SECTION 5

Blockchain for Better Green Finance

Law Enforcement
Legal and regulatory frameworks are often the fulcrum of leveraging private capitals for
green investment. And so, the enforceability of (green) finance regulations in every
jurisdiction determines the level of trust investors put and the amount of green finance
markets get. Despite the tremendous growth of green finance, especially the issuance of
green bonds which surpassed the magic US$ 100 billion benchmark in 2017, there are still
a number of factors undermining the enforceability of (green) finance regulations. They
include the lack of common definition of “green,” symmetric market information and fully
transparent yet efficient processes to verify claims of corporations around green
investments.
Green bonds, for instance, may expect to benefit immensely from the application of
Blockchain technology. Blockchain enables low-cost yet trustworthy validation of the
impact of green bonds for both issuers and investors. A pioneer working in this space is
Stockholm Green Digital Finance. Regulations monitoring or scrutinizing the use of
proceeds from the issuance of green bonds could be much more effective as Blockchain is
capable of verifying claims linked to the “greenness” of the investment. Such “greenness”
refers to the impact of a particular green bond on sustainability: outcomes of emissions
reductions, fulfillment of adaptation needs, supply chains, fair trade, or even improvement
of living standards for people in developing countries. In Chapter 20, How to Trust Green
Bonds: Blockchain, Climate, and the Institutional Bond Markets, Owen Sanderson will
elaborate on how Blockchain can create trust among investors and consolidate the
credibility of the green finance market. In Chapter 21, Utilizing Blockchain for Better
Enforcement of Green Finance Law and Regulations, Xiaochen Zhang, Professor Duoqi Xi,
and her team at Shanghai Jiao Tong University, will provide an overview of the regulatory
frameworks for green investment in China, as a case study, and the extent to which
Blockchain innovations in the country’s finance sector is enhancing the enforceability of
relevant financial regulations.
The government is like a battleship. It’s very hard to turn especially with technology.
Shira Scheindlin, US District Judge, Southern District
of New York at LegalTech, 2016.
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It is said the use of Blockchain technology for scrutinizing green investment would arise
other issues. For one thing, the disruptive feature of Blockchain technology, especially
“smart contract,” which automates compliance in many sectors, can make traditional
provisions of current regulatory frameworks irrelevant within the next decade or so. It
necessitates a new paradigm for international legal cooperation against climate change in
the Blockchain era. Indisputably promising is the huge potential of smart contracts to
facilitate climate change actions by linking renewable energy and carbon accounting,
reporting, and tracking on a micro- and macro-economic level. The databases of high
interoperability can be connected to funding initiatives and trade settlements. For example,
renewable energy trading on a Blockchain network can lock in value for taxes and penalties
without the friction introduced by traditional intermediaries. To ease the authorities’ turning
toward this new direction, the international community needs to ponder how the
Blockchain-based legal regime should be designed and unrolled for climate mitigation and
adaptation finance on a global scale.
In Chapter 22, Blockchain and Smart Contracts: Complementing Climate Finance,
Legislative Frameworks, and Renewable Energy Projects, the last chapter of this book,
James Duchenne will discuss the paradigm shift that smart contract engenders across a
range of fields. He will share his insights on promoting the interoperability of databases to
improve the efficiency and transparency along the investment value chain—issuance,
financing, trading, and reporting, which can complement current efforts in the industry.