Long reads

The future of ESGtech: Goal 1 - No poverty

Madhvi Mavadiya

Madhvi Mavadiya

Head of Content, Finextra

End poverty in all its forms everywhere. This is an extract from Finextra's The Future of ESGTech 2022 report.

Focus Target 1.4: By 2030, ensure that all men and women, in particular the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership and control over land and other forms of property, inheritance, natural resources, appropriate new technology and financial services, including microfinance.

Data is now an integral part of the daily lives of most people everywhere. But the real question here is how can data impact the 700 million people living in extreme poverty and will the explosion of new types and uses of data improve their lives? With stagnant progress, it could be said that poor people and poor countries may be left behind, creating a widening gap between those who reap the benefits of this new data-driven world and those who do not, or cannot.

A Berenberg survey found that respondents ranked No Poverty as the third most important SDG. However, this goal was also ranked as one of the five least investible, questioning how progress can truly be measured. According to an Equilibrium ProRisk blog, the eradication of poverty through an ESG strategy might involve supporting job creation, ensuring the economic wellbeing of workers, ensuring that the poorest are not disenfranchised by a project and making sure that there is a net positive effect on sustainable wealth generation.

However, with the proliferation of concern around data protection and while regulators in developed countries are establishing data sharing initiatives, lower-income countries may lack the infrastructure and skills to facilitate these frameworks, capture the data and transform it into actionable insights. Further, public debt data in some countries is not transparent, allowing governments to overborrow or hide debts from citizens and creditors, as highlighted by the World Bank Group.

“This vulnerability is compounded by the high (reported) debt levels of lower-income countries at the outset of the Covid-19 crisis and the changing composition of private creditors and debt instruments. In 2019 almost half of all low-income countries were either in debt distress or at high risk of it. As the pandemic pushes as many as 150 million people into extreme poverty, countries may need to take on substantial additional debt, which could result in large debt overhangs that could take years to manage,” the World Bank Group report read.

With transparency of debt data comes access to basic services, control over property, inheritance, natural resources, appropriate new technology and financial services. This also helps lower income countries assess their debt and work towards achieving sustainable debt levels. But what can banks, or development finance institutions (DFIs), do to help reduce poverty? According to ODI, DFIs must have data to substantiate claims of poverty alleviation.

While most of these organisations report on total number of jobs created, tax revenue mobilised and paid to government, increase in energy supplied and CO2 emissions avoided, specific metrics are required.

For instance, on job creation, ODI highlighted considering ESG data on the distributional impacts on the division between skilled and unskilled jobs, rural and urban employment divide, average incomes and national poverty lines and impact across gender and youth. “Stepping up efforts in these areas will help DFIs shrug off claims of SDG 1 ‘impact washing’. Aid is a precious resource that can be used in a variety of ways to tackle poverty. We need to be confident that investing aid in and through DFIs alleviates poverty,” the ODI said.

After ensuring open data and utilising it to substantiate claims of poverty alleviation, to truly provide people with ownership over their financial services, financial inclusion is crucial. By making formal financial services accessible and affordable to lower income people, savings, investable funds, and accumulation of wealth is all attainable. Growth becomes inclusive, income gradually becomes equal, and poverty is reduced. However, financial inclusion is not a quick fix; eliminating poverty – in all its forms - requires a long-term strategy.

Summarising these key messages, World Bank Group president David Malpass stated: “Data offer tremendous potential to create value by improving programs and policies, driving economies and empowering citizens. The perspective of poor people has largely been absent from the global debate on data governance and urgently needs to be heard. Lower-income countries are too often disadvantaged due to a lack of institutions, decision-making autonomy, and financial resources, all of which hold back their effective implementation and effectiveness of data systems and governance frameworks. International cooperation is needed to harmonize regulations and coordinate policies so that the value of data is harnessed to benefit all, and to inform efforts toward a green, resilient, and inclusive recovery.”

ACTION FOR 2022: Make formal financial services accessible and affordable to lower income people.

Comments: (0)