Last week the Hong Kong government issued $5.75 billion in green bonds in a mix of US dollars, Euro and Renminbi. These bonds did not involve blockchain, but the Hong Kong Monetary Authority (HKMA) has confirmed that the next one will.
“The HKMA is working on another institutional government green bond in tokenised format,” an HKMA spokesperson told Ledger Insights. “The objective is to test out the financial infrastructure and the legal and regulatory environment in Hong Kong for the use of DLT throughout the bond lifecycle and to serve as a guide for similar future issuances by market participants.”
Update Feb 13: more details regarding which banks will be involved in the issuance.
The HKMA has been working with the BIS Innovation Hub on a green bond tokenization project for a couple of years, so the news is not surprising. There were two iterations of Project Genesis, with the 2021 first stage emphasizing using blockchain for bond issuance with two prototypes, one from Digital Asset, GFT and Allinfra and the other from Standard Chartered, SC Ventures and Shareable Asset.
Project Genesis 2.0 expanded the work to track the green claims or “mitigation outcome interests” (MOIs) on an ongoing basis. A bond for a wind farm will generate annual carbon benefits over its ten-year life, and blockchain is used to tokenize the MOIs, which can be traded separately from the underlying bond.
For the second iteration, one consortium included Goldman Sachs, Digital Asset and Allinfra. And the other was led by Thailand’s Krungthai Bank, InterOpera and two Korean industrial firms, Sungshin Cement and Samwoo.
While multiple governments and government-backed organizations have already tokenized bonds, we’re unaware of any that have issued blockchain-based green bonds. Examples of blockchain-based government bond issuers include the governments of the Philippines and Thailand, with Korea, Israel, Russia and the UK exploring it. The World Bank and European Investment Bank (EIB) have already issued multiple blockchain-based bonds.
Meanwhile, the owner of the Tokyo Stock Exchange, JPX, is working on a green bond solution.