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SDFA and HSBC Pivitol Report on Unlocking Climate Financing By Scaling The Green Bond Market Through Emerging Technology

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The Sustainable Digital Finance Alliance (SDFA) along with HSBC Center of Sustainable Finance launch the report: “BLOCKCHAIN Gateway for Sustainability Linked Bonds: Widening access to finance block by block”. The report outlines how emerging technology can enable the green bond market to scale dramatically from a mere 2% of the current trillion-dollar bond market, unlocking capital for solutions to meet the Paris Climate. The Report quantifies the efficiency gains to be harvested from digitisation, shows the current state of the digital green bond market, provides a toolbox and key recommendations and offers a glimpse into a future where green bonds become accessible to everyone to issue and to invest. The reporting burden associated with the use of proceed bonds, such as green bonds, is set to soon diminish or entirely disappear. The report thereby points to a future where the current reporting burden is alleviated to make the bond market far more efficient and accurate.

Zoë Knight, Head of the HSBC Centre of Sustainable Finance said “The urgency to provide finance that delivers a net-zero economy is increasing. Exploring how technology can accelerate financing for low-carbon solutions is critical for speeding up the response to climate change. This report with SDFA provides a roadmap of the benefits of blockchain”. Emerging technology including Blockchain (DLT) offers the ability to digitise trust by using mathematical algorithms and cryptography to validate transactions. It can step into the bond market to take over the role of trust broker, making it easy to reduce the overall costs of bond issuance and impact the minimum coupon size. For bonds on the blockchain there will be no difference in costs between a 10 dollar and a 10 million-dollar investment, which would have the effect of opening up the Green Bond market to a wider investor base and makes small scale investment by individuals viable. Blockchain offers these advantages to all types of bonds, but recent developments at the technological frontier present even greater opportunities to Green and Impact Bonds, leading to the potential for Green Bonds to lead the transformation. The report shows that blockchain is not developing in isolation but is converging with both the Internet of Things (IoT) and Artificial Intelligence (AI).

Marianne Haahr Director of the SDFA explains: “We are increasingly living in a world where data about green assets, such as clean energy produced by a solar cell, can travel directly from the roof of a house to the digital wallet on the smartphone of a green bond investor without the involvement of human hands. Investors can get real-time information; they can invest smaller amounts and can thereby put more savings in a green future rather than letting in bank accounts with no or negative interest rates”.

Current state of the DLT Green Bond Market

Since early 2018, several financial institutions have issued bonds and other debt products using blockchain technology, primarily for structuring, issuance and asset transfer. The report launched today shows how blockchain technology has been used in bonds to date. In addition, the report considers the potential for blockchain to establish credibility on Use of Proceeds and Proof of Impact.

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Banks and Regulators are key to driving the change

“Corporations, central banks, politicians and the public know we have an urgent challenge. Financial institutions and regulators have been driving the adoption of emerging technologies in capital markets and can be critical players in rapidly accelerating the flow of capital into critical projects to address and reverse the impacts of climate change, especially in the countries at the frontier of the struggle.” noted Lead Researcher Sofie Blakstad, SDFA Sustainable Fintech Expert, CEO and co-Founder, hiveonline.

10X Efficiency Gains

Moreover, the report finds that blockchain can offer to harvest efficiency gains of more than 10X the non-DLT bond process with the largest efficiency gains (as money saved) in Green Bond reporting, brokerage and sales as well as structuring, price setting and risk rating. The report concludes that in addition to efficiency gains, digitising Green Bonds with DLT opens up for transformational follow-on innovations. A Future of ‘Do It Yourself ‘Green Bonds The report points to a near future where DLT paves the way for “Do it Yourself” green bond platforms, which allow issuers to create their own DLT Green Bonds at low cost. That means smaller entities such as medium-sized businesses or neighbourhoods can issue their own Green Bonds without the need for costly full-service offerings by banks. It will allow the trillion-dollar worldwide locked up in savings to be invested in a green future.

Countries stepping into a DLT future

The report points to the countries most prepared for blockchain-based Green Bonds, as a support for those considering issuing them. As of Q3 2019, just over USD 1 billion has been raised via Security Token Offerings, a number dwarfed by global bond markets at 100 billion. The market has been driven by the UK, USA, Switzerland, Germany and Estonia. The report launched today is the product of a collaboration between HSBC Center of Sustainable Finance and the Sustainable Digital Finance Alliance.

Read the full report here: https://www.sustainabledigitalfinance.org/initiatives-publications

Watch the introductory video here:

About the Sustainable Digital Finance Alliance

The Sustainable Digital Finance Alliance (SDFA) is a unique public private partnership co-founded by UN Environment and Ant Financial Services to leverage digital technologies & innovations to enhance financing for sustainable development. The SDFA catalyzes market innovation and policy action that leverages digital finance to, on the one hand, address the barriers to scaling sustainable finance, and on the other hand, promote innovation that unlocks sustainable investments in the real economy. The SDFA is a not-for-profit organization registered in Switzerland.

Photo by Mert Guller on Unsplash


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