Financing sustainable development and ensuring a resilient financial system are key current global challenges. However, a number of barriers limit the mobilization of such finance at scale. For example, the lack of disclosure of environmental and social information creates information asymmetries and increases search costs for sustainable investments. Similarly, investors face difficulties in fully identifying, assessing and pricing risks associated with unsustainable investments as well as upside opportunities.
Digital finance, which includes big data, artificial intelligence (AI), mobile platforms, blockchain, and the Internet of things (IoT), is demonstrating its ability to address these barriers and promote sustainable, inclusive economic growth. AI alone could lift global GDP by an estimated US$15-20 trillion by 2030. At the same time, technology advancements have not benefitted all equally, and the unintended consequences from such advancements have contributed to some of the most pressing environmental and development challenges today. Indeed, while the financial system has been at the forefront of adopting new technologies, its application of digital finance to sustainable finance is limited, and the impact of digital finance on scaling sustainable investments is far from certain. This creates opportunities for international cooperation and policymakers to address potential market failures, cross-border issues and common risks, better enabling digital finance to increase financial flows towards sustainable and inclusive investments. The G20 has recognized the importance of these developments for the financial system and its relationship with sustainable development in the real economy. Through its Sustainable Finance Study Group (SFSG), it is exploring opportunities to better leverage digital technologies for financing sustainable development, as well as the challenges that limit the effective use of digital technologies for this purpose, and how they might be overcome, particularly across capital markets, private equity and venture capital (PE/VC).
Digital finance makes large amounts of data available more quickly at lower costs, increasing transparency and access to information related to sustainable investments. It also promotes greater inclusion and innovation, increasing opportunities for citizen participation in the financial value chain and unlocking new sustainable business models.