Overview

In pursuit of wealth generation and economic growth, we have depleted our natural resources for generations leading to the existential crisis of environmental degradation, climatic changes, and carbon emissions. With these looming concerns of ecological deterioration, the need for long-term sustainable investments becomes paramount.

Green assets tokenization is a visionary movement that funds and incentivizes eco-friendly projects and businesses to contribute towards a sustainable future.

Key Takeaways:

• Green assets, also known as green real-world assets (GRWAs) are characterized as sustainable assets that encourage sustainable investments and have a positive impact on the environment
• Green assets tokenization comprises financial instruments and physical assets like agriculture or non-physical assets like renewable energy
• Green financing is a revolutionary concept that promotes investments in green assets or eco-friendly projects motivating enterprises, businesses, and individuals to create a socially inclusive and low-carbon green economy
• The market size of global green finance has been valued at $4.18 trillion in 2023 and is estimated to touch $28.71 trillion by 2033

What are Green Assets?

Green assets are real-world assets that contribute to the sustainable growth of the environment. They are financial assets used to fund eco-friendly or green projects. These projects can be energy-conserving or environmentally safe buildings, renewable energy projects, carbon credits, sustainable transport, waste recycling management, sustainable agriculture, forestry or crop tokenization, etc. Green asset investments include financial products like green bonds, loans, mortgages, or green asset-backed securities.

What is Green Financing?

Green financing is a socio-environmental financing initiative that funds sustainable projects or activities focused on decarbonization, biodiversity preservation, and environmental conservation goals.

Green finance promotes long-term sustainable growth and aims to maximize return on investments for investors. These projects utilize fewer resources, conserve energy, and promote sustainable development and environmental objectives.

Green finance includes financial products like green bonds, green loans, and other assets like renewable energy trading or carbon offsets.

With the growing concerns of environmental crises, banks, financial institutions, and consumers have become more conscious about sustainable investments that harmonize long-term financial goals and environmental responsibilities.

Today, companies are evaluated based on ESG criteria. ESG stands for:

• Environmental – To reduce carbon footprints and greenhouse emissions, and promote biodiversity and energy conservation.
• Social – The company’s responsibility towards its employees, customers, other stakeholders, and the community. Adherence to health and safety standards, labor laws, and human rights.
• Governance – Includes internal management, leadership, corporate ethics, business integrity, etc.

Importance of ESG ratings:

ESG ratings are standards that evaluate how well a company handles its environmental and social issues and its relationship with the employees, stakeholders, and broader community. In short, ESG standards leave a strong message on the company’s role in sustainability.

Consumers and stakeholders evaluate companies based on their ESG performances. Companies that spend on carbon credits to offset carbon footprints maintain strong ESG standards and earn a good reputation in the market as sustainable establishments.

Good ESG scores can influence stakeholders’ confidence and lead to long-term financial growth.

Types of Green Assets for Tokenization

Let us now explore the different types of green asset investments.

Renewable energy

Renewable energy or green energy projects include:

• Solar energy
• Hydropower
• Geothermal power
• Wind power
• Repurposed waste

Renewable energy producers earn renewable energy credits or RECs. One megawatt-hour (MHw) of renewable energy equals one REC generated. REC credits are saleable green assets and represent the amount of renewable energy used to generate electricity. Renewable energy producers can keep the REC credits or sell them to other entities that want to balance their sustainability requirements.

Traditional renewable energy trading generally involves large-scale projects, is time-consuming, and is accessible to accredited investors. The tokenization of renewable energy allows general investors to access reliable data and renewable energy sources.

Green energy

Green energy is often used interchangeably with renewable energy, but there is a difference between the two.

Like renewable energy, green energy is produced from sources that naturally replenish like wind or solar power, or even renewable technologies like solar panels, hydroelectric power, or wind turbines. However, some renewable energy can produce harmful carbon emissions after burning fossil fuels, coal, or natural gas.

Green energy, on the other hand, is entirely green and does not cause any damage to the environment. They avoid sources that involve excessive mining operations.

Carbon credits

Carbon credits are special permits earned by companies to offset their carbon emissions. By reducing carbon footprints, companies earn a positive reputation in the market as sustainable establishments and can improve their ESG ratings.

Companies that invest in carbon credits, reduce carbon and greenhouse emissions, support sustainable practices, avoid penalties, meet their sustainability goals, and establish themselves as conscious and eco-friendly entities.

Green real estate and green buildings

Green real estate is a sustainable property and building that is in harmony with the environment. They are next-gen real estate that maintains an ecological balance, is resource-efficient and follows stricter regulations to maintain environmental standards.

Some of the main practices of green buildings are:

• Use technologies that conserve energy by optimizing air conditioning, room heating, etc.
• Reduces the usage of excessive water through rainwater harvesting and low flow of water through faucets and toilets
• Use reclaimed wood or recycled resource materials for construction
• Foster a non-toxic indoor environment that boosts the physical health and mental well-being of residents

Green real estate and buildings contribute substantially to the reduction of carbon and greenhouse emissions. Sustainable buildings can earn green certifications like LEED (Leadership in Energy and Environmental Design) which is globally-recognized and is issued by the US Green Building Council. Another certification more prevalent in the UK is the “Building Research Establishment Environmental Assessment Method” or BREEAM.

Green buildings that earn green certifications promote healthy living environments and their market valuation can go up to 7% more than conventional or non-sustainable properties.

Types of green energy include:

• Solar power
• Hydropower
• Wind power
• Geothermal energy
• Biomass
• Biofuels (ethanol, biodiesel)

Green infrastructure

Green infrastructures are water management approaches that preserve and restore the natural water cycle. These projects use technologies that restore natural wetlands, grow rain gardens, green rooftops, permeable pavements, rainwater harvesting, tree boxes, trees, etc. A large-scale adoption can restore natural landscapes, prevent floods, and improve the quality of natural water supplies.

Waste management infrastructure

This infrastructure includes legal formalities and sustainable practices to manage and recycle waste. They ensure that the wastes are properly disposed of to minimize environmental and health hazards.

Green transportation infrastructure

Green transportation is a type of transport that does not pose any adverse impact on the environment. These transports use greener alternatives and renewable resources as opposed to non-renewable resources that are depleted after one use. They avoid fossil fuels as they are considered the biggest contributors to carbon emissions.

Electronic bikes, hydrogen vehicles, hybrid vehicles, etc., are some of the examples of green transportation. Green transportation reduces the demand for degradable resources like diesel, petroleum, gas, etc., and are more cost-efficient transport solution.

Green financial instruments

Green bonds, also called sustainable bonds are debt investments that allow users to finance green projects that benefit the environment and the climate. They offer tax incentives like exemptions or credits and a return on investments. This may encourage investors toward sustainable investments.

Green bond issuers must clearly state the sustainability goals to the investors and are carefully audited and reviewed externally before issuance.

Green bonds fund projects for:

• Clean transportation
• Renewable energy
• Waste management
• Energy efficiency
• Green buildings (recognized and certified)
• Sustainable water

Green energy mutual fund

These funds are a type of investment that allows investors to invest in companies that work on green energy projects or renewable initiatives. These mutual funds allocate funds from various investors and use them to fund projects involving solar, wind, hydroelectric power, etc. These projects aim to mitigate the carbon footprints, enhance ESG performance, and foster environmental sustainability.

Green loans

A green loan is a financial instrument or a type of loan exclusively used to finance environmental-friendly or green projects. The lenders must ensure the intended purpose of the projects before lending the loan to the borrowers. The borrowers must use green loans to finance sustainable projects with positive environmental outcomes. Some lenders may also ask for periodic reports to assess the project’s progress and outcome.

Individuals and companies can put in an application for green loans to install:

• Solar panels on rooftops
• Installing thermal insulations
• Buying electric cars
• Building zero-emission houses
• Building solar parks

Blue bonds

Blue bonds are fixed-income assets given to banks, governments, banks, and corporations to raise money for financing marine, fisheries, and ocean-related sustainable projects that benefit the climate. They are similar to traditional bonds where the beneficiary has to pay back the capital amount plus the interest rate annually until the end of the term.

Green credit cards

Green credit cards are eco-friendly credit cards that transfer a part of the credit card issuer’s spending to support environmental initiatives. These green cards are often made of recyclable materials. Whenever the issuer makes a credit card transaction, he/she earns points that can be redeemed for purchasing eco-friendly products or to support an eco-project.

Green Assets Tokenization – Pathway to Sustainable Future

Green assets tokenization is the process of digitizing environmental assets into digital tokens using blockchain technology.

Traditional green assets like renewable energy or waste management have regulatory barriers and are difficult to access. Tokenization is an innovative technology that reduces these obstacles and creates an innovative and sustainable investment opportunity for a wide array of investors. It simplifies the verification process, traceability, and digitization of assets.

Blockchain decentralizes the entire process and minimizes bureaucratic interference and disputes. It enhances transaction execution, and efficiency, and promotes transparency.

Tokenizing green real-world assets is a transformative initiative that drives greater participation and facilitates widespread initiatives of carbon offsets. Smart contracts allow equitable allocation of these assets among investors.

Green asset tokenization appeals to smaller investors and encourages them to participate in bigger projects that were earlier only accessible to accredited investors.

Benefits of Green Assets Tokenization

Fosters a low-carbon economy

Tokenization of GRWAs pivots green financing of projects that align with climatic goals. It creates a global awareness among enterprises and individuals and spurs collaborated efforts toward sustainable investments. Businesses become more aware of their carbon footprints and adopt eco-friendly initiatives to conserve energy and natural resources.

Fractionalization democratizes access to green assets

Fractionalization lowers entry costs to inaccessible green assets which were broadly limited to accredited investors or large organizations. Fractionalization facilitates the democratization of assets and makes green financing investments inclusive for a broad pool of investors.

Efficient allocation of resources

Smart contracts decentralize transactions and ensure fair and equitable distribution of digital tokens among stakeholders. Blockchain enhances the traceability of the assets, and verifies the ownership rights, certification, and validity of the green projects, reducing fraud and mismanagement of assets.

Improves liquidity and efficiency

Traditional green asset markets are cumbersome and illiquid due to huge paperwork, bureaucracy, and lengthy processes. Tokenization democratizes investments and enables transactions on decentralized digital platforms that are easy to access and offer near-instant liquidity to stakeholders. Smart contracts automate transactions, reduce administrative expenses, and drive low-cost transactions. Self-operating transactions improve market efficiency and eliminate the need for intermediaries.  

Promotes innovative technologies

Tokenization promotes the creation and adoption of new and innovative technologies that are cost-saving, and energy-efficient, and promote sustainable practices. Various industries are on the constant lookout for developing and integrating eco-friendly and sustainable practices that can fuel economic growth without compromising sustainability goals.

Enhances brand reputation

Green projects improve the ESG ratings of organizations and demonstrate ethical and conscious business practices in the market that can drive environmentally aware customers and stakeholders.

In Conclusion

The tokenization of green assets is a transformative solution toward a carbon-conscious ecosystem and a greener and more sustainable future. Green investments promote innovative and viable practices that motivate organizations and individuals to participate in sustainable projects and build a safer and greener planet for future generations.