4ire LabsGreen investments have become so popular that investors lack more great and green projects to throw their money at. The new platform ’Green Asset Wallet’ wants to help change that by using blockchain to help issuers and investors trust each other across geography and culture.
Just a few years ago, most investors would see ethics or impact goals as an add-on on their investments. But since 2013 the investments in Green Bonds have exploded, reaching $150bn in 2017 according to the World Bank.
“It was quite a struggle to get action and impact, but in the past couple of years, a lot has happened in the financial sector. Today, many are keen to make green investments mainstream and with positive impact. A lot of financial actors want to do more,” says Cecilia Repinski.
She is the Executive Director in the non-profit ‘Stockholm Green Digital Finance’, which has tasked itself to accelerate Green Finance and Investment through Fintech Innovations. She thinks it’s crucial to get private funds mobilised toward green change if we should have any change to reach the UN Sustainable Goals or address climate changes. And even though the development has started, it’s still moving too slow.
“It’s still a marginal movement of capital towards green, and that needs new solutions,” she says.
Scarcity in supply
Investors are keen to invest in real, green activities. A cleaning plan for freshwater or solar plant for green energy. Something where the investments aren’t just measured in money but also impact.
“People are excited to invest in sustainable instruments. There is a huge demand. Pension funds and institutional investors are lining up to invest in those projects – green bonds are selling out in no time,” Repinski says.
If the green investments can deliver the same return as traditional investments, investors would instead pick the green solution. That’s good news. The bad news: The market is not as big as it should be. Even though green bonds have shown great promise, it’s far from delivering on its full potential. The market needs a way to connect investors with more sustainable opportunities.
Green Asset Wallet
While it might sound easy to increase the supply of green projects, the green bond market has some unique growth challenges. Because the investments are measured on their impact as well as financial return, they have to be validated more thoroughly – which issuers and investors have to trust each other to a larger extent.
For that reason, ‘Stockholm Green Digital Finance’ launched ‘Green Asset Wallet’ as a pilot project back in 2017. A platform where investors, issuers and validators meet each other. And a platform that uses digital tools to inject trust and make sure no greenwashing is taking place.
“These types of investments are more administratively costly as investors want both financial and impact reports returned to them. We want to use tech to solve these challenges and help unlock more green debt opportunities and scale the supply,” Repinski says.
Issuers, investors and validators must trust each other if the investments are to be made across geography and culture. Capital can only be funnelled to high-impact projects – regardless of where that might be in the world – if the stakeholders trust in each other.
“A lot of the projects financed through green bonds today are already happening. That is great but we have to do more. We need to inject trust into investment opportunities in emerging markets. That’s where additionality and high impact is,” Repinski says.
Blockchain and transparency
The special ingredient in ‘Green Asset Wallet’ that will help the stakeholders trust each other is a blockchain. Not a blockchain used to transfer money via some cryptocurrency, but a blockchain used as a trusted database that holds documents and impact reports.
That way the platform offers a tamper-proof database: Once a validator has uploaded an impact report to the platform it can be seen by all investors – and it can’t be changed without anyone can see it.
“We try to create a track-record for issuers which should give clear transparency to investors: What commitment issuers have, and if they change commitments or didn’t deliver on them it should be transparently shown to investors. Investors can trust Green Asset Wallet – data can’t be forged in any way once it’s submitted,” says Kirill Kirikov, Solution Architect and Partner at 4ire Labs, which is the blockchain-company behind the technical side of ‘Green Asset Wallet’.
4ire Labs was chosen as the technical partner at the tender among other Europen companies due to having the relevant experience in Sweden and Denmark. Currently, they are official integrators of Chromia Blockhain in Sweden, which Green Asset Wallet is based on.
While this is a key component for making investors trust the platform, the transparence is also a way to help new issuers getting started: Once a new issue – from anywhere in the world – has made a successful impact-project on the platform, the inherent transparency makes it possible for everyone to see and trust. This way, issues can build a track record of success, which can, in turn, attract even more investors.
Trust by design drives investments to higher impact
The blockchain is just a small piece of the giant puzzle behind the ‘Green Asset Wallet’. Validators and impact-report – which is an integral part of how things are done today – will also play an essential role of the new, digital platform. But by adding the blockchain ‘Green Asset Wallet’ aims to design a solution that creates trust between new parties in a more affordable way.
“If you are a well-known issuer in Denmark, this is not a dealmaker. They are already credible to investors. When they issue green bonds, investors don’t have to look at the documentation – they invest in the issuer. But if you are a new green bond or debt actor in Africa, the validation might be a pre-requisite to access global investment. And ‘Green Asset Wallet’ makes this process easier,” Repinski says.
And this new trust between partners is crucial if green bonds are to become successful in emerging markets. Even if an issuer in Malaysia has an excellent reputation in their home market, they might need additional validation for foreign investors.
“Africa has been left behind and is now seeking to get involved in the green debt market, and with Green Asset Wallet we can do this in a way that takes away cost for issuers while delivering trust,” she says.
“All green investments are good investments, but you might get more CO2-reduction pr. Dollar in Malaysia than locally. We can bring those high impact opportunities closer to investors and really start focusing on unlocking sustainable opportunities in the developing markets.”
‘Green Asset Wallet’ already has partnerships with the German government, SEB Bank, Öhman and the climate center Cicero – among others. The platform is currently only available in a demonstration-version, but is planned to go live and launch the first real projects in December this year.