‘Green finance’—integrating environmental protection with economic profits—is continuing to gain traction within the financial industry, which has incentives to invest in sustainability efforts, such as risk mitigation and long-term returns.
Green finance investments are needed on a large scale, from both public and private sources. G20 countries alone are expected to contribute $97 trillion over the next 15 years to global infrastructure improvements that, in theory, will catalyze private investment in climate-related projects. But sustainable development requires alignment with the financial system, including banking, capital markets and insurance. Public-private investment scenarios can be troubled by inefficiency, lack of transparency, complexity and slow execution. Blockchain innovation, however, can impact sustainable investments and support green finance market development in five important ways.
- One version of the truth. Blockchain, a secure and distributed electronic ledger, often deemed “the most disruptive tech in decades” will have numerous applications in facilitating sustainable investing but is still in its infancy. Developed just 10 years ago, blockchain is changing the state of financial transactions and has the potential to create economic return while supporting climate action in ways such as improved carbon emission trading, facilitated clean energy trading, enhanced climate finance flows, and better tracking and reporting of greenhouse gas emissions reduction (e.g. avoidance of double counting).
- Going global. As all participants in the green finance arena continue to buy into the intersection of innovative technology and sustainable financial practices, we will be in a better position to fight the war on climate change at a global level, not just local. The World Economic Forum has noted that blockchain will facilitate internationally funded sustainable development projects, including “large infrastructure and power projects where multiple private investors, multilateral development finance institutions, and governments are involved in various phases of the projects.”
- Reducing transactional complexity. Financial transactions involving large, international sustainable development projects are becoming increasingly more complex, causing backlogs and delays. Blockchain-enabled platforms and processes can manage numerous transactions more efficiently. As a result, sustainable development and other climate-related initiatives will be more attractive for investors. “Blockchain-enabled platforms and processes can seamlessly manage a wide range of stakeholders working in different capacities on different projects across continents. It will increase efficiency, reducing transaction and make climate-related, infrastructure and other sustainable development more attractive for private investments,” according to the World Economic Forum.
- Fostering transparency. “Blockchain technology enables the continual update of climate action information from a range of sources. It also supports open and transparent data sharing,” explains this International Institute for Sustainable Development piece. In January 2018, the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat created the Climate Change Coalition to encourage the adoption of blockchain. This group believes that blockchain will improve the transparency, traceability and cost-effectiveness of sustainable investments, and serves as a framework that private institutions can build on to help advance SDGs.
- Picking up speed. Smart contracts, an aspect of blockchain technology, increase autonomy and speed of execution for financial transactions, enabling task automation and minimizing trapped cash in the value chain of a transaction. This will help financial institutions conduct green finance trade internationally, increasing global cooperation and further cementing the global dedication to climate action.
There is no doubt that blockchain technology displays very promising solutions to facilitate and accelerate sustainable investments. Well beyond the buzz around crypto-currencies, the tech community is truly inspired at participating in a more sustainable world, which requires much more transparency, accountability and sense of emergency.