In November 2008, the World Bank surprised many by issuing the first ever green bond to support sustainable climate solutions. Green bonds are funds made to organizations developing sustainable projects such as renewable energy, clean transportation, and smart waste management systems.
The first green bond not only formed the basis for international green bond principles but it also helped to bring into focus the challenges of climate change. More than US$500 billion green bonds have been issued since 2008, with the majority of investments going to renewable energy and energy efficiency sectors. Green bonds allow investors to support sustainable initiatives with their investments. On the other hand, these initiatives help to solve problems related to climate change as well as bringing positive and measurable impact on society.
Today, the popularity of green bonds is rising first mainly due to integration with current technological tools such as artificial intelligence and blockchain.
Blockchain Green Bonds
There’s a remarkable increase in activity among banks and investors to leverage the benefits of blockchain
in the issuance of green bonds. As BBHQ reported last December
, BBVA, one of the largest banks in Spain, successfully closed an acquisition term loan deal with Porsche using blockchain technology. Although the Porsche loan deal was not for a social or environmental purpose, it does point to the fundamental shift in the bonds and loans market. It is also worth noting that BBVA and Mapfre issued the first ever green bond on a blockchain platform last February. The €35 million debt security issue was arranged and negotiated on BBVA’s internally developed blockchain platform.
According to a report on blockchain green bonds by UK lender HSBC, the use of blockchain in the issue of green bonds represents an opportunity to integrate sustainability and technology. The report highlights that using blockchain and encryption algorithms to facilitate bonds can help boost confidence in the market. In particular, the technology offers value in critical areas such as structuring, and distribution of bonds, transfer of ownership, payment, and settlement. Moreover, distributed ledgers provide an efficient way to prove the relevant impact of the investment project.
The report by HSBC also outlines two main benefits accruable from using blockchain in the issue of green bonds: efficiency and credibility. With respect to efficiency, blockchain-based smart contracts offer the foundation for green bond structuring and negotiation. Automating complex steps associated with the bond issuing process not only saves time but also reduces costs for the bank and its clients. Besides, the built-in encryption features of blockchain ensure that the transfer of value is tamper-proof and secure. Credibility, on the other hand, emanates from the use of Big Data, blockchain and the Internet of Things (IoT) to monitor the environmental project’s progress, and its impact, in real time.
Establishing trust between issuers and investors is essential because it gives sustainable project the credibility they need to drive green revolution. Implementing blockchain also brings enhanced transparency and traceability to green bonds by allowing the issuer to automate the negotiation process and payments.
Several large players in the financial industry are looking for novel ways to leverage emerging technology to help advance their efforts to issue green bonds and corporate loans. With the assistance of blockchain, issuers and investors can share information and data collaboratively and transparently. Green bonds are also smart investments because they present an opportunity for issuers and investors to achieve both financial and social returns. And as the world continues to work towards achieving Sustainable Development Goals (SDGs) by 2030, the green bond revolution could not have come at a better time.
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