Charles-Edouard Bilbault, Global Equities Portfolio Manager

Klara Sok, R-co Thematic Blockchain Global Equity Co-Portfolio Manager

Many associations, nongovernmental organisations and businesses have jumped on the blockchain bandwagon in order to secure and support initiatives with a social or environmental purpose. Some of the most advanced projects include microloan and collateral security platforms, digital identity and fund transfer infrastructures, the creation of voluntary carbon credit markets, green bond issuance and trading, certification of origin for electricity produced from renewable energy sources, the notarisation of climate data processing, etc.

Blockchains have already proved to be powerful traceability tools as well as infrastructures that create transparency and build trust during the exchange of high-value information; but they also come across as being unifying platforms able to coordinate complex ensembles of entities all committed to reaching a common goal. Ultimately, blockchains are merely databases where management and access are distributed in a transparent manner and information is recorded in such a way that it is immutable. But this means that they have the three qualities required for the institutional building of trust that cements relations between operators, donors, shareholders, clients and beneficiaries: 

• Immutable engagement: Where blockchains are concerned, “to say is to do” or rather “to record is to do”. By default, blockchains are designed so that the information recorded is definitive and unerasable. The same goes for any commitments made. If they are recorded in a blockchain to be executed at some point in the future, there is no easy way back; and if one must go back, it will be in a fully transparent manner by recording a reverse transaction, for instance.

   

• Transparent reporting: Initiatives with a social or environmental purpose are all the more dependent on reporting as reports are to a large extent what ties an operator to its financial sponsor. The data processing transparency offered by the blockchain is a feature that facilitates and reinforces the reporting efforts made by the organisations concerned. 

   

• Transparent management: Blockchains are a simple and accessible solution that makes database administration a transparent and auditable process when it comes to transferring funds, managing digital identities and resources to be distributed, issuing guarantee of origin certificates, etc. This is a theoretical prerequisite that is generally difficult to implement.

The ecosystems involved in social or environmental impact initiatives are complex and diverse, which makes the blockchain particularly useful as it is able to create a neutral and secure space that is conducive to engagement.

Blockchain and social issues 

Most social purpose projects are currently geared towards financing businesses or individuals that do not have easy access to the traditional financial system on account of unfavourable macroeconomic or geopolitical circumstances. It is currently estimated that a total of 4.4 billion US dollars in loans have been granted for decentralised project finance via the blockchain, and the value of outstanding loans is estimated at 557 million US dollars. A geographic breakdown shows that such financing clearly leans towards emerging countries, which account for over 90% of the decentralised loans granted to finance ongoing projects. This is largely because of lower bank-account penetration and prominent informal economies in the least economically developed parts of the world. As a result, decentralised lending infrastructures are all the more relevant. Blockchains are central to such infrastructures and add a level of transparency and security to payment flows that would otherwise be difficult to achieve. The World Bank says that approximately 1.7 billion people currently have no access to basic banking services. We can also see humanitarian aid projects being developed in areas with distressed communities, with one example being the Building Blocks project run by the United Nations World Food Programme. The programme uses the blockchain as an integrated digital identity infrastructure, providing refugee populations with access to food, education and healthcare.

Large-scale savings thanks to the blockchain

On the strength of the experience acquired and results achieved with Building Blocks, the United Nations (UN) has since developed several other humanitarian projects based on the blockchain: UN Women joined Building Blocks and set up a pilot scheme to transfer cash to female refugees in Jordan. The initiative was then extended to Kenya. The WFP has also developed Blocks for Transport, which seeks to facilitate resource shipping documentation throughout the supply chain. The United Nations Development Programme (UNDP) has developed various pilot schemes: 

• Crowdfunding 
• Food traceability in Ecuador, with an integrated payment system to foster reinvestment in means of production and boost sales growth 
• Food monitoring in Serbia 

The United Nations Food and Agriculture Organisation (FAO) has set up a traceability system for pig farmers in Papua New Guinea. The United Nations International Computing Centre and Joint Staff Pension Fund have created a digital identity card or digital “certificate of entitlement” for United Nations retirees – talks are underway to extend it to all United Nations staff. UN-Habitat and the Office of Information and Communications Technology have set up a system for monitoring ownership of land plots in Afghanistan. The United Nations International Children’s Emergency Fund (UNICEF) has launched Digicus, a prototype used to digitise the agreements it reaches with its partners in Kazakhstan (governments, NGOs, universities) via smart contracts. The United Nations is also carrying out studies on intellectual property and innovation management in the civil aviation industry.

Blockchain and environmental issues 

Environmental purpose projects have emerged too and are on the increase. Such projects use low-carbon blockchain solutions and make little – or even no – use of high performance computing, which means they consume electricity more sparingly. One of the most advanced environmental projects is Base Carbon, a company listed in Canada. It uses the blockchain to create digital carbon credit certificates and secure dematerialised trading in such certificates. Base Carbon has so far issued over 1 million Verified Carbon Units (or VCUs) for a carbon emissions reduction project in Vietnam, for which it has partnered up with Citigroup. In China, JD Logistics (a subsidiary of e-commerce giant JD.com) is exploring the blockchain with a view to offering its clients carbon footprint calculation services throughout the supply chains it serves. The Energy Web consortium founded in 2017 by some ten energy firms helps other industry players to improve the traceability of the energy they produce, generate and store. The initiative started off with Shell, Tokyo Electric, Sempra, Equinor, Centrica, Stedin, TWL, Singapore Power, Elia Group and Engie, but is now made up of 62 members. Alongside its traceability solutions, Energy Web has also developed other solutions enabling over-the-counter energy trading, digital identity security and personal data protection, as well as the application of standards governing the renewable nature of the energy used by blockchains to operate. There are plenty of other examples in the environmental arena. The Blockchain for Good association maintains an online directory of blockchain projects in this field and has so far registered 1,298 projects, including 302 in the environmental and climate fields. The Bank for International Settlements has also disclosed a selection of environmental projects that make use of the blockchain. This selection was drawn up as part of Project Genesis 2.0 carried out with the Hong Kong Monetary Authority and looking into the benefits of smart contracts for enabling and securing carbon credit markets. Blockchains are also being used in sustainable finance. One example is the sovereign green bond issued by the Hong Kong government (HKSAR) via the blockchain in February 2023. The Hong Kong bond was issued for a notional amount of 800 million Hong Kong dollars, in collaboration with Goldman Sachs, Crédit Agricole CIB, HSBC and Fidelity. The Bank for International Settlements (BIS), a coordinating body for central banks worldwide, encourages the use of blockchain and smart contracts. The BIS believes they are useful in securing and enabling the development of “green” financial instruments and thus upholding the climate targets set out in the Paris Agreement. In addition, the OMFIF reckons that it makes particularly good sense to use the blockchain for issuing such instruments because of the need to standardise and secure high-quality data. Combining blockchain with the use of smart sensors has proven to be an effective and rather low-energy solution for securing the links that exist between underlying assets and the financial instruments through which they are financed.

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