In an ESG2 Financial Square conversation, Nasir Zubairi, CEO of the LHoFT, discusses with Niccolo Polli, CEO, HSBC Luxembourg, what role fintechs can play in the development of an ESG investment environment.
In the context of ESG and sustainable finance, what is the role of the LHoFT and fintechs in creating a favorable investment environment?
At LHoFT we see technology as an enabler for financial services and, increasingly, people see its value through fintechs supporting ESG and sustainable finance. With all the rules and reporting requirements for these activities, we see a green field for financial technology to enable the sector to be effective and efficient. We are already seeing the application of tokenization in the issuance of green bonds. We are also seeing their use in the creation of carbon-neutral credits for new bank accounts that are being opened at certain fintech neo banks in the US. We see a key component of the LHoFT’s role and future as concentrating on the broad ecosystem as Luxembourg emphasizes ESG and sustainable finance in its growth and activity.
“The banks and funds can marry their economies of scale and their skill set in financial products with the agility, ingenuity and creativity of fintech start-ups.”
Are there particular activities in which fintechs can contribute?
The new EU regulatory requirements being put in place for ESG and green investing has created an opportunity for regtech applications. We see a number of interesting start-ups emerging to provide efficient technologies and tools to enable institutions to comply. I have already held valuable discussions with a number of financial services players. Another activity that is creating great opportunities is in the investment fund industry where firms are seeking indexes or benchmarks to help measure the impact and effectiveness of investing in different green initiatives. For example, one company is creating metrics around the impact investments have on different equities and assets so the effects can be built into financial models to allow better understanding about the source of returns.
What would be your message to the typical traditional firms, like banks and funds in terms of working with fintechs?
The banks and funds can marry their economies of scale and their skill set in financial products with the agility, ingenuity and creativity of fintech start-ups. That way they can offer better solutions to their clients. When we talk about the issuance of green bonds, for example, there is hesitancy sometimes from firms. That is principally because the costs are going to be higher with all the new reporting requirements. However, nowadays you can use tokenization to help reduce the expenses of the initial part of an issue and maybe set a foundation and a framework to integrate technology for future issuance. As new tools arrive, you're going to make that product more attractive. So, I think working together and recognizing each other's strengths will ultimately lead to a better market and a better industry.