Regenerate, not degenerate – blockchain’s central role in sustainable finance

Crypto remains a land of contradictions. Is it, as the SEC’s Gary Gensler suggested, a sector full of “hucksters, fraudsters and scam artists”? Or do we take the view of Larry Fink and the other big-name asset managers queuing up to submit Bitcoin ETF filings?

Do we believe the Treasury Committee when it likens the industry to gambling with no intrinsic value or useful social purpose? Or do we trust the thoughtful work being done by the Law Commission and the UK government to lay the legal frameworks for recognition of digital assets and digital asset activities, and realise the stated government ambition for the UK to become a global crypto hub?

As with most things, the answer is a bit of both, depending on whom you ask and where you’re looking. Aside from the noise, though, there’s a growing recognition that ‘crypto’ as a wider phenomenon has both its regenerative as well as degenerative elements – and in fact blockchain is being widely harnessed with the vision of doing good. 

This covers a wide and rapidly expanding range of areas, from underpinning more secure overseas aid payments to facilitating improved digital identity solutions and smoother trade flows. But where I think blockchain really comes into its own in addressing some of the biggest challenges of our time is as a means of powering the next generation of sustainable finance. This is something we’ve been fortunate enough to see develop first-hand at Zumo through our work with the World Economic Forum and others to explore how blockchain tools can be better leveraged to contribute to meaningful progress towards climate action. 

The climate crisis is one area where we need all the help we can get, and where blockchain-supported solutions are beginning to make a tangible impact. As we look to the future, here are five ways we see blockchain-enabled solutions tackling the climate crisis as part of a wider regenerative finance, or ReFi, movement. 

Reporting transparency

We – individuals, corporates, organisations – urgently need a way to publicly track and showcase our climate action in a transparent and auditable way, and blockchain is a perfect tool to do that. Green proofs, such as those provided by Energy Web, help organisations back up their public decarbonisation pledges and grow markets for clean energy and ESG instruments with granular, verifiable data.

Verification and provenance

Showcasing on the blockchain means nothing without ensuring the underlying data or instruments (carbon credits or renewable energy certificates, for instance) are of a verified quality. Blockchain-supported projects, such as the Cambridge Centre for Carbon Credits, are securing this by adding in real-world observations and monitoring to the process, and ensuring the robustness of the data that’s being fed in.

Market infrastructure

Creating tokenised blockchain marketplaces for ESG assets can inject liquidity, open up the investor base, and streamline the process for all types of investors to procure offsets and energy attribute certificates. One example is ZERO13, which offers a distributed point of entry for digital issuance, trading, and settlement of carbon credits and ESG securities.

New financing routes

Opening up financing at the scale required to achieve net zero necessitates new and innovative funding routes to support sustainable infrastructure projects. Blockchain-supported projects can significantly increase efficiency, and democratise this area of investment so it’s open to all. Energy firm EDF, for example, has issued an ESG tokenised bond through BNP Paribas digital assets platform AssetFoundry.

Supporting direct climate intervention

There are a range of web3 projects that directly target climate intervention, from procurement of land for rewilding, to plastic recycling and nature tokens that support climate action at a community level. Rebalance Earth is a prominent example, creating nature credits that protect and grow biodiversity, capture carbon, and reward communities that preserve nature. 

This highlights just some of the blockchain-aided projects aiming to optimise end-to-end processes in tackling climate challenges – and it’s interesting to note they often feature traditional financial institutions working in tandem with newer tech-led entrants, as should be the way in a healthy ecosystem.

ReFi is only gaining in momentum. Maintaining that positive direction will require the financial industry and its overseers to prioritise initiative and innovation, creating the right environment within which it can flourish. As the saying goes, it’s not what you look at, it’s what you see. For those hard at work building in the crypto and blockchain sector, a more sustainable future beckons.

This article was originally published in CityAM on 13 July 2023.