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

February 7, 2020
Raymond Harte

Green Finance: Raymond Harte, CEO of Mozaic Markets, explains why to make a difference to the climate agenda, a new 'capitalist' style instrument that meets the needs of investors and society needs to be created. That instrument is Tokenization.

To make a difference to the climate agenda a new ‘capitalist’ style instrument that meets the needs of investors and society needs to be created

We believe Tokenization is the biggest opportunity for Capital Markets

Tokenizing ‘real assets’ such as forests can help tackle the climate emergency via the creation of financially sound investment products

Climate change has been by far the most discussed theme this year so far, from both a corporate and financial market perspective.

It dominated our conversations at Davos last month; on an equal footing with data security and online privacy.

We keep being asked; what can blockchain and artificial intelligence (AI) do to help tackle the climate emergency? And what can financial services do to accelerate change?

In short, the answer is, a lot.

Much more than people seem to realise too, and that’s mainly because the financial services industry has not yet fully embraced the potential of distributed ledger technologies (DLT).

To start with, there’s still too much confusion around blockchain vis-à-vis cryptocurrencies – and as we know, cryptocurrencies, still have an unfortunate reputation.

Unlock trapped liquidity to solve real world problems

In my mind, it’s really important blockchain and DLT experts, like our parent company 20|30 Group, continue to educate issuers, financial institutions, asset owners and regulators around the world, as to what blockchain really is and how it can help.

Explaining the capabilities (and current limitations) of this technology, and how it can add real value to both issuers and investors, as well as unlock trapped liquidity to solve real world problems is one of our first goals at Mozaic Markets.

For example, how blockchain technology can tackle the climate emergency or protecting the identities of the billions of banking customers around the world who shop and bank online.

And this is just the tip of the iceberg.

In Paris today (6 February) at the annual Finance Summit 2020, on the agenda was a spotlight discussion called “From impact investing to green finance: Can the financial sector contribute to a better world?”

It’s terrific to see green finance be given a prominent slot on the agenda.

But looking at the accompanying topics for the panel discussion, which were about getting back to basics on what makes an investment “green”; what’s needed to make the green bond market more attractive to investors; and, are social impact investing bonds making a positive difference to society?

None of this is ground-breaking. Nor does it invite entrepreneurial thinking to debate financial innovation and create a completely new way of approaching sustainable financing.

Just more of the same things. Green funds, sustainability funds, green bonds, and so on.

In a nutshell, people are aware of the problem, they are eager and willing to get involved, but they need a viable, financially sound mechanism to utilise.

Record levels of investment in ESG products

We’re a month into a new decade and there is a growing sense of anticipation that we’re on the cusp of a seismic shift in capital markets.

You only have to look at Blackrock’s CEO Larry Fink in January, when he declared that Blackrock has pledged to put environment, social and governance (ESG) factors at the heart of its investment process, to see that the winds of ‘climate’ change are turning in the asset management space.

But before Blackrock’s statement, which I expect will be the first of many over the next 12 months, investor appetite for ESG investment opportunities is already growing by the day.

European investors alone poured more than twice as much capital into sustainable funds in 2019 compared with 2018 – a record 120 billion euros, according to Morningstar.

Most driven by societal fears around the threats posed by climate change to the global economy and a desire to want to do the right thing.

Watching the wildfires which caused such horrific devastation to many countries around the world, particularly in Australia in December, it wasn’t surprising to learn that more than a third of the year’s inflows - 47.3 billion euros – came in the final three months of 2019.

European sustainable funds now hold 668 billion euros of assets, up 58% from 2018.

I think it would be a fair to expect to see a surge in ESG-related fund launches over the next 12-18 months in response to growing investor appetite.

Based on 2019’s growth trajectory, I also think it is fair to forecast that we will see European sustainable funds top the 1 trillion-euro mark by the end of 2021.

I wouldn’t be too surprised if it reached this figure before then.

But, what about the capital markets?

A new ‘capitalist’ style instrument that meets the needs of investors and sustainable financing

To make a difference to the climate agenda, a new ‘capitalist’ style instrument that meets the needs of investors and society, needs to be created.

And that instrument is Tokenization.

Tokenization presents the biggest opportunity for capital markets when it comes to sustainable financing solutions.

We have already proven, through our participation in the UK financial regulator’s FCA Sandbox (Cohort 4) last year and our collaboration with the London Stock Exchange Group, that equities can be tokenized using blockchain technology.

We are currently working with a number of large asset owners to utilise our technology and tokenize ‘real world’ assets.

By real world, I mean anything from real estate through to forests, farmland, art; even wine.  

The game changer that we are able to bring to the table for our investors is the fact that our core product is not only the creation of a token for a particular asset, but the fact that this token is constantly evolving through the digital DNA that we build at its foundation.

This has never been done before and the potential is exponential

In recent articles, myself and colleagues at Mozaic Markets have explained how tokenization can help tackle climate issues such as deforestation. I’ll include links at the bottom.

Overall, some estimates suggest a new tokenized economy could reach $24 trillion by 2027.

Bolder estimates indicate the size of the future new market could be as large as $250 trillion.

And this does not factor in the broader societal benefits tokenization brings, such as contributing to saving the planet and tackling sustainable housing issues; not withstanding improving economic growth for countries around the world.

The dawn of decentralization has arrived.

And it arrives at a time when sustainable financing/ESG financing has matured to the point where it can greatly accelerate societal transformation for the better.

As corporations and investors experience growing influence and power, their actions and decisions increasingly shape the future.

So, can financial services do more to help the climate emergency? Yes, they can.

They can unlock trapped liquidity in real assets through using tokenization technology.