Fintech for Sustainable Development: Assessing the Implications

This report from the United Nations Environment Programme (UNEP) which I am about to overview is technically the second of a two-part release — the first, which provides a general overview of the relevance of fintech (financial technology) to sustainable development, is available here. While this report is ostensibly concerned with fintech specifically, there are arguably far more valuable implications (for our purposes, at least) regarding the ever deepening-relationship between the UNEP and the global financial sector more generally, that can be drawn from a simple review of the stated goals and intentions contained within.

Right from the executive summary, for instance, we have good cause for concern. Part of my near-obsessive focus on the financial aspects of sustainable development is informed by what I know about other attempts that have been made, throughout history, toward the formation and management of a planned economy — namely, that they generally don’t work very well. Not in the sense that we, as average consumers, would readily identify as ‘well’, anyway.

So when I see that there’s a focus on “society at large” and phrasing such as “a net-positive impact,” I’m concerned: neither of these terms necessarily mean that even most people will benefit; it means, all things considered, it averages out as positive. To be more precise, it could very well be that a comparatively small percentage of folks come out of this transition much better off economically than before, while everyone else is negatively impacted, some perhaps quite severely — this would still ‘average out’ as a positive impact. Or, it could be that any losses incurred here in the present are “worth it” purely for the supposed benefits that will be gained for future generations from aligning the global financial system with sustainable development — but the thing about the future is that it can never be “the future” now. It’s a very convenient thing to point to as a means to justify all sorts of horrible ideas and initiatives that take place in the present, and I don’t think I need to spell-out the types of ideologies that have done exactly that throughout human history.

Furthermore, we’re presented with a little something that I like to call, techno-tarot reading, i.e. attempting to “predict the future” by use of computerized models and ‘forecasting’ by extrapolating historical trends into the future. I compare it to tarot reading because it’s just about as effective: Simply put, there are far too many possible variables that could have a major effect on the outcome of any particular “prediction model”, and it is not humanly possible for even a team of several hundred scientists to account for every single one of those highly-important variables — it just isn’t. Several hundreds, maybe even thousands of meteorologists across the globe continue to make notable errors in trying to predict the weather over the next two weeks, and they think that they can use those same prediction methods to tell us the state of the global economy two decades down the road? Are you kidding me?

Notwithstanding all the techno-babble in use here, it would appear that Mark Carney has forgotten that economics is a social science; meaning it is not beholden to the same standards of predictability as are physics or computer science.

So, what is the UNEP up to with all of this ‘fintech’ stuff, anyway? Well, as I briefly covered in a previous post, much of the push toward “financial inclusion” and “sustainable finance” comes from two directions; both being united by their common goal of making more money: the UN (obviously) and a handful of key players in the international banking system. For the UN, the issue is simple: if they’re ever going to have the planned, decentralized and ‘green’ economy of their dreams, they’ll need not only the funding to make it happen but as well the regulatory power to ensure that everyone’s playing by their rules — lest they be hit with fines and taxes for unsustainable business practices, the revenue from which will assuredly end up in the UN’s coffers. As for the bankers, some 2 billion people in the developing world have no bank account (the ‘unbanked’) — meaning they also pay no interest rates or overdraw fees, they have no credit card debt siphoning off their limited income, they’re taking out no loans and no mortgages — you get the idea. Just as “female empowerment” is more about expanding the income tax base and lowering birth rates than it is about women’s well-being, the same two-faced logic applies to “financial inclusion” — these poor folks have no ‘opportunity’ to rack up lots of debt, you see? Oh, the inequity!

Make no mistake, this is exactly what happens to these people, by the way. One cross-country comparison between microloan recipients in Bangladesh and payday loan recipients in Canada found that both ‘products’ tend to attract the same kinds of people to them from very similar backgrounds, for largely the same reasons — i.e., neither group tends to use these loans for re-investment, such as starting a business; rather, they use them to cover day-to-day expenses at exorbitant interest rates, thus entrapping themselves in a cycle of never ending debt (Islam & Simpson, 2018). If you know how bad the consequences of payday lending can be for people in the first world, imagine how bad it is for someone who’s already living in third world-levels of poverty.

Now, part of the reason why the UNEP, of all possible agencies, is so heavily invested (emotionally and literally) into fintech and other start-up technologies is because many of the “incumbent banks” — the top-players of our current system — don’t think that completely up-ending the global financial system to move the focus away from profits and toward complying with heavy-handed, UN-decided environmental regulations is a particularly attractive road to go down. In the next excerpt, the UNEP openly admit that start-ups in this area are better to invest in for the pursuit of ‘change’, specifically because their owners tend to be new to the world of business and, as such, don’t know enough about what they’re doing to avoid being manipulated — and that’s where the UNEP comes in.

‘Do, fix, learn’ cycles, AKA “shoot first, ask questions later.”

It’s not until the second chapter that we get to the real meat of the matter; namely, what sustainable finance really has to do with sustainable development in general, aside from its potential use as a money-grabbing tool; at least some of which will, we are re-assured, actually end up being put toward some sustainability project or another. Sadly, this is not really explained in any meaningful manner — instead, we are treated to a ‘double helix analogy’ that is apparently meant to clear things up for us. Each of the terms listed below is expanded upon with an additional two or three sentences; amazingly, I remain unsure of exactly what the hell they’re talking about and will not waste any more space trying to figure it out.

The authors do not provide any further justification as to why the double helix analogy is any more appropriate than, say, a simple flow chart. I’ll have to assume that they did so because the DNA graphic “looks cooler.”

What I can do, however, is fill in a few gaps between what might be called “standard financial vocabulary” and “UN-Newspeak vocabulary”, because the two differ from one another in several crucial ways. First of all, “Redefining accounting for value”, here, is not referring solely to the monetary value of a given product or investment; rather, it refers to the environmental and social ‘value’ of the product/investment, with the monetary/economic value serving as something of an afterthought. In other words, the idea is to integrate the financial sector into the spheres of social/environmental concerns, such that anyone wanting to take out a loan is required to meet UN-defined social and environmental standards in addition to satisfying the financial risk threshold for whatever it is you need the loan for. As I briefly discussed in an earlier post on fintech and personal banking, this could get messy very, very quickly.

I’ll end this overview with my personal, absolute favourite part of this document, which is in the section on “possible, unintended consequences” that might come as a result of completely digitizing the world financial sector; specifically, the part where they admit that there’s just this one, giant conflict of interest in doing so: energy.

See, from the UN’s perspective, energy is the currency of the future. Almost everything they’ve done, or tried to do with the climate file, relates in some way to achieving their ultimate goal of controlling the production, distribution, and use of energy. This is why they’ve gotten their hands dirty with the clean energy crowd; start-up companies, as outlined above, are much easier to manipulate than incumbent companies — such as those involved in oil and gas production. So, when it happens to be the case that the current amount of energy used in bitcoin mining is about the same as the annual energy consumption for the entire nation of Ireland, they’re gonna have themselves a bit of a problem. Simply put, unless they’re willing to reverse their stance on nuclear energy, there is no conceivable way of producing the amount of energy that would be required to power even more bitcoin mining-CPUs in a manner reliable enough to sustain the global economy, without resorting to fossil fuels.

Whoops!

So, to recap: the ‘implications’ for the future of finance, as it were, appear to be oriented around the UNEP’s effective infiltration and subversion of the sector’s machinery. As demonstrated in both this publication and elsewhere, both private and public capital — e.g., pension funds; see this post from Canuck Law for an in-depth analysis of how the Canadian Pension Plan is being mobilized to fund sustainable development projects overseas, as one example — are to be tied to what we might consider to be an ‘energy standard’ for the determination of economic value, in lieu of the ‘gold standard’ of decades past; of course, we can make a reasonable guess that it will be the UNEP itself who will get to call the shots regarding the proposed ‘conversion rates’.

Whether or not this is a workable, never mind a good idea appears to be largely irrelevant, in terms of genuine concern for the environment or otherwise. Rather, the desired end-state is for both large and small-scale financial operations to become completely digitized — i.e., the institution of a cashless society wherein it becomes an effective necessity to be “on the grid” in some manner should one have any hopes of receiving or making payments within the system. As such, all transactions will become traceable to some extent and much, much more easily monitored and profiled. Combine this possibility with that of the ever money-hungry UNEP being placed at the helm of global economic operations, and it is not a far leap from this proposal to that which is currently being tested in China, whereby financial and/or game-ified smartphone applications are used to provide “nudges” toward desired behavioral changes among its users.

More worrying, however, is the potential for this UNEP-guided financial system to be used as a means of forcing both individual and corporate capital to be invested into those firms, products and projects that the UNEP happens to approve of, while effectively being prohibited from investment into those firms, products and projects deemed to be less favoured. Again, as I mentioned in my previous post on the subject of fintech, we might one day find ourselves in a situation wherein virtually every aspect of consumer behavior can be, in some way, tied back to a growing profile of ‘sustainable’ (or, conversely, ‘unsustainable’) personal behaviors, such as whether or not we drive a gasoline-powered car to work or how much meat we like to consume on a weekly basis: once every single financial transaction is made electronically, it will become quite easy to tell which bank accounts are visiting gas stations or buying burgers off Skip The Dishes. If we think of the Chinese social credit system as dystopian now, just wait until the UNEP adopts this model into a sustainability credit system: if the impending deluge of sin taxes on a variety of ‘unustainable’ products (such as meat) doesn’t leave you too financially destitute to even consider moving out of the expanding surveillance networks that increasingly characterize our urban areas, then the ‘sustainability-fees’ and penalties incurred from filling up your gas tank just a wee bit too often than what has been decided for you by some anonymous, mid-level bureaucrat at the UNEP ought to do the trick. This is the hell of financial enslavement that awaits high-income countries, never mind the highly predictable, likely disastrous consequences that could be had for those living in low to middle-income economies.

None of this, of course, is going to be of any tangible benefit to the environment, as was basically admitted during the discussion above regarding the massive amounts of electricity required to power the new, digitized economy. All of this is entirely concerned with handing the reigns of legal and regulatory oversight over the world financial sector — and, in doing so, the “means of production” in the global economy at large — over to the UNEP, the wider UN system, and their chosen lackeys and faithful enforcers: as previously described by this report, incumbent firms are far too set in their ‘old ways’ of doing things for the UNEP’s tastes; thus, it has become necessary for newer, more malleable start-ups to be manipulated into positions of power and influence that, eventually, may come to rival and, assuming all goes according to plan, perhaps even knock their predecessors out of the competition entirely. In other words, they are not seeking to ‘transform’ the world’s financial system so much as they are looking to replace it outright. ‘Climate change’ serves only as the justification provided for doing so.

Sources

Islam, K. J., & Simpson, W. (2018). Payday lending and microcredit: Two faces of the same problem? Journal of International Development, 30, 584-614.

Castillo-Rubio, J. C., Zadek, S., & Robins, N. (2016). Fintech and Sustainable Development: Assessing the Implications. United Nations Environment Programme, retrieved from https://unepinquiry.org/publication/fintech-and-sustainable-development-assessing-the-implications/.

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