Tokenization could help reverse our ecological crisis

October 20, 2020
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Louisa Bartoszek

As the shockwaves of the global pandemic remind us of the precious relationship between people and nature. And the world wakes up to the ecological emergency we face together. Louisa Bartoszek discusses how blockchain tech could help. All we need is the will to try something different.

As the camera pans to trees in the Borneo jungle being felled in Netflix’s "A Life on our Planet” documentary, David Attenborough shares how he has seen with his own eyes how the ‘flat hazy-green blanket of the jungle’ has radically transformed since the 1970s. Vast tracts cut down to make way for palm oil plantations. I silently cried stop, please stop, as the trees toppled. Helpless to stop the loggers through my television screen.

The scale of our ecological emergency is simply enormous. It is so overwhelming; it can be difficult to fully comprehend and find a solution. But we must find a solution, and we must act now.

It is not just about the devastation to animals and trees. It’s a health issue just as much as an environmental issue. “As nature degrades,” said Elizabeth Mrema, Executive Director of the Convention on Biological Diversity, “new opportunities emerge for the spread to humans and animals of devastating diseases like this year’s coronavirus.”

I concur fully with the United Nations’ 10-point pledge to counteract the damage to systems that underpin human health and wellbeing (30 September) which included the statement: “Unless halted and reversed with immediate effect, it will cause significant damage to global economic, social and political resilience and stability, and will render achieving the [UN’s] Sustainable Development Goals impossible.”

I would go even further and call this an extinction risk issue. It’s that serious in my mind.

Investing in the world’s most powerful ecological technology

Rainforests and jungles are particularly precious habitats. They need to be viewed as sacred as they possess the keys to our survival. Trees.

Trees are the oldest and most powerful clean technology on the planet. Tech geniuses in Silicon Valley can only dream of creating an effective, cheap and sustainable tech solution that captures carbon as well as that of a tree. Nature is arguably the world’s greatest clean tech developer.

If we listen to the science, the data; restoring natural landscapes damaged by human exploitation can be one of the most effective and cheapest ways to combat extinction risk.

How do we stop forest owners from destroying the keys to our survival?

Eliminating deforestation is the obvious answer. Along with rewilding to replace lost trees, our natural life-saving technology.

The challenge is that we live in a capitalist world where money is fundamental to our survival. Everything has a price. Food, homes, heating, clothes, education, healthcare, and so on.

And trees (at the moment) are not profitable unless they are harvested. This is the problem of the modern world. Nature is destroyed to meet modern consumption needs. It happens slowly, so slowly that you often don’t know it or see it. And then one day, poof, it’s gone.

We also live in a world where success is measured by growth – revenue growth, economic growth, GDP growth.

Growth being the operative word. If growth is what powers our society, perhaps we need to introduce a new growth metric, forest growth? With governments and companies penalised for forest reduction and poor forest performance?

Introducing a new financial metric – Forest Growth

Philosophically, the concept of forest growth as an economic metric makes sense. We need to protect our natural resources and live more sustainably to protect our financial futures. Trees have the power to help reverse ecological damage. And as they say, what gets measured, gets done. We need a forest metric in order to assess good or bad performance.

But in a world where many of the world’s forest-rich countries are some of the poorest, it is understandable for these countries to be reluctant to agree to such a metric and, in turn, potential consequences for poor performance, without a financial incentive.

Why should governments in poorer countries be told they are unable to monetise their resources to help their citizens rise out of poverty and enjoy the same comforts and luxuries of wealthy countries, like say the United States and western Europe?

Why should the richer countries think they can tell the poorer countries what to do? Just because they are finally waking up to the very real threats of ecological destruction that we all face should we continue on our current path. This isn’t an episode of the Hunger Games with the Capitol of Panem dictating to the districts. The harsh reality is global forestry policies and forest metrics will only truly work if there is financial value and financial incentive for those impacted.

What is Green Tokenization?

As I have expressed before, they say money doesn’t grow on trees. But what if it did? What if there was a way to monetize forests using new sustainable financing blockchain technology?

There is a way. It is a new branch (pun intended) of Green Finance called Tokenization.

This is not a case of greenwashing a financial product. It is a unique new form of financing which can help governments and forest owners monetize their trees without the need to harvest them.

In a nutshell, tokenization as a concept is taking a real-world asset, in this case a forest, and turning it into a financial product (a digital asset) which an individual or company can invest in. Same as a security or share, for example.

The way it works is a digital finance platform, such as Mozaic Markets, collects all the current and historical performance data on the forest which an investor would need to know, including “business” strategy and forecasts. Just like when investing in a company. Data could include:

  • Legal – land deeds, regulatory obligations, contracts/legal documentation
  • Forest Inventory: land size, forest cover, species, height, site quality, age/tenure, any defects), biodiversity (animals and plants) surveys
  • Environmental Risk: hazards such as flooding, fires, disease, earthquakes
  • Deforestation Risk: agriculture, mining, timber (including illegal logging)
  • Carbon and Energy Productivity: carbon capture, carbon emissions, renewable energy
  • Financial Performance: preservation costs, rents, forest produce exports
  • Forest Governance: reforestation programme, land maintenance, wildlife cultivation

A Forest Token is similar to a Security

Once all the required information has been digitized, verified and safely stored on a blockchain (which once added, becomes a permanent unalterable digital record fuelling an extraordinary new level of transparency and trust), a “digital twin” of the forest is created.

This digital forest is then fragmented into smaller denominations called tokens – a process called tokenization. The forest tokens are structured as a security. They are perceived to be an investment contract that sits on a distributed ledger and is run by a smart contract. This is tech speak for, it’s a financial product which sits on a financial platform and is automated using technology. It’s a fully digital process making it fast, cheap and easy to manage.

Fragmentation of a digital forest allows for thousands of tokens to be created should the issuer, the forest owner, wish to do so. This is really exciting as for the first time; it lowers the barriers to entry for the public to invest in forests. Something which hasn’t been available until now.

Forest tokens, same as a security, represent an underlying real asset (in this case a forest). They therefore pay dividends, share profits, pay interest and so on. Thus, generating a return for forest token-holders (investors).

They are also liquid and can be traded on a market, like Mozaic Markets, or further down the line, potentially an exchange if tokens become listed like exchange-traded funds (ETFs). The token price rising and falling, influenced by market demand and asset conditions at the point of sale. Just the same as the rise and fall of a company’s share price on a stock exchange.

New capital to incentivise forest owners

Tokenizing the world’s forests would unlock a potentially compelling new revenue stream. It could help to incentivize state governments to not use forest land for commercial use and gradually transition to a more sustainable “green growth” financing model which could be used to:

1.      Fund economic growth and finance improvements to water, energy and food security, sustainable farming, education and job creation, helping to eradicate extreme poverty

2.        Protect biodiversity and forest dwelling indigenous communities through ceasing deforestation and investing in the forests to encourage wildlife populations to thrive

3.        Reverse climate change through forest preservation and reforestation. Reforestation can go a long way in offsetting the carbon and greenhouse gas emissions that human activity has pumped into the atmosphere.

If we continue as we are, we will likely pass a number of tipping points by the year 2030 and face an irreversible climate collapse. The window of time available to us is short, but if the coronavirus pandemic has taught us anything, it has taught us that fast transformative changes are possible when they must be made.

And on a more optimistic note, political leaders from 64 countries participating in the United Nations biodiversity summit in September, including the UK, signed a pledge to say they recognise the scale of the risk and their collective ambition to reverse biodiversity loss within the next 10 years.

Time will tell if they will turn these words into action.

It all starts with one forest. A digital forest.

Call to action: Ask your political representatives if they have heard of forest tokenization and if your country is going to lead the way in digitizing your countries forests. If they have not, it might be worth sending them this article.

Learn more about Green Digital Finance:

How forests could help Africa eradicate extreme poverty

Tokenization can unlock trillions of dollars which can be used to finance the climate emergency

Why we need governments to tokenize the world's forests

IMPORTANT INFORMATION

This article is marketing material and is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. All investment decisions must be based only on the most up to date legal offering documents.

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