Genesis 2.0: smart contract-based carbon credits attached to green bonds

Project Genesis 2.0 – Report

Report showcasing Project Genesis 2.0 led by the BIS Innovation Hub in collaboration with the Hong Kong Monetary Authority and UN Climate Change Global Innovation Hub, that explored the technical feasibility to digitise green bonds with carbon forwards (also known as mitigation outcome interests (MOIs)) attached to enhance the transparency, objectivity, and environmental integrity of the green bond market. As part of the project, two prototypes were developed to track, deliver and transfer digitised MOIs with the use of blockchain, smart contracts and other related technologies.

The use of innovative technology for green finance and related themes is one of the major focus areas of the BIS Innovation Hub's Hong Kong Centre. Following the successful proof of concept in 2021 on the tokenisation of retail green bonds as part of project Genesis, the Hong Kong Centre completed a project to develop two prototypes for tracking, delivering and transferring digitised carbon forwards (also known as mitigation outcome interests (MOIs)). It involved collaboration among the Hong Kong Monetary Authority, the UN Climate Change Global Innovation Hub and other public and private parties to explore the use of blockchain, smart contracts and other related technologies.

To meet the conditions required for climate bonds to contribute to the 1.5°C climate goal, the project proposes a new structure for a green bond, appended with MOIs. These are carbon forward instruments that the bond issuer owes to the MOI holder. The bond's future repayment is made using carbon credits that must be largely generated by activities financed by the original green bond.

Conceptually, the advantage of pledging carbon credit units as part of the green bond coupon results in bond issuers obtaining cheaper funding for green investments, while reducing the risk of greenwashing. The two consortia developed solutions that digitally track in real time mitigation outcome data linked to a bond life cycle. The first consortium comprised Goldman Sachs, Allinfra and Digital Asset, and the second InterOpera, Krungthai Bank, Samwoo and Sungshin Cement.

The Genesis 2.0 prototypes are accompanied by a report and two prototype walkthrough videos that can be viewed here.