Introduction

​​As of today, sustainability and blockchain are two of the most discussed topics in the world.

But what is the relation between them? How can blockchain enhance ESG investing? 

Definition of ESG measures 

ESG (Environmental, Social, Governance) factors are a set of non-financial performance indicators that investors use to screen potential investments. As a matter of fact, in their analysis, investors not only consider financial returns, but also mitigate ESG risks to protect value and address ESG challenges to generate a positive impact.

Environmental criteria take into account the actions a company takes toward environmental conservation. Social criteria focus on how the firm manages relationships with its stakeholders such as employees, suppliers, customers, and communities. Governance indicators measure how the organization deals with accounting methods, internal controls, shareholder rights, audit and executive remuneration.

The rapid growth of ESG investing

During the last decade, sustainable investing has gained growing support due to large net capital inflows from institutional investors to investments funds. In a recent article, Bloomberg projects that sustainable investing will reach 53 trillion USD in 2025.

The CBI (Climate Bonds Initiative), after a survey carried out on 353 different players in the financial world, predicts that 5 trillion USD will be invested exclusively in green bonds by 2025. In Europe, the volume of loans linked to ESG criteria or with ESG features has risen dramatically, reaching 18.52 billion by august 2021.

The role of Blockchain and security tokens in ESG investing

These kinds of investments such as ESG bonds can be tokenized and exchanged through the blockchain. Specifically, investors can purchase security tokens, which are safe and unique digital representations of real-word assets. The benefits arising from trading assets using the blockchain technology instead of operating with “traditional methods” are numerous: lower transaction costs, more liquidity, enhancement in trust between parties, efficient data collection and transparency. The latter is a crucial characteristic since, in the current market, the lack of standardized information available to investors for screening and monitoring ESG assets adversely affects the volume traded. 

The implementation of Blockchain technology in sustainable investing gives rise to new opportunities to both firms and investors. As a matter of fact, a growing number of actors in the financial world are beginning to use tokens for financing initiatives having environmental or social objectives. 

Early adopters of ESG security tokens 

Some important Institutions are moving toward the tokenization of green bonds. For instance, the Bank of International Settlements’ Innovation Hub in Hong Kong and the Hong Kong Monetary Authority are already studying the introduction of tokens for financing ESG investments. 

Truth be told, also a BlockInvest client just issued a tokenized bond to finance a “green” project. 

Conclusion

To sum up, security tokens can be used also as a tool to spur sustainable investing and create additional value in the economy by providing more liquidity and transparency in the market while financing positive impact initiatives.

 

As stated above, BlockInvest can be the Technological partner for your ESG tokenization process. If you are interested, book a demo Here

 

SOURCES:

 

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/esg-issuance-ramps-up-in-europe-amid-signs-of-market-evolution-66417823

 

https://www.coindesk.com/markets/2021/08/25/bis-and-hong-kong-monetary-authority-to-experiment-with-tokenized-green-bonds/

 

https://www.bloomberg.com/professional/blog/esg-assets-may-hit-53-trillion-by-2025-a-third-of-global-aum/

 

https://www.milanofinanza.it/news/green-bond-verso-5-mila-mld-2541676