionally, the practice of greenwashing is another issue that deserves attention. Coined by American environmentalist Jay Westerveld in the 1980s, the term “greenwashing” refers to malpractices by companies that convey false or misleading information to consumers, tricking them into believing that the companies’ projects or products are environmentally friendly. Companies may intentionally and unethically change the name of their product by rebranding it with a ‘greener’ name. The ubiquitous use of buzzwords like “eco-friendly” on product labels is another sly tactic that undermine sincere efforts of consumers who genuinely care about a sustainable and greener environment.
Addressing these challenges requires a nuanced approach that prioritises ethical and inclusive technological development. The responsible and strategic utilisation of emerging technologies, especially in the finance sector is essential to uphold sustainable and equitable development in the technology era. The stakeholders need to navigate these uncharted waters carefully, ensuring that the promises of green revolutions and social inclusion are not overshadowed by the challenges of inequality and financial disparity.
Sustainable Finance : Ethical Use of Tech
Furthermore, as we navigate this evolving landscape, there is an increased need for robust regulatory frameworks and industry standards to ensure that technological advancements are harnessed responsibly. By establishing clear guidelines for ethical use of technology and promoting diversity and inclusion in the development and deployment of innovative solutions, it is possible to mitigate the risk of unintended consequences and foster a more equitable tech-driven ecosystem.
In essence, the convergence of sustainable finance and technology is a complex and multi-faceted phenomenon that holds great potential for positive change. By fostering a deep understanding of the interplay between these two forces and embracing a holistic approach to development, the global economy can leverage the double-edged sword to steer towards a more sustainable and inclusive future.
Dr. Firdous Mohd Farouk and Associate Professor Dr. Lai Kee Huong are lecturers with the School of Accounting and Finance, Faculty of Business and Law at Taylor’s University. Taylor’s Business School is the leading private business school in Southeast Asia for Business and Management Studies based on the 2023 QS World University Rankings by Subject and has received the Association to Advance Collegiate Schools of Business (AACSB) accreditation.
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