Blockchain-enabled green bonds offer an effective mechanism to access capital for environmentally sustainable projects. This study investigates how blockchain technology influences investors’ intent to purchase green bonds; results show that perceived behavioral control partially mediates this relationship.

In 2021, the BIS Innovation Hub of Hong Kong collaborated with various partners on digitalizing carbon-cutting instruments in order to develop an electronic green bond prototype called Project Genesis 2.0 – this first-of-its-kind innovation connecting carbon markets and capital markets.

Authenticity

At the core of a sustainable world lies authenticity – but this can sometimes be compromised by issues like transparency and authenticity issues with green bonds, such as investors being skeptical about claims issued by issuers regarding carbon credits.

This paper proposes an innovative solution to these challenges by using blockchain technology to verify green bonds. After conducting artificial evaluation and interviewing two experts in blockchain technologies, we developed a set of design principles which can be used when developing applications that enable green bond reporting via blockchain platforms.

BISIH’s research team joined forces with King & Wood Mallesons (KWM), Allinfra, Digital Assets and InterOpera to collaborate in creating Genesis: an advanced digital platform for green bond transactions using blockchain, smart contracts and the Internet of Things technology to increase transparency on where proceeds from green bonds go; its first prototype allows digital tracking, delivery and transfer of mitigation outcome interests (MOUs) while decreasing risk of greenwashing.

Transparency

Green bond market growth has been impressive, yet one of the main hurdles is transparency. Investors want assurances that proceeds of green bonds have been used sustainably and that projects deliver positive environmental benefits as promised at issuance.

Blockchain technology enables investors to track the impact of their investment in real time. For instance, an IoT device could monitor power production from a renewable energy plant and upload this information automatically onto the blockchain, providing investors with easy visibility into what has been accomplished and providing greater confidence in what has been accomplished.

IoT devices could also be used to verify that products purchased with green bonds have been produced sustainably, thus helping investors make informed decisions regarding investing in sustainability-focused projects. Blockchain offers multiple advantages when used for this purpose – cost reduction, mobilization and immutability among others.

Efficiency

Green bonds allow investors to invest in projects with positive environmental impacts that meet specific sustainability criteria. Green bonds typically require the issuer to engage independent third-party verifiers as part of the issuer agreement in order to verify funds are used as intended; this helps promote transparency and accountability within the market.

Verifiers typically use several approaches to determine whether a project meets environmental standards, including carbon credit verification and green rating certifications. Blockchain could enhance efficiency by connecting these data sources directly to green bond digital tokens – thus cutting costs and improving transparency.

One potential solution would be using a proof-of-stake blockchain such as Cardano, which utilizes cryptographic algorithms instead of mining to validate transactions. This system consumes less energy than proof-of-work systems but still requires significant computing power. Another option could be using private blockchain solutions like Spydra, which enables users to tokenize financial instruments using custom smart contracts integrated with decentralized web infrastructure.

Security

Blockchain technology adds extra layers of protection for green bonds and carbon credits, giving investors peace of mind that their investments are used for environmentally-friendly projects. Furthermore, using this blockchain can reduce fraud and abuse.

Blockchain can also increase transparency and accountability within sustainable finance. For example, blockchain can track emissions, credit trading activity, supply chain sustainability and more to assist businesses meet their responsibilities to NGOs and other stakeholders.

The Bank for International Settlements Innovation Hub in Hong Kong has developed a prototype using blockchain and smart contracts to tokenize green bond issuance infrastructure. This technology can reduce risks associated with greenwashing while making investing simpler for retail investors. Furthermore, this system will facilitate verification of projects funded by green bonds via its use of a smart contract that digitally tracks, delivers, and transfers MOIs during its life cycle.