How blockchain technology can help solve Asia’s need for green finance
- A new blockchain-based infrastructure can transform green finance in Asia and restore confidence in it amid complaints over greenwashing and poor transparency
The urgency to channel more investment into green projects is particularly acute in Asia. Within Southeast Asia, the investment gap for sustainable infrastructure projects is estimated at US$200 billion annually until 2030. Mobilising capital investment is critical if the region is to meet its development goals.
However, after more than a decade of government-backed support and public attention, green finance is still not delivering the seismic changes needed to alter the climate’s trajectory.
Interoperability is also proving problematic as the definition of “green” is constantly evolving. As countries develop their own methods for classifying, measuring and reporting projects, green finance risks becoming a disjointed ecosystem of national projects that lack compatibility.
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Significant changes are needed to ensure stakeholders get the transparency needed to rebuild confidence in the sector. Blockchains – decentralised ledgers of data shared across a system that provide an immutable record of activity – can address data gaps and provide high-quality data when applied to green finance.
Pairing this data with a blockchain database can give bond issuers access to a traceable, transparent real-time audit trail that records the environmental impact of their investment.
Asia’s position at the fore of blockchain-based innovation, coupled with its need to turbocharge green finance, has resulted in a recent wave of activity aimed at embedding the technology into the green ecosystem.
In Hong Kong, the Bank for International Settlements Innovation Hub is using distributed ledger technology to explore the tokenisation of green bonds. Dubbed Project Genesis, the initiative uses blockchain technology, smart contracts and digital assets to enable investments in small denominations combined with real-time tracking of environmental outputs.
Digital technology embedded throughout the value chain cuts costs and time, resulting in a more efficient, traceable and transparent process. More funding reaches green projects and more impact is generated, providing strong results to report back to stakeholders.
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Singapore is also leveraging its growing expertise in blockchain technology to enhance its position as a green finance hub. The Monetary Authority of Singapore has created a Regulatory Sandbox to provide a government-sanctioned space for companies to pilot tech-enabled green bond exchanges.
Change needs to happen fast if we are to mitigate the risks a changing climate presents. Blockchain technology has the potential to alleviate many of the challenges impeding green finance. By delivering transparency and traceability, the technology can help build trust in the sector and stimulate further investment.
Asia is already leading the change when it comes to innovation in this space. By backing pilots and being open to experimentation, governments have provided much-needed impetus.
The next challenge is encouraging adoption at scale throughout the sector to capitalise on their benefits and foster the international collaboration that is critical for interoperability across markets. Government support from a funding and regulatory perspective will be crucial if Asia is to reach its climate goals.
Indra Suppiah is the government relations lead for R3 in the Asia Pacific