Article pushided in Mexico Business News magazine
Across the globe, banking markets are increasing prioritization of financial sustainability and inclusion.
One report from ETBFSI Research reveals that 75% of global banks are planning to increase environmental, social, and governance (ESG) exposure, with roughly half of these banks naming lower carbon emissions as one of their top ESG initiatives.
In Mexico specifically, a clear focus on promoting improved financial sustainability and inclusion is emerging.
The unique financial and banking challenges in Mexico make it vital for financial institutions and the broader financial services (FS) industry to optimize their ESG-related strategies. To do so, the right mix of technologies is needed to support efficiency, sustainability, and inclusion.
The State of ESG and Financial Inclusion, Sustainability
Mexican banking markets do not currently have precise ESG regulations. While some public companies may be required to disclose ESG-related information, Mexico’s overall enforcement of ESG reporting and disclosure is less complex when compared to other regions, such as the US or the EU.
Despite this, there are several regulations at play in the country that are in line with the objectives and requirements laid out in the UN Principles for Responsible Investment (PRI) — a set of six principles that define possible actions for incorporating ESG into business and investment practices.
Although disjointed, the existing regulations at play in Mexico showcase that regulators have their eye on the ESG framework and are working to some degree to apply it.
In Mexico’s financial and banking markets, sustainability and financial inclusion are popular points of focus relevant to ESG. What many organizations find challenging about implementing these initiatives is how to streamline internal processes while simultaneously maximizing efficiency.
The key to a successful approach to sustainability and inclusion requires both human innovation and tech-based optimization.
Financial Sustainability in Mexico
Financial sustainability in Mexico is multifaceted, as it involves several participants.
For example, Mexican banks must concern themselves not only with their internal sustainability and environmental efforts but also with the sustainability efforts of the companies backing various investments, such as green bonds that are tied to projects with environmental benefits.
A recent MBN report shows that Mexico needs to increase investment in climate financing mechanisms to effectively achieve a more sustainable business model.
As part of this growing emphasis on sustainability, the Ministry of Finance and Public Credit is sponsoring the 2023 Sustainable Financing Festival. Some of the specific goals of this event include increasing awareness of climate change, focusing on biodiversity conservation, and promoting greater gender equality.
Financial Inclusion in Mexico
Mexico’s financial and banking industry is working to make much larger strides in financial inclusion over the coming years. Many factors drive the Mexican financial industry to better foster inclusion, with one of the biggest being the industry’s need to reach more customers.
A 2021 World Bank report uncovered that just 37% of adults in Mexico have banking accounts, with just 32% using digital payments. The report also highlighted an 8% gender gap when it came to accessibility.
This lack of inclusion has become a major area of concern for Mexico’s financial regulators.
However, there are several ongoing initiatives to help combat this challenge, including a collaboration between the World Bank and the Mexican government to help provide the technical and financial support necessary to promote more economic opportunities for women, promote sustainable and inclusive growth, and foster greater productivity.
How AI Enables Greater Sustainability, Inclusion
Technology has an undeniable role to play in the evolution of ESG initiatives over the next few years.
Artificial intelligence (AI) is sure to be one of the most vital technologies for financial institutions to leverage to not only meet ESG requirements but also to support their local communities and promote economic growth. Additionally, AI is crucial for staying ahead of the regulatory curve as Mexico’s financial regulations continue to evolve with the times.
For the goals of sustainability and inclusion specifically, AI can serve many key purposes:
- More Efficient Data Management: AI is particularly useful for leveraging advanced data and data analytics models. Strong data capabilities are a necessity for driving sustainable and inclusive business practices, as these capabilities enable financial institutions (FIs) and FS providers to analyze increasingly vast amounts of data and draw meaningful insights into ESG-related risks. In turn, FIs and FS providers can make better-informed decisions regarding business operations and investments that align with their specific sustainability and inclusion goals.
- Personalized Banking Services: Financial inclusion starts with deepening your understanding of both existing and potential customers. For existing customers, AI is a key tool for analyzing customer behaviors and preferences to create personalized services and products tailored to each customer’s specific financial needs. Meanwhile, AI also helps FIs and FS providers extend their reach to new customers by powering digital tools that are more accessible to all Mexican citizens. AI helps to create more dynamic customer profiles that can evolve as each customer’s specific circumstances change with time, offering a clearer overview of risks and trends.
- Simplified Reporting: Whether an organization is adhering to ESG requirements or simply striving to gain better business insights, report generation can be a hefty task to undertake. AI is an essential tool for simplifying and streamlining the reporting process for a financial institution, enabling faster and more accurate insights into current sustainability results and drawbacks, as well as the scope of an organization’s current financial inclusion. Not only can AI automate data collection, making it easier to gather the necessary information from a wide variety of sources, but it can also integrate that data into internal systems and databases.
- Enhanced Digital Transformations: In the era of digital banking, AI is crucial for optimizing and enhancing digital transformation. For Mexican FIs and FS providers specifically, customers are showing a rapidly increasing interest in digital and mobile banking services that are more accessible regardless of a customer’s location or financial status. From a customer service perspective, AI improves the customer experience by integrating automated and personalized recommendations into the customer journey. Meanwhile, from a more technical and business perspective, AI is also vital for keeping an organization’s internal systems up to date with the latest developments in the Mexican banking industry.
- Predictive Modeling: One of the biggest elements of financial inclusion is finding ways to not only serve more customers but to support each customer according to their specific needs. AI and machine learning (ML) offer financial organizations with key opportunities to get the most out of the data they already leveraged, aiding in the development of predictive models that can generate a variety of different insights based on market trends, region-specific financial circumstances, and other important metrics.
The Risks of AI for Promoting Financial Inclusion
Although there are certainly a plethora of benefits that can come from leveraging AI in Mexican banking and financial markets, the technology is not without its own unique set of risks.
As AI becomes more advanced and more use cases for AI are developed in the financial sector, the technology involved only increases in complexity. This can make it immensely important for FIs and FS providers to not only have a strong AI strategy in place but also the right amount of expert support and resources, either in-house or externally, to help manage and mitigate the risks of AI.
When thinking about the risks of AI specifically within the context of financial inclusion, a major consideration for financial organizations is the potential biases and discriminatory practices AI algorithms can potentially pick up along the way.
For example, though Mexican financial organizations and regulators are working diligently to promote greater gender equality, the financial industry within the country does not have the best historical track record with this type of inclusivity. As a result, there is a real possibility of AI systems that have been trained on historical data learning to discriminate based on gender due to a misunderstanding of gender as a risk factor to take into consideration within its analyses.
Additionally, the complex nature of AI presents transparency and privacy concerns, requiring precise development and management to ensure the ethicality and security of an AI system.
To combat these risks, financial organizations must ensure that any AI systems or algorithms they leverage have access to high-quality and diverse data. These systems must also be developed with built-in ethical models that set parameters for the system in line with an organization’s equality, transparency, and accountability standards.
Leveraging AI to be More Sustainable, Inclusive
AI has been a hot topic around the world as of late, with its use in financial and banking markets becoming a more central point of focus for both industry participants and customers alike.
For Mexican banking and financial markets to make the most of AI systems, a clear strategy is needed. However, AI is neither the most affordable nor the simplest technology to employ, making expert support from strategic partners specialized in the application of AI for financial purposes vital.
When implemented optimally and under the supervision of specialized AI teams, AI can be the key to unlocking the benefits of financial sustainability and inclusion without sacrificing a tremendous portion of an organization’s technology budget.
Article pushided in Mexico Business News magazine
