With an ultimate vision of enabling retail investor access to green bonds and enhancing sustainable investment, the Bank for International Settlements (BIS) Innovation Hub and the Hong Kong Monetary Authority (HKMA) are teaming up to explore the prospect of tokenizing green investments.
The BIS Innovation Hub in Hong Kong announced an initiative known as Project Genesis, which aims to build a prototype of the digital infrastructure needed to enhance green investing by improving the issuance and distribution process, while also improving transparency about the use of funds raised for environmental projects.
The project seeks to address inefficiencies in the existing process for issuing and investing in green bonds, which is typically “cumbersome and complex.” It will also address the lack of transparency for investors regarding the use of proceeds and the lack of liquid, transparent secondary markets for retail investors.
“Technologies such as blockchain and smart contracts, combined with the internet-of-things, could streamline the bond issuance process, improve efficiency in distribution and facilitate reporting on the use and environmental impact of green bonds proceeds, thus enhancing transparency to green bond investors,” said Edmond Lau, deputy chief executive of the HKMA, in a release.
To that end, the project will explore the possibility of tokenizing green bonds to enable investment in small denominations, combined with real-time tracking of environmental outputs.
“Our vision is that you can download an app to your phone, and invest any amount into safe government bonds, which will develop a green project – let’s say a solar or wind farm. Over the bond’s lifetime, you would be able to not just see accrued interest, but also track in real time how much clean energy is being generated, and the consequent reduction in CO2 emissions linked to your individual investment. Further, you could sell the bonds in a transparent market,” said Bénédicte Nolens, head of the BIS Innovation Hub’s Hong Kong office.