BIS, HKMA partner on Project Genesis to tokenize green bonds

The Bank for International Settlements (BIS) Innovation Hub Hong Kong Centre and the Hong Kong Monetary Authority (HKMA) are collaborating on Project Genesis — a green finance project for the tokenization of green bonds using blockchain technology, according to a BIS statement.

Fast facts

• Project Genesis — the BIS Innovation Hub’s first green finance project — aims to develop a prototype digital infrastructure for the tokenization of green bonds, in particular government bonds, enabling small-denomination investment with real-time tracking of environmental impact.

• The project will leverage blockchain, smart contracts, internet of things and digital assets for green bond distribution and improving transparency on the use of proceeds, with meeting regional and global environmental and sustainability goals in mind. It aims to address pain points such as the complex process involved in bond issuance, the consideration investment investors would typically need to undertake and green washing concerns.

• Bénédicte Nolens, head of the BIS Innovation Hub Hong Kong Centre, said in a statement: “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.”

• According to the BIS, the development teams, following design thinking workshops, are now working in iterative sprints to build the prototypes in collaboration with key stakeholders in the Hong Kong financial system.

• The companies involved in Project Genesis include: Digital Asset (Switzerland) and its partner GFT Technologies Hong Kong, which will deploy multiple permissioned blockchains; the Liberty Consortium — comprising SC Ventures, Standard Chartered Bank and Shareable Asset — which will use public permissionless blockchain infrastructure; and Allinfra, a Hong Kong-based startup that will provide technology-verified data for the real-time tracking of the environmental impact of projects.

• The project is being guided by a multi-disciplinary panel of experts in the environmental, social and governance (ESG) considerations, green finance, bond markets, law and regulation fields.

• The results of the tests and prototypes will be published in the fourth quarter of 2021.

• Project Genesis comes as ESG investing and interest in green bonds — debt instruments that enable capital-raising and investment for new and existing projects with environmental benefits, including climate change mitigation — increase around the world.

• More than US$1.3 trillion cumulatively in green bonds have been issued to date, according to Climate Bonds Initiative, a U.K.-based nonprofit organization. But the green bond market is still a small percentage of global bond issuance — about 3.5%, according to research by the BIS.

• Financial hub Hong Kong, the largest center for arranging Asian international bond issuance according to the International Capital Markets Association, is well-placed to tap on using blockchain technology for green finance. The Hong Kong government this year announced plans to issue US$22.6 billion (HK$175.5 billion) in green bonds within the next five years, following its US$2.5 billion green bonds offering in January. 

• “The HKMA welcomes the collaboration with BIS Innovation Hub on this novel experimentation on the symbiosis of sustainability and tech,” said Edmond Lau, deputy chief executive of the HKMA , in a statement. “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.”

• In a recent interview, Oi Yee Choo, chief commercial officer of ADDX, a regulated platform for the issuance, custody and secondary trading of digital securities, told Forkast.News that tokenization makes the process of issuing a bond seamless, low cost and efficient. Bonds could be fractionalized to individual investors, thereby reducing minimum investment thresholds and give investors more opportunities to diversify their investment portfolios and participate in private markets, bringing increased liquidity,  Choo said.

See related article: How blockchain can power the growth of green finance