Does the use of ESG scoring in FinTech platforms enhance ethical financial decision-making, or does it create new forms of bias?

Abstract

The paper explores how ESG rating frameworks are embedded into FinTech tools such as AI-driven investment systems, credit-assessment algorithms, and automated portfolio managers. While ESG adoption supports more responsible and sustainable investing by improving transparency, accountability, and long-term risk oversight, several significant obstacles still persist. These involve inconsistencies between ESG ratings among providers, a lack of data quality, algorithmic bias, and increasing risk of greenwashing. Empirical evidence shows that the data divergence in ESG and incomplete disclosures may result in making misinformed financial decisions and reinforcing structural disparities, especially in the case of emerging markets. It finds that despite the revolutionary promise of ESG-based FinTech to financial sustainability, it requires better standardisation, reliability of data, and clear algorithmic regulation to reduce bias and deliver genuinely ethical financial results.