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Financial technology firms servicing underbanked consumers as well as small and micro-sized enterprises have proven to be more resilient than their counterparts with low environmental, social and corporate governance (ESG) ratings during the Covid-19 pandemic, writes Naman Arora.
The S&P 500 ESG Index, a market-cap-weighted index designed to measure the performance of stocks meeting sustainability criteria, has seen a 10.5 per cent growth since the start of this year, while the S&P 500 has seen a 7.67pc return in the same period.
Lars Jannick Johansen, founder of Den Sociale Kapitalfond, a Denmark-based capital fund specialising in social investing, added: “Micro-finance companies, which use block-chain, are seeing significant demand for their services, and with financial technology innovations, they can deliver them at a lower cost, increasing their impact.”
ESG-centric responsible investing, also known as impact investing, is an emerging trend in financial institutions, where a holistic view of the company’s environmental record, social responsibility and the composition of the board of directors is weighed along with financial analysis to evaluate the future of an organisation.
According to a University of Bahrain research paper by Redha Al Ansari and Farah Alanzarouti, published earlier this year, the field shares several core principles with Islamic (Shariah-compliant) finance including financial stability and economic growth, poverty alleviation and wealth distribution, financial and social inclusion as well as environmental preservation.
The Covid-19 pandemic has increased the need for financial innovation like cashless banking and block chain-based agreements, with more firms and consumers adopting them worldwide for health and pragmatic reasons.
According to Lars, FinTech-related innovations like blockchain and artificial intelligence can easily be repurposed to amplify the impact of non-FinTech firms, as is being evidenced in high impact fields like telemedicine and education.
Dr James Gifford, head of impact advisory at Credit Suisse bank said: “Impact investing has gone mainstream. It is now the fastest growing segment within investing.”
In the Middle East, a myth still persists that firms with high ESG ratings sacrifice performance for principles. However, this is changing with the issuance of numerous ESG-focussed Islamic finance securities and products, like the Green Sukuk, issued last year by Saudi Arabia’s Islamic Development Bank.
