The Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre announced its latest experiment, blockchain-based green bond platform project Genesis 2.0, which aims to explore tokenized carbon credits and Internet of Things (IoT) facilities to monitor green bond issuers’ emission-reducing commitment.
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Fast facts
- The experiment included the Hong Kong Monetary Authority, the UN Climate Change Global Innovation Hub and several private institutions including Goldman Sachs.
- Genesis 2.0 added tokenized greenhouse gas reduction commitments to green bonds. Upon purchasing such bonds, investors receive a bond principal obligation, rights to any future benefits and a pledge of tokenized greenhouse gas emission reduction units attached to the bond, a “Mitigation Outcome Interest” (MOI).
- The MOI needs to be redeemed through the token “Mitigation Outcome Unit (MOU),” a token representing carbon credits. The carbon credits are generated from the bond issuer’s project (such as a wind farm) and traced by IoT monitoring devices. The report said the IoT facilities could help to improve transparency of carbon credit data.
- If the bond issuer falls behind the carbon credit commitment, it can buy more MOUs on the market to achieve its goal.
- “Conceptually, the advantage of pledging carbon credit units as part of the green bond coupon results in bond issuers obtaining cheaper funding for green investments, while reducing the risk of greenwashing,” BIS said.
- The total amount of green and sustainable debt issued in Hong Kong quadrupled from a year ago to reach US$56.6 billion in 2021, according to a report released by the Hong Kong Monetary Authority in March 2022.
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