How blockchain and smart tech can help green bonds and climate finance take off
- The use of blockchain technology, the internet of things and smart devices can provide a streamlined, easy implemented solution to the regulation and monitoring of green bonds and their proceeds
After all, such products only have meaningful impact in achieving the 2015 Paris goals if the underlying data is measurable, verifiable and ultimately able to be relied upon by third parties.
While green bonds have the potential to become powerful financial tools in creating positive climate action, there are areas for optimisation and improvement in the traditional green bond model.
Monitoring of use of proceeds, underlying asset performance and environmental impact is generally done through periodic manual processes, leaving the potential for human error and reducing the timeliness of data. Non-digitised data sets are not easily referenced over time and do not fit neatly into future carbon accounting, or ratings and reporting regimes.
These may sound like daunting challenges to solve. However, the use of blockchain technology and the internet of things or smart devices provides a streamlined, easily implemented solution.
While not yet mainstream in the monitoring of green bond compliance, these technology solutions can provide asset owners, lenders, ratings agencies, insurers and other stakeholders with verifiable, real-time, asset-level information on underlying asset performance.
This system benefits all stakeholders in the green finance space: asset owners, users of product, regulators and third parties relying on these products for specific environmental outcomes.
Green bond markets will be a critical tool for raising capital to fund low-carbon and climate-resilient infrastructure that can support the meeting of these national targets. Green bonds help meet climate targets by closing the gap between funding needs and investor demand.
But of course, the health of the green bond market and its long-term viability will require products that stakeholders trust implicitly, where the positive environmental impact of each single product is known and verifiable. Technology is fast becoming a core tool in helping to achieve this outcome and to drive positive environmental impact on the tight deadlines we face globally.