Is Blockchain an Enabler for Sustainable Finance?
Welcome to March’s edition of Tokeny Insights. I hope you’re keeping well amidst the global situation. This month, I take a look at the alternative industry of sustainable finance. More specifically, how will this type of investment develop in the digital era of capital markets?
Blockchain technology will play an important role in ushering this industry into the mainstream, as its characteristics of transparency, transferability and automation will drive adoption. But what advantages can this new technology bring to sustainable finance? Here are three I think are the most important:
- New sources of financing: Coming from innovations such as fractionalizing investments or the aggregation of smaller assets into bonds, will attract high quality natural capital projects and make it more feasible for industries to achieve their carbon reduction pledges.
- Transparency: As consumers become more aware of the consequences of climate change, transparency will become increasingly important. Blockchain will bring visibility over currently opaque value chains, allowing proofs of sustainability to be easily embedded into securities (ratings, green labels, etc).
- Reduced cost: The cost of certifying and monitoring green assets is currently high and unrealistic for many asset managers. Tokenizing green asset offerings reduces the cost of obtaining and reporting on data, opening the door for smaller companies to meet the requirements to issue sustainable assets.
Our customer, Ekofolio, is a good example of a high quality project in the industry. They scan the earth for attractive sustainable forest investments and set up a SPV that purchases and manages the forest. This brings forward the opportunity for investors to purchase tokens that represent a stake in the forest, which can potentially rise in value and generate dividends payouts. Of course, it requires a lot of time for money to grow on trees and therefore only investors who can afford to wait have been investing in these types of assets. With tokenization and the promise of liquidity, smaller investors will be able to access this asset class.
As in any market, technology alone cannot be the only driver for change. Interesting and high quality projects need to operate and attract investors to the industry.