Green FinTech and Climate Finance: An Economic Perspective on Digital Financial Innovation for Sustainable Development

Fintech services that affect financial services, banking, lending, insurance, payments, investment management and financial inclusion. AI, blockchain, machine learning, cloud computing, IoT, big data analytics, digital wallets, peer-to-peer lending, robo-advisory platforms, decentralized finance (DeFi), and digital currencies have revolutionized the financial systems to improve efficiency, access, and transparency. The financial innovations, combined with environmental sustainability, have created Green FinTech, more recently. Green FinTech relates to the application of digital financial technologies in the fields of environmentally responsible investments, climate risk management, disclosure and transparency on environmental matters and sustainable economic growth. Traditional financial technologies focus on improving the efficiency of financial operations and enhancing the convenience of financial services. In contrast, Green FinTech is a concept that places equal importance on the environment, aiming to integrate financial technology into the environment by promoting renewable energy projects, carbon markets, green bonds, sustainable banking and climate-related investments. Climate action is achieved in a number of ways from an economic point of view. Digital payment systems reduce reliance on paper payment systems and increase financial inclusion. Financial institutions can leverage AI to more effectively understand and evaluate environmental risks and offer credit to sustainable businesses. The blockchain has enhanced the transparency and traceability of carbon trading, renewable energy certificates and green supply chains. Big data analytics is used to support climate risk modelling, and crowdfunding platforms are helping to make green investments more accessible to everyone and make it possible to finance renewable energy and environmental conservation programs. The low- and middle-income countries (LMIC), such as the emerging economies, are beginning to emerge as laboratories for innovation of Green FinTech. In India, for example, the government's efforts, such as the Digital India initiative, Aadhaar, Unified Payments Interface (UPI), Account Aggregator Framework, Open Credit Enablement Network (OCEN) and Digital Rupee, have resulted in one of the world's most advanced digital financial ecosystems. They can provide a platform for opportunities to weave climate considerations into financial services and for inclusive economic growth. In spite of the increase of research activity in this field in recent years, the FinTech field is still rich in publications on financial inclusion, banking efficiency, payment technologies and technological adoption. The research on the use of digital financial innovation for the promotion of climate finance and environmental sustainability, carbon markets and green economic development is still relatively small. Furthermore, the interdisciplinary research between disciplines, which integrates economics, sustainability and digital innovation is not yet developed in the respective disciplines. This review aims to fill these gaps by examining the latest literature around Green FinTech from an economic perspective. It covers theoretical analysis related to the concept of Green FinTech, presents an overview of important theoretical frameworks, reviews the empirical literature available and examines key technological innovations in climate finance, identifies policy issues and recommends future research directions. The paper's economic, financial, environmental, and digital innovation lenses provide a broader perspective on the role of Green FinTech in the sustainable development of the economy and climate.