Today, the BIS Innovation Hub in Hong Kong announced the successful completion of its second blockchain green bond experiment, Project Genesis 2, in which Goldman Sachs participated along with several other organizations. Previous experiments tested the basics of issuing a blockchain green bond. This iteration explored automation of reporting on the fulfillment of the bond’s green promises and a novel financial structure.

The investigation involved the Hong Kong Monetary Authority (HKMA), the UN Climate Change Global Innovation Center and two private consortia.

Two issues identified as necessary for the successful growth of green bonds are addressing greenwashing and ensuring financing addresses climate issues rather than refinancing existing projects.

Emma Howard Boyd, chair of the Environment Agency, is quoted as saying: “If we fail to identify and tackle greenwashing, we allow ourselves false confidence that we are already addressing the causes and treating the symptoms of the climate crisis. Greenwashing makes it more likely that we won’t notice this deception until it’s too late.”

A novel structure enabled by blockchain, tokenization

The novelty of the project is the separation of the bonus and the green benefits. When a bond is issued, the investor receives the principal obligation of the bond, any rights to future interest, and “mitigation result interest” (MOI). MOIs are term tokenized carbon credits for the relevant project. Or the carbon benefit that the project will generate in the future, which could be divided into annual installments.

Let us take an example of a wind farm. The wind farm will generate carbon benefits during the ten years of the bond. Entitlement to those annual carbon benefits is the annual MOI attached to the bond.

Tokenized MOIs can be traded separately from the underlying bond and are redeemed by delivering the unit of carbon, the Mitigation Outcome Unit (MOU).

One of the private consortiums involved Goldman Sachs using its Digital Asset Platform (DAP) ESG tokenization prototype, developed by Digital Asset. The technology company also used its DAML Canton blockchain interoperability solution. And Nomura-backed Allinfra has a platform that uses blockchain and IoT to track green claims.

The second consortium consisted of Singapore-based InterOpera, a blockchain interoperability solution for capital markets, Thailand’s Krugnthai Bank, and two industrial companies interested in sustainability, Korean companies Sungshin Cement and Samwoo.