Regulatory challenges are hindering widespread acceptance of green finance products, says a new paper from FTAHK and LITE Lab@HKU.
FTAHK (The FinTech Association of Hong Kong) and LITE Lab@HKU have published a new white paper calling for the use of regtech to facilitate the development of green finance markets.
While the demand for green finance products is expected to grow in the years to come, regulatory challenges are hindering widespread acceptance of such products, the paper says.
Among these challenges, greenwashing has been a key focus for regulators, reporting and disclosure practices are often insufficient, the presentation and measurement of environmental data is still inconsistent, and climate risk is often excluded or simply miscalculated by firms.
“These regulatory challenges damage investors’ confidence and harm the development of green finance,” the paper says, arguing that regtech has a key role to play in addressing the challenges.
The paper describes how four regtech applications can help improve the adoption of green finance.
- Using social media, eco-labelling and blockchain technologies to combat greenwashing
- Using blockchain for land registration to decrease the risks of green investments
- Using data technologies, such as cloud and machine learning, for the disclosure, comparison and monitoring of climate risk and environmental data
- Using data technologies and statistical tools, such as scenario analysis, simulation and stress testing, to enhance risk management and governance frameworks
To make technologies more effective, the paper says regulators should continue to take the lead in the development of green finance to encourage market developments, including to create and adopt a globally unified standard and benchmark for green finance.
Regulators also need to ensure there is sufficient disclosure to enable investors and the public to understand the nature of green investments as well as to empower them to monitor and evaluate the environmental progress of those investments.
“The paper’s launch comes with COP26 ongoing in Glasgow and IOSCO coincidentally also issuing their guidance against greenwashing,” said Brian Tang, FTAHK Board member and LITE Lab@HKU founding executive director.
“We hope that our white paper can increase discussions and implementation of ABCD technologies (AI, blockchain, cloud, data), and in particular more alternative data, to improve transparency, disclosure and accountability and grow sustainable financing to address these pressing issues of our planet.”
A full copy of the white paper is available here.