Now encapsulating a focus on societal impact and the environment, the term ‘fintech for good’ has evolved from its initial meaning of charity. But it doesn’t stop there. This July, we are on the hunt to find out how the fintech industry is doing ‘good’ for local communities and the world, revealing current and future plans to make change.
Over the past two years, the buzzword ‘artificial intelligence’ (AI) has been inescapable. Transcending sectors and quickly creeping into people’s everyday lives, AI appears to offer almost limitless potential whatever way you look.
As our focus on ‘fintech for good’ continues, we’re honing in on the topic of environmental, social, and governance (ESG), and asking how AI is impacting this space.
AI supporting ESG initiatives
Chris Bourne, fintech expert at NorthRow, breaks down various ways AI can help ESG initiatives hit their goals: “We’re witnessing a shift towards sustainable growth models, emphasising real-world benefits over short-term gains. Investors and consumers are increasingly perceptive, favouring purpose-driven innovation. This trend is expected to continue, with a strong focus on ESG strategies, responsible operations, and improving diversity and inclusion.
Chris Bourne, a fintech expert at NorthRow
“Emerging technologies, such as AI and machine learning, are pivotal in driving these opportunities within financial services. AI significantly impacts ESG initiatives by providing advanced tools for better data analysis, risk management, and decision-making.
“These technologies enable businesses to monitor and report ESG metrics more accurately, identify potential risks early, and ensure compliance with evolving regulations. Furthermore, AI facilitates the automation of ESG reporting, making it more efficient and reliable. As we navigate regulatory challenges, partnerships and compliance will be crucial for long-term success.
“While ESG initiatives and the introduction of regtech may seem lower on the priority list for compliance leaders, this is likely because these initiatives are already being effectively managed within broader compliance strategies. Integrating AI into these processes ensures businesses can continue meeting ESG goals while adapting to regulatory demands. Overall, despite the uncertainties, the future of fintech looks promising. By embracing innovative collaboration and focusing on market needs, we are gearing up for a compelling and prosperous 2024 and beyond.”
Significant AI potential
Simon Axon, financial services industry director, international at cloud analytics and data platform Teradata, explains how AI could prove transformative when it comes to data integration: “In financial services, the impact of AI on ESG is still early days because the focus is on data quality and reporting.
Simon Axon, financial services industry director at Teradata
“However, I have already seen AI driving value when it comes to enhancing data integration. Banks must source more granular data externally to complement the structured bank data, for example, the Energy Performance Certificates (EPC) to understand environmental impacts. The role of AI here is to accelerate the matching process.
”We are also seeing a focus on AI to drive the Anomaly Detection process to improve data quality. At one bank, we reduced the time to create a regulatory report by five days through more efficient data quality monitoring. Using AI, I am also starting to see more enhanced analytics to predict environmental impact, feeding into open finance, for example with MoneyHub. In time, carbon emissions will be part of every customer’s personalised dashboard in their app.
”This is still proof of concept, but satellite imagery is a powerful data source to track emissions by business unit. Yet, as financial services move from reporting to analytics, there will be a huge growth in this area in the next 12 months.”
‘AI can be a force for good’
Although many still associate negative connotations with AI, such as robots taking over the world, or putting people out of jobs, it can still have a hugely positive impact on the world, says Majda Dabaghi, chief sustainability officer at ekko, a sustainability platform for banks and payments.
Majda Dabaghi, chief sustainability officer at ekko
“AI can be a force for good and a catalyst for sustainable development, from increasing food security to preventing human rights abuses and delivering essential services such as health and education.
“Given that nearly four billion people are already living in areas highly vulnerable to climate change and the associated risk multiplying, according to the World Health Organisation, it has never been more urgent to increase the speed and scale of the solutions we have at our disposal to address these risks. AI is proving to be one of these useful tools to help with both mitigation and adaptation to climate change. For example, through AI, we can now predict severe weather events and air quality to better support governments and local communities with their response. AI is also allowing us to track, trace, and reduce emissions across industries and improve the efficiency of energy use, agricultural practices, and supply chains, to name a few.
“At the same time, we will need to balance the many ways in which AI is allowing us to accelerate climate action with addressing the associated environmental, social, and political risks of this technology.”
‘Poised to have a particularly powerful effect’
“AI is significantly impacting ESG initiatives by fostering transparency and accountability, enhancing data analysis and improving decision-making,” says Thomas Brock, expert contributor for Annuity.org. “For example, in the environmental domain, AI is helping some companies to reduce carbon footprints by continuously monitoring energy utilisation, analysing the data on a real-time basis and formulating action plans to drive more efficient resource management.
Thomas Brock, expert contributor for Annuity.org
“In the social and governance spheres, AI tools are scrutinising vast amounts of data to identify patterns of unethical behaviour, such as fraud, corruption and discrimination, thereby improving corporate reputations, promoting sustainability and bolstering compliance with regulatory standards.
“ESG investing is an area in which AI is poised to have a particularly powerful effect. Currently, companies’ ESG scores are largely dependent on self-reporting – with minimal accountability and a lack of consistency in the quality and granularity of the information provided. AI-driven ESG assessments could revolutionise the process, introducing a way to objectively and rigorously measure ESG effectiveness in more verifiable ways.”
Leveraging automation
Eric Croak, CFP, president at Croak Capital, said: “AI has made a significant impact on ESG initiatives within the fintech sector, particularly noticeable as we look at developments in 2024. There’s a growing recognition of the need for sustainability and responsible investing, and AI technologies are increasingly crucial in this area.
Eric Croak, CFP, president at Croak Capital
“AI algorithms have the capability to sift through large quantities of data pertaining to environmental impacts, social responsibilities, and corporate governance practices, providing valuable insights to investors and financial institutions.
“Moreover, AI is instrumental in automating the processes of ESG reporting and compliance, helping companies to more effectively showcase their commitment to sustainable practices. As the integration of ESG considerations into investment strategies and compliance with regulatory requirements become more prevalent, AI-powered ESG solutions are expected to significantly influence the future of finance, starting from this year onwards.”
AI praise is ‘premature’
Nicolas Mottis, full professor at Ecole Polytechnique Paris
While the consensus appears to be that AI is already significantly impacting ESG initiatives, not all agree. In fact, “saying that [AI] is impacting ESG initiatives is a bit premature,” explains Nicolas Mottis, full professor in the management of innovation and entrepreneurship department at Ecole Polytechnique Paris. “In most cases, organisations are still in an exploratory phase. The first applications of AI I have seen are quite impressive for data collection and analysis.
“By definition, ESG data are very heterogeneous and so far, really unstructured for most of them. AI-based solutions can crunch an amazing quantity of data from extremely diversified sources and produce high-quality synthesis in a very short period of time. These analyses seem to be quite exhaustive and reliable, but experts still have to learn how to validate and use them.
“Combining them with some robust human peer judgments, bringing some nuance and long-term perspective mobilising creativity and imagination, is a practice that remains to be conceived in most cases.”
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