The new report by GDFA, the public private partnership co-founded by the UN Environment Programme and Ant Financial Services launched at Davos in 2017, explores how digital technologies can be utilised to enhance financing for sustainable development and positions Alipay’s Ant Forest initiative as an example of a large scale shift to green behaviour.

Released on the same day as the UN Secretary-General’s call to action for the establishment of a citizen centric financial system with fintech, the report highlights how this green digital scheme is intended to encourage users to participate in low-carbon activities such as paying utility bills online or walking to work.

Individual carbon accounting

In what could be the first step towards individual carbon accounting, Alipay’s Ant Forest has already analysed 550,000 Chinese users’ actions and they have been rewarded for their ‘green behaviour’ with points proportional to the carbon footprint avoided by low-carbon activities. This ‘green energy’ is visualised as virtual trees on the gamified Alipay app.

In the pilot phase of Alipay Ant Forest, the following activities awarded individuals green energy points:

• Off-line mobile payments (e.g, buying movie tickets and train tickets online) - 5 g of CO2
• Online payment of utilities (water, electricity, and gas bills) - 262 g of CO2
• Public transportation - 80 g of CO2
• Walking – N/A
• Making appointments online (i.e, payment of traffic violation fines) – N/A
• Electronic Toll Collection payment – N/A

Ant Forest was also offered via GCash Forest in the Philippines in 2019 and has since scaled to 3.5 million users.

The potential for green mobile platforms

In conversation with GDFA’s Marianne Haahr, she highlights that while green mobile platforms are poised as powerful mechanisms to inform and encourage citizen action towards carbon reduction, they can also address barriers to scaling sustainable finance and promote innovation that unlocks sustainable investments in a real economy.

“Green finance is to a large extent only accessible to either large corporates or sovereigns via green bond issuances or green lending. The same holds true for accessing investments via ESG labelled funds. Despite the popularity of these types of financial instruments, they still account for a small share of total financial flows capital.

“Out of a trillion-dollar bond market only approximately 2% are green and less than 1% of exchange traded funds are labelled ESG. Some explanations for this situation is that transaction costs are too high to structure green bonds for smaller assets and since the green economy is new green assets and projects tend to be smaller in size than what capital market requires. There also tends to be too little or too low-quality data of green and ESG assets.”

Scaling assets

Haahr continues to say that green mobile platforms address barriers to scaling green finance by first “significantly bringing down the transaction costs associated with green bond issuance, which makes it possible to issue green bonds to raise capital for smaller sizes of green assets and projects.

“Secondly, green mobile platforms can also use their data capabilities to bundle many smaller assets into one green investment vehicle and automatically track and verify both the use of proceeds (capital invested) and proof of impact (that the assets deliver the green impacts promised).

“The latter is especially relevant in the case of SME finance where green mobile platforms can offer users to invest into smaller digital green bonds with the underlying asset being a bundle of green SMEs. Or it could establish a green SME exchange and offer users to invest in green equity.”

Haahr also says that an additional barrier is the low degree of incentives to invest in improving energy efficiency or lowering the carbon footprint of a SME value chain – an issue that mobile money or digital technology platforms can resolve with predefined green behavioural KPIs, automatically adjusting the cost of capital fluctuations depending on performance, or incentivise shifts towards green behaviour with initiatives like Alipay’s Ant Forest.

Incentivising CO2 feedback

The report also predicts that the market size for a project such as Ant Forest would equal three times the current population of the US, when evaluating seven high emission countries. This number of users could lead to a reduction of up to 8.6% of emissions linked to public transportation, if similar green schemes were launched between 2020 and 2030.

Alex Pentland, co-creator of the MIT Media Lab adds: “Digital platforms have the ability to scale green behaviours exponentially because they via automated personalised CO2 feedback on behaviours, gamification and network effects manage to establish new green behaviours as the norm that are rewarded and recognised across large digital communities”.

Alongside this, Alipay’s initiative is innovative in that instead of measuring the impact of carbon emissions from a production standpoint, the amount of CO2 released at the point of emissions is analysed. While this model estimates that the largest share of potential users of a mobile application can incentivise citizen action towards carbon reduction, the report also points out that this could be concentrated in India and Brazil, and that over 600 million trees could be planted.

Common frameworks and the future

Haahr explains that “just as we have carbon emissions trading schemes for large industries, which are essentially markets for externalities that are politically created. Today it is possible to design a common framework for ascribing each citizen a carbon budget as a proportion of the global carbon budget.

“Offering citizens the opportunity to monetise carbon savings by selling these as carbon credits to other citizens on a platform is a way to ensure that poor, who often have the lowest carbon footprints, benefit. Mobile money platforms could then be software partners to these citizen emission trading scheme platforms.

“Another model could be to tie citizen digital carbon accounting to the taxation system, so that taxes would automatically increase above a pre-defined citizen carbon emission limit.”