The United Nations Environment Programme (UNEP) released a report last month that examines the connections between fintech and sustainable development in a new domain area, which it calls ‘fintech for sustainable development’ (FT4SD).

Titled “FinTech and Sustainable Development: Assessing the Implications”, the report has been authored by Juan Carlos Castilla-Rubio (Space Time Ventures), Simon Zadek and Nick Robins.

The report says that currently the financial system is both in transition and turmoil. It noted that while the use of technology in finance is not new, a step change is now expected with the novel application of a number of technologies in combination, such as blockchain, the ‘Internet of things’ (IoT) and artificial intelligence (AI).

“[T]he emergence of Bitcoin and its associated ecosystem of blockchains, sidechains and altchains have been described as a disruptive force in the financial sector…[Blockchain technology] holds the potential for a disruptive wave of innovations as it enables transparent interactions of parties through a trusted and secure network that distributes certified and auditable access to data”, it said.

The authors believe that the combination of IoT, blockchain and AI (which it calls FT4SD Gearbox) if deployed correctly, would enable the sustainable development agenda at scale. They argue that while IoT and AI will enable the ‘animation of the physical world’, blockchain’s smart contracts on the immutable distributed ledger will allow real economy assets, infrastructures and processes to interact with the financial system in predictable ways and with business models that were unheard of ten years ago.

“Providing this two-way real-time interoperability between the real economy and the financial system will be disruptive”, they added.

The report further emphasized that in the blockchain-enabled FT4SD universe, top-down regulatory mandates are unlikely to achieve the required positive impact. However, it added that this approach will be necessary to create the enabling environments for blockchain-enabled value propositions that can be prototyped and proven at scale.

“In the short term, innovative central bank innovators are planning to provide regulatory grade data to incubate RegTech start-up hubs for their own purpose. This is a good move from leading-edge regulators that prefer to co-develop innovations and explore the possibilities (both good and bad), rather than wait to see what evolves and then try to regulate the innovations”, it added.

The authors further listed the key steps in the FT4SD innovation journey, which include convening the multi-stakeholder platform to jointly develop the standards required; co-developing the multiple FT4SD ecosystem-wide pathways for system-wide change; envisioning and co-designing FT4SD innovations; rapidly developing FT4SD prototypes and embracing agile “do, fix, learn” cycles; and bringing VC performance management rigour to FT4SD start-ups and multi-stakeholder initiatives alike.