BIS and HKMA to build prototype green bond platform

The Bank of International Settlements (BIS) and the Hong Kong Monetary Authority (HKMA) will jointly develop a blockchain-based prototype platform to issue and distribute retail green bonds and to report on their environmental impacts, the BIS announced on Tuesday. The prototype will tokenise green bonds in small denominations to allow retail investors to easily trade in them, and will include real-time tracking of carbon credits and emissions impacts.

Named “Project Genesis”, the new prototype platform is the first green project to emerge from the technology-focused BIS Innovation Hub, headed by former European Central Bank Executive Board member Benoît Cœuré.

“Together with the HKMA and private tech firms, we’ll build a prototype, [blockchain]-based platform to issue and distribute retail green bonds and report on their environmental impact,” Cœuré said as the project was launched, calling it “a key milestone in the Innovation Hub’s green finance journey.”

Issuing and investing in green bonds is cumbersome, complex, and expensive and there are almost no liquid and transparent secondary markets for retail investors, say the BIS. Green bonds can also be difficult to trust, with questions surrounding their actual emissions and environmental impacts. Project Genesis is intended to address these problems by “exploring the green art of the possible through combining blockchain, smart contracts, internet-of-things, and digital assets.”

Bénédicte Nolens, Head of the BIS Innovation Hub Hong Kong Centre, summarised the project’s goals for retail investors:

“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.”

The digital infrastructure behind the prototype green bond platform is being built with six partner companies and there will be experimentation with both public and private blockchains. Development will be guided by a multi-disciplinary panel of experts, mostly from private sector financial institutions. Work is already underway and the results of the tests and prototypes are expected to be published in the fourth quarter of 2021.