BIS Innovation Hub and HKMA investigate how tokenised green bonds can improve sustainable investment

25 August 2021
Knowledge Base

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. 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. The Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre and the Hong Kong Monetary Authority (HKMA) joined forces with the technology industry on Project Genesis to build a prototype digital infrastructure that enables green investments, improves transparency on the use of proceeds, and thereby helps meet regional and global environmental and sustainability goals.

“Green and digital are not only interconnected but interdependent — the fate of one depends on the other. Green finance, accordingly, is a key priority of the BIS Innovation Hub and Genesis is an integral part of that,” said Benoît Cœuré, Head of the BIS Innovation Hub.

The BIS Innovation Hub’s first green finance project, Genesis will explore the tokenisation of green bonds enabling investment in small denominations, combined with real-time tracking of environmental outputs. “The HKMA welcomes the collaboration with BIS Innovation Hub on this novel experimentation on the symbiosis of sustainability and tech. 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.

Genesis will be developed together with six partner companies that will design the digital infrastructure. Targeting the full bond lifecycle, Digital Asset (Switzerland) and their partner GFT Technologies Hong Kong will deploy multiple permissioned blockchains. Concurrently, the Liberty Consortium, consisting of SC Ventures, Standard Chartered Bank and Shareable Asset, will be leveraging a public permissionless blockchain infrastructure. Allinfra, a Hong Kong SAR startup, 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,” explains 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.”

Source: BIS

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