Luckily, stock markets do aim to support ESG, with Hong Kong, Singapore and Jakarta all exploring the launch of wide-scale voluntary carbon markets.
However, simply classifying financial assets as ESG does not deliver better outcomes if those funds cannot land where they are most needed.
Over half of the global investment towards net zero needs to happen in the developing world – Asia alone requires $3 trillion annually from now until 2030 to achieve the UN Sustainable Development Goals .
MSMEs create over 80 per cent of all jobs in developed or emerging markets, and contribute significantly to growth, social stability, and innovation.
The plain fact is that global finance as currently structured does not find it profitable to lend or invest in small amounts to small enterprises.
Since SMEs account for over 40 per cent of the emissions reduction in value chains and are too small to access banks and stock markets, how can they contribute seriously to achieve NetZero? These inequities occur everywhere even when intentions are good.
Even lowering the minimum loan threshold from US$25 million to US$12.5 million in the recent Budget is unlikely to attract more SMEs to apply, since, by definition, most SMEs have revenues of less than US$20 million.
Many factory owners find it faster and easier to get a second mortgage or consult a money lender rather than go through the hoops of meeting well meaning “know your customer and antimoney laundering conditions.” The good news is that digitalization can help by drastically lowering the cost of loan processing while creating trusted data needed to improve risk management.
Can we scale the same model for SME finance, with an ESG twist? Any ESG oriented project or company should be able to “list” its credentials and funding requirements through a digital platform, using ESG data formats verified by blockchain against existing audit providers or cloud platforms drawing data from simple hardware such as sensors, smart cameras, and robots.
Whilst universities, banks, and multinational companies have launched incubators or startup competitions with the best of intentions, such schemes are top heavy and lack scalability.
The marketplaces that daily matches supply and demand through standard bulletin boards, data credentialling, and trusted clearing and payments platforms are none other than today’s stock markets.
These platforms would match holders of nature based or technology climate assets with potential buyers of carbon credits through a credentialed, secure, trusted process that could be global on both ends .
But why stop at carbon credits? By opening up these platforms to ESG positive projects or companies, carbon credits plus ESG fund matching become part of the same game.