Blockchain Technology for Sustainable Finance

By Fire Labs Team | Jun 17, 2020

What is the biggest humans problem nowadays? Modern society used to live in a comfortable life using all kinds of gadgets which simplify our lifestyle.

We pay more attention to IT-technology that produces all programs making our life more comfortable, cozy, and cheerful. However pursuing technology happiness we begin to forget another important world that keeps us alive — the environment and natural resources.

Technology and natural collision are what pushed up the environmental problems people have today with the Earth. For example, they are oil spillage at sea, dumping of hazardous waste, acid rain, territory desertification, and others. I think it is not a great mystery for you and you hear or read or watch about all of these risks.

So the greatest world`s economic, political, and social systems draw their attention to this "pain". Financial systems have not stood by idly and develop original solving of environmental problems. There is, at least, a desire for the sustainability of financial systems.

What does a sustainable financial system mean?

A sustainable financial system is — one that creates, values and transacts financial assets in ways that shape real wealth to serve the long-term needs of an inclusive, environmentally sustainable economy.

The related phenomenon is the green finance. What is green finance? It is not a difficult business term. It means activities related to the bilateral engagement between the environment and finance and investment.

Can the blockchain technology be used for a sustainable financial system?

It can be, and even it must be used. For example, among the Hyperledger Project products, we can highlight Recycle Chain. It is a concept of a blockchain platform for the open market in the waste management space. The core of the system is the blockchain database, that's stored and synced between all users.

How does this technology cooperate with sustainable financial and especially with green finance — let me work this out?

What is the global concept of green finance?

Green finance divides into banking, investment, and insurance products. Examples of these include green bonds, green-tagged loans, green investment funds, and climate risk insurance. Other products that are labeled as 'green' may not be universally accepted as such – for example:

  • Financial products (e.g. credit cards) which offer a donation to environmental protection work in reward for a certain level of spend.
  • Financial products, which respond to an environmental issue (such as flood insurance) but do not seek to address the causes of this issue (such as climate change).
  • Financial products that minimize the environmental impacts of the provider's operations (such as using recycled paper) or which offset the customer's normal activities (such as the carbon emissions generated by air travel).

The main goal of the green finance market is to increase the importance of financial markets in solving environmental problems to ensure a sustainable future.

By clearly outlining environmentally sound projects that attract investment, "green" finance allows investors to evaluate and invest their capital exclusively in environmentally sustainable projects.

For example, according to the Climate Bonds Initiative, in the last three years, the volume of green bonds issued has grown by almost 106%, and in 2018, record bonds worth $ 167 billion were issued.

Blockchain in Green Finance

As I said earlier, blockchain in green finance is a core of the system which represents a database, that's stored and synced between all users.

Who can use this technology? The answer is easy — everybody. Everyone who can be stakeholders — they are government, recycling facilities, environmental and social activists, citizens, and waste Management software, vendors.

Why do I think these "characters" of our life need blockchain technology in the green finance aspect? There are many reasons: for example, governments need to decrease the waste rates causing dump overload in their cities. Or another one case — activists have a hard time sharing the culture & knowledge or they want to invest in the ecology or helping with recycling.

It also can help to solve some recycling problems as costly transportation or recycling facilities need to improve supply chain efficiency for a better price. And, of course, it can help with using crypto for the most efficient subsidizing.

Both private and public sector investors can use such an investment mechanism. For example, financial corporations and enterprises accounted for 29% of all other issuers in 2018, and the number of sovereign green bonds is currently one of the largest. Thus, in 2018, in particular, Belgium made a record one-time issue of green finance worth $ 5.5 billion.

So, the theory is brightly and promising but what about the practical part?

Here are two successful use-cases.

The first one is The Plastic Bank.

The Plastic Bank is a special social platform, whose main goal is to gather together all the people from the whole world. This "team" must alleviate global poverty and Ocean Plastic, side by side. In this concept, the plastic waste is accepted as a currency and it encourages the idea of using Social Plastic as recycling material.

Working with Cognition Foundry, the Plastic Bank leverages the best technology, allowing them to grow exponentially while maintaining the security of transactions. Blockchain provides trust in an industry that has been fraught with corruption and danger; it provides trust to "recyclers" that their data is safe, they are safe, and their finances are safe.

The next one is The Dnepr Regional Council.

In the Ukrainian city of Dnepr, a new strategy of using solid domestic waste was created. So, all the waste is used as a payment method for covering losses for the removal and disposal of waste.

There are special recycling centers where citizens can take their garbage. Also, they can receive a cashback on a special card that you can use to pay for the utility bills.

The bottom line

To sum up, blockchain technology gives a list of prospects in the world of green finance. The incentive for creating and producing can help decrease waste rates. Also, we found out that there are a lot of stakeholders in our society who are ready to provide those incentives in real life and business. Blockchain can be efficiently tracked with a Recycling chain.

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