BIS Innovation Hub, HKMA and private sector firms will tokenise green bonds to facilitate investment in and improve the transparency of green projects.
The Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre and Hong Kong Monetary Authority (HKMA) are collaborating with the technology industry to build a prototype digital infrastructure that enables green investments.
The initiative, known as Project Genesis, will also seek to improve transparency on the use of proceeds from green investments, and thereby help to meet regional and global environmental and sustainability goals.
“In many countries, issuing and investing in bonds can be cumbersome and complex, involving many steps and parties, and typically requiring a considerable financial commitment from the investor,” BIS said in a statement.
“For those investing in environmentally friendly projects, there is uncertainty about whether the bond issuer is delivering the positive green impact it committed to at issuance. Also, there are typically no liquid and transparent secondary markets for retail investors.”
Genesis, the BIS Innovation Hub’s first green finance project, will explore the tokenisation of green bonds to enable investment in small denominations, combining this with real-time tracking of environmental outputs.
Six partner companies will collaborate on the design the new digital infrastructure. Switzerland-based Digital Asset and partner firm GFT Technologies Hong Kong will deploy permissioned blockchains targeting the full bond life cycle. The Liberty Consortium, consisting of SC Ventures, Standard Chartered Bank and Shareable Asset, will leverage a public permissionless blockchain infrastructure, and Hong Kong start-up Allinfra will provide technology verified data that can track in real-time the positive environmental impact of projects.
“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,” said Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre.
“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.”
With Project Genesis, the BIS Innovation Hub seeks to combine blockchain, smart contracts, internet-of-things, and digital assets to develop prototypes that will allow policymakers and stakeholders to further explore innovative approaches to green bond distribution and transparency.
Having started with design thinking workshops, the development teams are now working in iterative sprints to build the prototypes, collaborating with key stakeholders in the Hong Kong financial ecosystem.
The results of the tests and prototypes will be published in the fourth quarter of 2021.
Project Genesis is guided by a multi-disciplinary panel of experts in ESG, green finance, bond markets, law and regulation.
More information on the project is available here.