What is the biggest humans problem nowadays? Modern society is used to living a comfortable life using all kinds of gadgets which simplify our lifestyle. We pay more attention to IT technology that produces all programs making our life more comfortable, cozy, and cheerful. However pursuing technology happiness we begin to forget another important world that keeps us alive — the environment and natural resources.
So the greatest world`s economic, political, and social systems draw their attention to this "pain". Financial systems have not stood by idly and develop original solving of environmental problems. There is, at least, a desire for the sustainability of financial systems.
Already a hotbed for green finance, Asia is poised to become even more so as China makes green finance a national priority for 2021 and the next five years.
In a speech titled “Make Full Use of China’s Monetary Policy Space and Promote Green Finance” at the recent Roundtable of China Development Forum, Yi Gang — governor of the People’s Bank of China — said China’s goal to reach carbon emission peak by 2030 and achieve carbon neutrality by 2060 (also known as the “30/60 goal”) sets a high bar for the government as well as China’s private sector.
“Hundreds of trillions of RMB is needed to achieve the 30/60 goal. Public finance, however, could cover only a tiny fraction. It is therefore imperative to put in place sound public policy incentives to encourage market forces to fill in the gap,” Yi said.
Interest in green bonds — debt instruments that enable capital-raising and investment for new and existing projects with environmental benefits, including climate change mitigation — has been increasing around the world.
The global green bond market issued a record US$269.5 billion in 2020, an increase from US$266.5 billion in 2019, according to Climate Bonds Initiative, a U.K.-based non-profit organization working on mobilizing the US$100 trillion bond market for climate change solutions. More than US$1 trillion cumulatively in green bonds have been issued to date. But the green bond market is still a small percentage of global bond issuance — about 3.5%, according to research by the Bank for International Settlements (BIS).
A survey of 425 investors in 27 countries found that global investors planned to double their sustainable assets under management by 2025, with allocations to the sustainable fixed income asset class set to increase, according to BlackRock’s 2020 Global Sustainable Investing Survey.
However, poor quality or availability of environmental, social and governance (ESG) data and analytics are the biggest barriers to wider implementation of impact or sustainable investing the report highlights. According to the Green Bond Principles, issuers of green bonds have to be clear about four core components: use of proceeds, the process for evaluating and selecting projects, management of proceeds, and timely reporting to investors.
Experts say there is a lack of consistency in the definitions of what is green and sustainable as well as transparency in the monitoring and reporting of outcomes.
Blockchain can power green finance
Tokenization is an excellent way to do that because it’s part of that traceability solution where one token can only be created if, one, the project existed, and two, it satisfied certain requirements. Internet of Things (IoT) devices and Artificial Intelligence could also be used on-location to collect real-time data to improve traceability and investor reporting.
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Blockchain technology and digital securities are a game-changer for all private market issuances because they automate manual processes, allowing the securities to be distributed in smaller units and to be traded freely on an exchange.
Through blockchain technology and smart contracts, digitization can also significantly reduce upfront issuance and ongoing administrative costs, which have limited access to traditional bond markets to larger issuers.
See related article: How blockchain is transforming the investing and securities industry
The cost savings can be significant. According to a report by the HSBC Centre of Sustainable Finance and the Sustainable Digital Finance Alliance, the estimated cost of issuing a green bond under a standard process was US$6.4 million compared to just US$692,000 for a full blockchain automated issuance.
Green finance gaining momentum
With the United Nations’ sustainable development goals initiatives targeted to be achieved by 2030 and the 2021 U.N. Climate Change Conference scheduled to be held in November this year, green finance and fintech are gaining attention from governments and the private sector. While Europe and the U.S. currently dominate in terms of green bond issuance, Asia is well-positioned to make up a lot of ground that might have been lost.
Asia’s green finance hubs
Asia contributes about a quarter of global green bond issuances annually, and a slew of green finance initiatives have been announced in the region in recent months. Singapore, Southeast Asia’s largest green finance market that also accounts for close to 50% of cumulative ASEAN green bond and loan issuances, announced last month that it would issue US$14 billion (S$19 billion) of green bonds on the public sector infrastructure projects. As part of its Green Finance Action Plan, the government is taking the lead to deepen market liquidity for green bonds, attract green issuers, capital and investors, and catalyze the flow of capital towards sustainable development in Singapore and beyond.