What defines sustainable investing is fluid and, of note to advisors and clients, contains some surprising elements. Gone are the days when emphasizing sustainability meant focusing on supposedly environmentally friendly companies and calling it a day.
These days, sustainable investing is broad, encompassing multiple themes. That also means more gateways to opportunity for advisors to discuss with clients. Sustainable is evident with the 17 Sustainable Development Goals (SDGs) set forth by the United Nations (UN) in 2015.
The pillars of the SDGs are economic convergence, healthy economic growth, environmental action and future infrastructure development. Within each group are several sub-themes, many of which are readily investable through concepts and strategies advisors are already deploying.
Broadly speaking, one of the prime opportunities in sustainable comes by way of a familiar concept: Disruptive growth. That's the case because even the UN acknowledges its goal reaching the aforementioned quartet of SDGs by 2030 is unlikely to happen. However, increasing adoption of disruptive, innovative technologies can speed the process along.
Fintech: Fertile Territory for SDG Advancement
Advisor discussing sustainability with clients can go broad or they can get tactical and the latter is actually a beneficial approach. Not surprising when evaluating disruptive growth's ability to spur along advancements in sustainability. Good news: Fintech is a solid, easy-to-understand starting point.
As just two examples, blockchain and digital wallets – two fast-growing fintech segments accessible via the ARK Fintech Innovation ETF (NYSEARCA:ARKF) – are playing pivotal roles in healthy economic growth.
“Financial inclusion is critical to a range of UN Sustainable Development Goals, said ARK research director Brett Winton in a recent whitepaper. “In 2016, the UN Secretary General’s office documented the link between financial inclusion and eight UN SDGs: eliminating extreme poverty, reducing hunger and promoting food security, achieving good health and well-being, fostering quality education, promoting shared economic growth, promoting innovation and sustainable industrialization, and building a more equitable and peaceful society.”
Digital wallets, such as PayPal's Venmo and Square's Cash App, provide banking services to the unbanked, of which there are millions in the U.S. For various reasons, these customers opt not to engage with or are denied access to traditional banks. They turn to digital wallets to fill the void. Moreover, there's global sustainable opportunity here.
“We believe digital wallets offer a critical entry point for financial inclusion, especially in emerging markets,” adds Winton. “Between 2011 and 2017, the global unbanked rate declined as smart phones and digital wallets increased, as shown below. Between 2014 and 2017, mobile money accounts grew the fastest in low-income countries as mobile phone adoption jumped more than 1700 basis points to 67%.”
Don't Overlook Digital Wallets in the Sustainability Equation
Healthy economic growth speaks to equality. Prior to the advent of digital wallets, the unbanked were forced into high-fee, borderline predatory services just to do basic functions such as cash checks and pay bills.
Translation: Fintech very much plays a role, and a vibrant one at that, in sustainability. In fact, a case can be made that it's not sustainable to have millions of folks in a single country lacking access to financial services most of us take for granted.
As for clients, they can do well by doing good via fintech because digital purveyors can eat the proverbial lunches of old school banks.
“In ARK’s view, acquiring users at dramatically lower customer costs (CAC) and leveraging digital-only business models, digital wallets not only offer financial services more cost-effectively than traditional institutions but also can service consumers - especially lower income earners - who previously would have been unprofitable,” adds Winton. “Square’s Cash App, for example, is acquiring customers for roughly $5, while our research indicates that traditional banks pay $1000.”
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