Paul Schulte, Advisor, Banking and Financial Services
August 22nd, 2019
Paul Schulte is the Founder and Managing Editor of Shulte Research based in Singapore. Paul's roles[...]
Category Archives: ESG / Financial Inclusion / Sustainable Finance
Greater Capitalism: How the pandemic is currently reshaping America’s economic system for the better
Forbes | | May 26, 2020
In a matter of weeks, Covid-19 spurred seismic shifts in how we work, learn and transact, and it helped usher in a new era that is smarter and fairer.
The surreal year 2020 produces a personal Groundhog Day effect. The clock moves at one-quarter speed as the time-numbing diversions and necessities of a century ago, from jigsaw puzzles to yeast, fly off the virtual shelves. Simultaneously, though, the world is transforming at a pace unlike any experienced since World War II. In a matter of weeks, seismic, permanent shifts have occurred in how we work, learn and transact. The most significant shift is taking place in our economic system itself.
See: OpEd: IT’S TIME TO BUILD
Capitalism, the greatest engine for prosperity and innovation ever created, was already under strain before the coronavirus pandemic. Despite a decade of impressive economic growth and job creation, a plurality of Americans still reported feeling as though the system was rigged, that hard work and playing by the rules no longer ensured success.
“It is scary when you had the lowest unemployment, the lowest African-American unemployment, the lowest Hispanic unemployment, the lowest women’s unemployment,” says Michael Milken, who has sat in the middle of several of these cycles, “and that’s how people felt.”
Those feelings have only accelerated this spring, particularly among the young. At the end of February, during the last week of the pre-Covid era, Forbes surveyed 1,000 American adults under age 30 about capitalism and socialism. Half approved of the former; 43% regarded the latter positively. Ten weeks, 80,000 deaths and 20 million unemployment claims later, we repeated the exercise, and those already dismal results had flipped: 47% now approve of socialism, 46% of capitalism. You can see those changing sentiments playing out in public, as ideas such as universal basic income, rent amnesties and job guarantees move rapidly from the fringe to the mainstream.
Amid the chaos and the disorienting paradigm shifts, though, something profound is also happening: The Invisible Hand is operating on itself with dispatch.
As one of the patron saints of capitalism, Joseph Schumpeter, could tell you, the creation of a new system requires the destruction of the old. So count Milton Friedman’s legacy as another coronavirus casualty. It was already on life support; even the fusty Business Roundtable declared last summer that Friedman’s shareholder-first dogma no longer held sway over its members. The funeral rites can now be witnessed at any grocery store or aboard any UPS truck, where the low-paid heroes previously termed “unskilled workers” are now known, with respect, as essential. Pity the CEO who argues for paying them as little as possible in order to protect the quarterly dividend.
The Too Big to Fail playbook from the last meltdown has proven archaic as well. From crowdfunding to cryptocurrency, the economic action became decidedly more bottom-up during the 2010s, and a pandemic taking particularly cruel aim at the entrepreneurs running businesses like restaurants and barbershops has many sharpening their pitchforks. Shake Shack founder Danny Meyer never embraced Milton Friedman—his customers, employees, neighbors and investors mostly worship him. But when his large, well-capitalized, publicly traded hamburger empire had the temerity to take a federal Paycheck Protection Program (PPP) loan, the public outcry could have melted chocolate custard, prompting Meyer to quickly return the check.
See: NCFA's FFCON20 DIGITAL | Global Fintech Now Jul 9 - Aug 27, 2020
Finally, we’ve ended the era of economic incrementalism. Slow and slight improvements don’t cut it right now; “as good as” isn’t good enough. The times demand systemic solutions greater than what we had before. Greater Capitalism.
If Friedmanism worshiped profits above all, this Greater Capitalism measures return on investment in all facets. Yes, it incorporates a large dose of the stakeholder economy that has slowly made headway over the past few years. But its roots lie not in big companies but in small businesses and entrepreneurs who ask for little more than a fair chance and a level playing field. If practiced correctly, Greater Capitalism will encourage the kind of smart, long-term, accretive actions that create permanent solutions.
Three binary formulas, “greater thans” all, encapsulate what’s been emerging over the past few weeks. History is unspooling in real time.
Ray Dalio
As the pandemic hit, Ray Dalio, whose Bridgewater Associates is both the largest and most hyper-rational hedge fund in the country, noticed something: As the kids of his native Connecticut were dispatched to attend school from home, the economically disadvantaged were doomed to fall further behind. Many were food-deprived, living amid density that both deprived them of private space and increased their likelihood of getting sick. And 22% did not have access to any home computer, much less one of their own, or reliable connectivity.
“I saw a real tragedy,” Dalio says. “And I saw a bunch of people pull together to say, ‘This must not happen.’ ”
Lubricated by an earlier $100 million pledge from Dalio, matched by the state of Connecticut, that “bunch of people”—including Bill Gates and Microsoft, Michael Dell and Dell Computer, and the legislative and educational leaders of the Nutmeg State—got 60,000 fully loaded computers delivered to low-income students.
For Dalio, who Forbes estimates is worth $18 billion, that decision was a no-brainer: an ROI-driven result at the heart of a Greater Capitalism. It’s also a harbinger of where philanthropy is going right now.
See:
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Can Fintech Make the World More Inclusive?
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The Cash Crisis: Why America’s financial plumbing has seized up
A subset of intellectuals have been railing against philanthropy of late, arguing for confiscatory tax rates to prevent the richest from having such societal influence. It’s lousy economic policy—while most billionaires have already girded for some kind of tax increase no matter who wins the 2020 election, Beatles-style rates would suppress growth more than generate revenue.
It’s also lousy public policy. Democracy is structurally poor at long-term outcomes. The cost of imprisoning a person—financially, much less socially—is many multiples of what it would have cost to educate and nurture him properly. But good luck persuading politicians to invest in 20-year outcomes when they’re simultaneously tempted by the sugar high of immediate action. Philanthropy can serve as risk capital for problems, proving concepts and making the mistakes that governments don’t dare.
But philanthropy, as currently practiced, has invited such scrutiny. Despite large subsidies in the form of upfront tax breaks, some $4 trillion mostly sits around perpetually waiting for the problems of tomorrow to arrive rather than systematically attacking the problems of today. By law, charitable foundations must put at least 5% of their assets to work every year—and for most of them, that 5% floor is also a ceiling. Meanwhile, the 730,000 trendy donor-advised fund accounts have managed to score the same tax breaks without any annual minimum outlay whatsoever.
The pandemic has highlighted this problem. At no point in our lifetimes has the public need been greater—and yet, because endowments have fallen in tandem with the market, the amount of philanthropic activity is likely decreasing.
And so key players are using this moment to morph philanthropy with an emphasis on transparency and a “give while you live” philosophy.
Exhibit A: 43-year-old Twitter and Square cofounder Jack Dorsey, who recently made headlines for pledging $1 billion toward the coronavirus crisis and related problems—and has been logging his donations one by one in a public Google Doc.
In May, a group of more than 275 philanthropists and professionals, led by the $100 million Wallace Global Fund, formally called on Congress to double the minimum outlay for foundations and donor-advised funds, for the next three years, to 10%—a move that would put another $200 billion to work. “It’s not about being a financial headstone that forever marks your coffin,” says Abigail Disney, one of the signatories.
“This should be about what the world needs, not how people remember you.”
See:
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Coronavirus: New Challenges and Opportunities for Fintech
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Coronavirus Is Widening the Corporate Digital Divide
Meanwhile, according to insiders, various signatories of the Giving Pledge have been holding discussions regarding whether to move past the group’s famous agnosticism about when and where to give (other than at least half their fortune before or when they die). Ideas include a pooled response fund to tackle Covid-related issues and efforts to encourage the give-while-you-live ethos. (No decisions have yet been made.)
The stakes right now couldn’t be higher. Economic tumult emboldens the fringes. During the Great Depression, communism, isolationism and nativism all surged—and that was before social media. Instead, a decade after the Depression, American businesses were the envy of the world, and American workers achieved a quality of life their parents and grandparents couldn’t have fathomed.We’re at that same crossroads right now: toward a Greater Capitalism, or a continued societal fraying, and the sobering alternative that this would all be for naught.
“We will have a revolution of one type or another,” Dalio says. “Either it’s going to be bad. Or we can do this thoughtfully, together.”
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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How This Billionaire-Backed Crypto Startup Gets Paid To Not Mine Bitcoin
Forbes |
It’s everyone’s dream to get paid to do nothing. Bitcoin miner Layer1 is turning that dream into reality — having figured out how to make money even when its machines are turned off.
Layer1 is a cryptocurrency startup backed by the likes of billionaire Peter Thiel. In recent months, out in the hardscrabble land of west Texas, the company has been busy erecting steel boxes (think shipping containers) stuffed chockablock with high-end processors submerged inside cooling baths of mineral oil. Why west Texas? Beause thanks to a glut of natural gas and a forest of wind turbines, power there is among the cheapest in the world — which is what you need for crypto.
See: Bitcoin’s “halvening” is upon us
“Mining Bitcoin is about converting electricity into money,” says Alex Liegl, CEO and co-founder. By this fall Layer1 will have dozens of these boxes churning around the clock to transform 100 megawatts into a stream of Bitcoin. Liegl says their average cost of production is about $1,000 per coin — equating to a 90% profit margin at current BTC price of $9,100.
So it’s odd how excited Liegl is about the prospect of having to shut down his Bitcoin miners this summer.
Already this year west Texas has seen a string of 100-degree days. But the real heat and humidity don’t hit until August, which is when the Texas power grid strains under the load of every air conditioning unit in the state going full blast. During an intense week in 2019, wholesale electricity prices in the grid region managed by the Electricity Reliability Council of Texas (ERCOT) soared from about $120 per megawatthour to peak out at $9,000 per mwh. It was only the third time in history that Texas power hit that level. And although the peak pricing only lasted an hour or so, that’s enough to generate big profits. Analyst Hugh Wynne at research outfit SSR figures that Texas power generators make about 15% of annual revenues during the peak 1% of hours (whereas in more temperate California grid generators only get 3% of revs from the top 1%).
Turns out that running a phalanx of Bitcoin miners is a great way to arbitrage those peaks. Layer1 has entered into so-called “demand response” contracts whereby at a minute’s notice they will shut down all their machines and instead allow their 100 mw load to flow onto the grid.
“We act as an insurance underwriter for the energy grid,” says Liegl, 27.
“If there is an insufficiency of supply we can shut down.” The best part, they get paid whether a grid emergeny occurs or not. Just for their willingness to shut in Bitcoin production, Layer1 collects an annual premium equating to $19 per megawatthour of their expected power demand — or about $17 million. Given Layer1’s roughly $25 per mwh long-term contracted costs, this gets their all-in power price down 75% to less than 1 cent per kwh (just 10% of what residential customers pay).
See: UNICEF Australia’s ‘The Hopepage’ Uses Crypto Mining To Raise Money For Children
It may seem like grid operators are paying Layer1 a lot for something that might not even happen, especially with coronavirus reducing electricity demand, but it makes total sense, says Ed Hirs, a lecturer in energy economics at the University of Houston and research fellow at consultancy BDO: “It’s a lot cheaper option than building a whole new power plant or battery system just to keep it on standby.”
And although this may be a new concept for cryptocurrency miners, it’s been done before. “It used to be called load management,” says Dan Delurey, a consultant with Wedgemere Group.
Two decades ago industrialist Charles Hurwitz bought up power-hogging aluminum smelters in the Pacific Northwest and made more money reselling electricity than making metal.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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No going back: New imperatives for European banking
McKinsey & Company | By Matthieu L, Debasish P, Ildiko R, Hiro S, and Marcus S | May 18, 2020
Now is the time for Europe’s banking leaders to reimagine how their institutions operate and their role in society.
COVID-19 remains an unresolved health challenge that has resulted in tragic loss of life. The economic contraction emerging in its wake will likely be the deepest since World War II and the road to recovery will be long and challenging.
Over the past few months, banking leaders have displayed resolve and resilience, moving swiftly to protect the health of employees and customers, ensure the continuity of basic banking services, and build up capital, liquidity, and cost buffers to strengthen their institutions. In the coming months, banks will start to return to something resembling normal service, reopening offices and branches. But so much has changed over the past few weeks: customers’ financial needs, the way they engage, how employees work, and even society’s expectations of banks.
See: Dealing with a crisis: FinTech versus Bank
The industry will likely face a prolonged period of economic pressure and banks’ actions in the coming months will set their performance trajectory for the years ahead. Banks have shown during the lockdown what is possible in terms of speed and innovation. There is no going back. Now is the time for banking executives to reimagine how their institutions operate. Bold vision and disciplined execution on a set of key imperatives will ultimately differentiate the leaders from the laggards as this crisis abates.
The crisis will put banks under prolonged
It is too early to predict the full impact of the pandemic. The outcome will depend on the length of lockdowns, the drop in demand, and the shape of the recovery. The scale of government support will also be critical—in the last month, some European governments have rolled out packages worth up to 30 percent of GDP and this level of intervention might continue.
All companies must think through possible scenarios to plan their next steps. Based on a recent survey of nine scenarios developed by the McKinsey Global Institute, more than a third of European executives expect a muted recovery. This is the basis of the analysis that follows, but we must keep in mind that other scenarios, both more optimistic and pessimistic, are also plausible.
See: Visa’s digital dollar concept opens a door to central bank currencies
The muted-recovery scenario translates into a drop in GDP of 11 percent across the Eurozone in 2020, and recovery in late 2023. 1 For banks, this would lead to sharp drops in revenue, a squeeze on capital and a hit on return on equity.
No going back - 6 imperatives to win
The crisis has upended the world in which banks operate in terms of customer behavior, ways of working, and government actions.
McKinsey’s European customer survey shows how customer behavior and needs have changed over the past month: digital engagement levels have climbed up to 20 percent, the use of cash has halved, 30 to 40 percent of customers have expressed a greater need for advice, while 20 to 40 percent want products to help them through the crisis. 4 Pension shortfalls are a particular challenge with those close to retirement facing a very immediate problem. Banks will need to reflect on the propositions and channels through which they can best meet these evolving needs.
See: Open banking review faces ‘worrying’ delay as pandemic drives Canadians to fintech
- Innovate new products and propositions. COVID-19 has triggered a range of new financial needs that are waiting to be addressed.
- Lock in the shift to digital sales and service, and reshape physical distribution. In just a couple of months, customers’ adoption of digital banking has leapt forward by a couple of years.
- Create a structurally leaner and scalable cost base. To offset the effect of spiking risk costs and sluggish income, and to free up resources for building digital capabilities, banks need to aim for a cost improvement of 25 to 35 percent (or 20 to 30 percent net increase after reinvestments) over the next two to three years.
- Reset the organization and technology for speed. During the lockdown, many bank teams turned agile overnight and delivered the impossible—such as enabling thousands of employees to work from home, or deploying new digital journeys in record time.
- Double down on risk and capital management. Credit losses will be the defining differentiator of performance over the next year. Early detection and proactive intervention are critical to manage non-performing loans.
- Rebalance the business mix and seek targeted M&A deals. Industry landscapes are often redrawn after crises.
See: COVID-19: A Test Of The Stakeholder Approach
The role of banks in society: A time for purpose-driven choices
Crises often prompt self-reflection and change and this may be a perfect time to reset what has been, at times, a challenging relationship with society. Banks have already been involved in economic support measures, but some may want to be even more proactive, as in Switzerland for example, where banks supported the government-initiated COVID-19 small-business loan program. This could also be a time for banks to rethink their culture. Moving from a control-based culture to one based on strong values supported by smart controls might prove far more effective in steering European banks towards recovery in the volatile future.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Google and Gates Foundation to help spread digital payments in developing countries
Fortune | David Z. Morris | May 6, 2020
For more than a decade, Kenyans from the bustling capital of Nairobi to far-flung farms have had access to a digital payments service that was ahead of its time. M-Pesa, introduced in 2007 by Vodafone and Kenya’s Safaricom mobile provider, lets users send and receive money on their mobile phones, providing bank-like services for millions who had relied on cash and informal networks.
See: Can Fintech Make the World More Inclusive?
By 2012, Kenyans had registered 17 million accounts. And by making saving easier and small businesses more efficient, M-Pesa had helped lift 194,000 Kenyan households out of poverty, a study in 2016 concluded.
Now, a coalition of nonprofits and tech companies including Google and the Bill and Melinda Gates Foundation want to repeat those outcomes worldwide by making it easier for developing countries to build real-time digital payments systems. On Wednesday, they announced the formation of the Mojaloop Foundation, which will develop and promote a free, open-source real-time payments platform intended for nations and central banks. The Mojaloop Foundation’s founding sponsors also include the Rockefeller Foundation, the philanthropy and investing group Omidyar Network, and the financial technology startups Coil and ModusBox.
The initiative would help tie together a growing array of digital financial services. M-Pesa, which has expanded from Kenya to countries including Ghana, Egypt, and India, has inspired hundreds of imitators worldwide. But these largely privately-run systems are fragmented.
“Systems [like M-Pesa] are silos,” says Kosta Peric, deputy director of financial services for the poor for the Gates Foundation. That can mean friction and high fees to transact between systems. “Imagine a mobile phone system where you can only talk to people connected to the same provider. It’s useful, but only so much.”
Mojaloop is modeled on digital fast-payment systems such as the U.K.’s Faster Payments Service and Australia’s New Payments Platform. Building those systems, however, often involves big up-front technology development costs and politically difficult negotiations among a variety of players. Those challenges have slowed or stalled digital banking advances not just in developing countries, but even in the United States.
See: Estonian fintech askRobin scores $1.7M to bring ‘fair credit’ to emerging markets
Mojaloop is meant to reduce such roadblocks by providing a standard digital-payments blueprint. The software, which is publicly available via Microsoft-owned software repository GitHub, includes a directory for identifying account holders, a transfer system for routing payments, and a clearing and settlement layer that transfers funds among users’ financial institutions. The routing system relies partly on a technology called Interledger that was originally developed by Ripple, a company that aims to use Bitcoin-derived blockchain technology to connect banks.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Estonian fintech askRobin scores $1.7M to bring ‘fair credit’ to emerging markets
Techcrunch | Steve O'Hear | May 6, 2020
AskRobin, an Estonia-founded fintech that operates a financial services marketplace for “underbanked” customers in Latin America, has picked up $1.7 million in funding.
The seed round is backed by VC funds Change Ventures, Vereeni Early Stage Fund, BENE Asia Capital, and Lemonade Stand. In addition, a number of tech entrepreneurs from Estonia participated, such as Ragnar Sass, co-founder of Pipedrive, and Taavi Tamkivi, founder of the anti-money laundering platform Salv.
See: Growth in Canadian FinTechs Having Impact on Canada’s Banking Landscape
“We started in Mexico in late 2017, where we initially developed a FB Messenger chatbot to bring basic financial education to people,” says askRobin co-founder and CEO Rain Sepp (who previously spent 13 years working at digital lending startup Credit24). “However, we soon realised that we need to go the whole nine yards and make sure we get the lending companies to actually get interested in serving those people and making them better offers”.
Since then, askRobin has evolved into something more comparable to Credit Karma in the U.K., which pairs free credit scoring with a marketplace of suitable financial products. “We bring our partner companies access to risk based customer segments, and get them competing for customers, resulting in improved product offers,” explains Sepp. This, he argues, is far better than the status quo.
“60% of employed middle class in emerging markets are not able to get access to formal credit and are left with predatory prestamistas (loan sharks) on the street. Those people are often just giving up after the first ‘No’ from the bank and getting back to their neighbourhood lender”.
To offer a fairer alternative, askRobin collects relevant financial and other data from customers and helps them build their financial profile so as to become an eligible borrower. Customers then get shown “all relevant offers in one go and can choose the best to save on interest”.
See: Lock BTC, Get DAI: Lending Firm Bridges Bitcoin-DeFi Divide in Latin America
“For lending companies those risk-based customer segments and risk-adjusted product offers increase their approval rates, lower their CAC [customer acquisition costs] and help them to control credit risk – gradually opening up the markets where they simply lacked data and access previously”.
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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‘Bring the problem forward’: BlackRock CEO Larry Fink on climate risk
McKinsey & Company | Rik Kirkland | Apr 21, 2020
The physical impact of climate change will lead to a major capital reallocation, says the head of BlackRock, the world’s largest asset manager.
During a 40-year career, BlackRock CEO Larry Fink has learned that financiers seldom ignore risks to their businesses: “Once they recognize a problem,” says Fink, “they bring that problem forward.” Fink himself has made a practice of bringing problems to the fore in his yearly letters to CEOs and clients. When he focused on climate risk in his 2020 letter to CEOs and a related letter to clients from BlackRock’s global executive committee, citing work by McKinsey and others, he sought to advance a discussion that he’d seen accelerate during the previous year—and to spur executives and policy makers to act. In this commentary, adapted from an interview with McKinsey’s Rik Kirkland in February 2020, Fink expands on certain themes from his 2020 letters, including the threats that climate change poses to the poor and vulnerable, the diverging interests of advanced and developing countries, the importance of fair policy solutions, and the value of better nonfinancial reporting.
The Quarterly: Why did you choose to concentrate on climate risk in your CEO and client letters this year?
Larry Fink: Throughout the year, and more frequently as the year progressed, the question of climate change was raised by all our clients throughout the world, whether in Saudi Arabia or in Houston or in Sacramento or in Europe. And it was raised not just by our clients but by regulators and government officials. At the same time, we were witnessing more evidence of the physical impact from climate change. All this really hit me when I was sitting down to write my CEO letter, which I generally try to do right after the August break.
See: Cashmere and climate change threaten nomadic life
I was just writing down all the themes that I wanted to talk about. Climate risk was actually not a major component of the first draft. But then, in September, when I had meetings with the UN [United Nations] in New York City and then with the IMF [International Monetary Fund] in Washington, the urgency of the conversation became very clear to me.
The Quarterly: What were you hearing from your clients? What keeps them up at night?
Larry Fink: As finance now starts looking at potential climate risks, it raises so many different capital-allocation questions. One great question was asked by a client—I’d say among the smartest clients we have worldwide. This client said, “We never think about climate change as a risk. And yet we’ve been great investors over the long run because our time frame is ten to 15 years. Now, through the lens of sustainability and climate impact, how do I think about our strategy for today? Can we expect the same type of positive outcomes and liquidity? Should we factor in the physical impact on some of our investments—whether physical investments, like real estate, or municipal investments in cities and states?”
They raised many large questions about whether they should think about investing differently and whether they should add the lens of climate risk to their long-term investment strategy. And the answer is yes.
The Quarterly: A key point you made in your letters is that we may see a “fundamental reshaping of finance,” with a significant reallocation of capital “in the near future.” How will that happen? Can you give an example?
Larry Fink: Well, if 5 percent or 10 percent or 20 percent of our clients are starting to ask these questions and trying to design strategies to effectuate the climate theme over a long horizon, that in itself is a capital reallocation. We’re hearing this in our conversations with insurance companies, which are looking at climate change and how they should insure. That represents a major societal issue that’s unfortunately very regressive. We don’t talk about how regressive this could become.
See: Podcast: How blockchain could revolutionize green finance in Asia
In the United States, insurance rates are generally set by state insurance commissioners. It’s very hard for an insurance company to raise rates extensively even if it thought a jurisdiction may have real, physical climate risk.
So, suppose you buy a house, and you think you’re going to live in that house for 20 years. Your insurance has to be renewed every year. But the house is in an area where the insurance company does not have the ability to raise rates unless reinsurance rates are raised. Ultimately, it’ll be able to raise rates. In the interim, it may say, “I can’t provide you with coverage anymore.” Then you have this long-term asset that you want to protect, but the insurance companies may not insure you. That is another form of capital allocation and reallocation.
And we’re starting to see more evidence of climate change and its impact on capital allocation. I do believe that if you’re a long-term investor, you’d better frame all your investments through that lens.
Larry Fink, BlackRock CEO on Carbon Tax
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The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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A new denim collection gives jeans a digital identity
Vogue Business | Lucy Maguire | May 5, 2020
Upscale upcycling brand The R Collective has partnered with Levi’s on a new iteration of traceable fashion.
Key takeaways:
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The R Collective has produced a fully traceable denim collection in collaboration with Levi’s, designed to reduce the end-to-end carbon footprint of garments.
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Companies like LVMH and Ralph Lauren use digital ID technology to trace their supply chains; the Denim Reimagined project goes further, using ID labels to educate consumers about sustainable product care after purchase.
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The Covid-19 pandemic, which has highlighted the need to digitally engage consumers and communicate with them, is accelerating the adoption of digital innovations like the one championed by The R Collective.
The Denim Reimagined project, created by Hong Kong upcycled apparel company The R Collective and supported by Levi’s, aims to take traceable fashion to a new level going beyond supply chain traceability.
See: NCFA and KABN Systems North America enter multi-year exclusive partnership to promote Digital Identity in Canada
The nine-piece denim collection is accompanied by scannable garment labels that offer four digital “experiences” to customers, including supply chain information, less energy-intensive washing and drying tips, restyling tips to prolong the life of the clothes as well as advice on recycling the garment at the end of its life.
The information stored in the label’s QR code is produced by digital ID label makers Avery Dennison and Internet of Things platform Evrythng and can be scanned with a smartphone. The capsule collection
is now available for pre-order on The R Collective site and in the Levi’s store in Hong Kong mall K11 Musea from 11 May. The garments are also upcycled, constructed using Levi’s aged inventory to demonstrate a use for denim waste.
“Creating a digital engagement and a digital trigger on a garment is one way that we’re helping to inform consumers,” says Mike Colarossi, vice president of innovation, product line management and sustainability at Avery Dennison.
Denim Reimagined leverages the Internet of Things (IoT) technology to track the relevant garment information and securely pass it on to consumers. In the last two years, luxury brands have also started to employ IoT technology to inform users on product supply chains or to verify the authenticity of goods. LVMH is developing its own digital platform, Aura, to use across brands; Gabriela Hearst and PVH have worked on digital identity projects; and labels from Ralph Lauren to 1017 Alyx 9sm have partnered with Avery Dennison and Evrythng on digital supply chain tracking.
Denim Reimagined’s point of difference is that, beyond upcycling materials and tracking sourcing, it includes multiple phases of the garment’s life, including customer care and after life.
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