Innovative Business Models

The Task Force highlighted three fundamental features of digital financing: more and better data, reduced transaction and intermediation costs and the emergence of innovative business models.

Parametric insurance products can support greater resilience to climate change. Index insurance is a model which triggers automatic pay-outs to farmers based on automated satellite readings and weather and rainfall meters. Public- private initiatives are experimenting to remedy challenges of imperfect coverage, liquidity constraints and lack of trust among farmers, and improve contract design and marketing to reach more people. The World Bank’s Global Index Insurance Facility (GIIF) has supported the rollout of index-based insurance for over 27 million smallholder farmers and micro-entrepreneurs across Africa and Asia. Central banks are implementing policies to enable digital product innovation for SMEs and micro businesses to mitigate and build resilience to climate change, including climate-risk insurance, post disaster reconstruction and pay-as-you-go renewable energy.

Specialist crowdfunding and P2P platforms are democratizing sustainable investments, primarily in easily financialized SDG areas, such as renewables and sustainable infrastructure. Crowdfunding platforms like Bettervest and Oneplanetcrowd channel investments to community and small businesses’ renewable energy projects. Sustainability robo-advisors, like Betterment that specializes in sustainable investments and Ellevest that applies a gender investment lens are another option for conscious investors. These AI-based products offer reduced commissions with low capital thresholds and integrate users’ risk-adjusted returns preferences with their social and environmental priorities, based on companies’ environmental, social, and governance data.

Digitalization enables circular economy, sharing and usership-based models for car and bikes, office space, household equipment, clothing, food rescue, which can optimize processes to reduce cost, waste and environmental impacts. These innovations allow citizens with limited resources to get on-demand access to products or services. These are as relevant in East Africa, where Hello Tractor provides on-demand access to farming machinery, as in Europe with co-use of cars and bikes, office space, household equipment, and clothing.

Sharing models have had positive SDG effects on the economy through increased productivity and supplementary income streams, and on the environment through reduced production and waste. However, they can also provide highly contingent and insecure employment and income streams which risk leading to higher levels of inequality, exploitation and poverty.

Digital assets are starting to redefine how and what value is captured, offering a transparent, verifiable means for backing and exchanging values that traditionally were not priced in the financial system. Natural capital-backed digital assets, such as CarbonCoin, BioCoin or CedarCoin, are experiments in offering citizens the opportunity to invest in outcomes like reforestation and conservation. Applications and initiatives such as RecycleBank and JouleBug and ‘city coin’ developed by Colu use ‘gamification’ strategies to link real world sustainable behaviours through online ‘points’ to rewards and discounts.

While many of these are early stage enterprises, they demonstrate the potential for innovation using digital finance towards sustainable development challenges.