Rodrigo OrdenesGCPF Expert
Senior Investment Officer | responsAbility Investments AG | PE
Blockchain Meets Green Finance.
With the imminent advent of the Fourth Industrial Revolution (4IR), characterized by a range of new technologies that are fusing the physical, digital and biological worlds, impacting all disciplines, economies and industries, there has been a lot of hype about how its huge potential is to be harnessed to ensure a better planet.
As sustainability issues also continue trending in the financial industry, one of the questions gaining global relevance has been on the intersection between blockchain technology and green finance. Supporters argue that blockchain is the way of the future while detractors blame bitcoin data mining for enormous increases in (mostly) dirty energy consumption, and thus higher CO2 emissions.
The actual experience seems to fall somewhere between these two extremes, as the more recent research and practice on the subject suggest.
Key features of blockchain technology, such as an immutable audit trail of transactions, cheap and borderless transfer of values, and automated execution of contracts, can help move capital toward climate action implementation. Specifically, this technology can act as a transparency mechanism that incentivizes emissions reductions and can provide a decentralized infrastructure to enable new business models in climate finance and clean energy generation.
There are a number of potential applications for blockchain technology in the climate space, the most promising being: a) Enabling mechanism for trading and accounting of mitigation outcomes for carbon markets; b) Facilitating and enabling of climate-smart investments through traceability of financial flows; c) Enabling prosumer business models for decentralized energy systems; and d) Smart contracts -an aspect of blockchain technology- increasing autonomy and speed of execution for financial transactions, enabling task automation and minimizing trapped cash in the value chain of a transaction.
A couple of early experiences in the green blockchain financing realm, fostered by global banking behemoth BBVA, namely, the first structured green bond issued for Spanish insurer Mapfre for EUR 35 million and a sustainable “Schuldschein” loan of EUR 220 million for the Madrid Government, both using blockchain, have been highly successful and seem to be showing a way forward.
Nevertheless, blockchain technology is still in its infancy and will need considerable research and piloting efforts to mature and achieve large-scale adoption. This applies to both the underlying technology as well as the relevant governance context and business models.
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