Europe’s first digital green bond on the launchpad

IFR 2478 - 08 Apr 2023 - 14 Apr 2023
3 min read
Tessa Walsh

Credit Agricole CIB and SEB are preparing to launch Europe's first digital green bond on a new sustainable open-source blockchain platform that has been set up with the aim of becoming a more democratic alternative to other banks' proprietary systems.

The deal – for an as yet undisclosed issuer – is expected to launch on the so|bond blockchain, a “sustainable and open” platform that aims to reduce the environmental impact of IT infrastructure and remove the barriers to digital green bond issuance.

"We obviously constructed this blockchain to target green bonds initially and we are aiming to issue before the summer,” said Guenole de Cadoudal, head of the digital assets group at CA-CIB. “It should be Europe’s first digital green bond."

Digital green bonds made their global debut in February when the Hong Kong Monetary Authority issued an HK$800m (US$102m) tokenised green bond on behalf of the government as part of a drive to position the city as a hub for virtual assets.

The ethereum-compatible so|bond blockchain is also the first step in green IT as it compares systems and encourages improvement with a financial reward by giving more tokens inside the blockchain to users with better environmental footprints.

The so|bond platform is aiming to overcome blockchain’s poor environmental image due to its high energy use, and is also making it easier for big companies to use by making it possible to trace the origin of tokens.

“It is an appeal to develop green bond issuance because it is more difficult, commercially speaking, to distribute a green bond on a blockchain that has a bad ESG perception,” de Cadoudal said.

Open source

Europe is seeing more small-scale experimentation in digital bonds, most of which have used proprietary digital platforms. The European Investment Bank issued a £50m blockchain bond on the HSBC Orion bond tokenisation platform in February and also raised €100m in December using Goldman Sachs' tokenisation platform GS DAP.

An EDF subsidiary completed the first €100,000 renewable energy project bond issue on BNP Paribas' tokenisation platform AssetFoundry in July and Germany’s KfW printed the country’s first €20m digital bond in December using Clearstream’s D7 platform, while Austrian utility Verbund pioneered a digital green Schuldschein in 2018.

CA-CIB and SEB are taking a different approach. The so|bond platform is open source, which the two banks hope will create a less fragmented market. Both are custodians on the platform and are looking for other like-minded custodians to join and bring investors and issuers.

“It's like what other banks are doing, but it's open source and we are proposing that others join this initiative," de Cadoudal said. "We are not making it a private platform because we believe that the market for tokenised bonds and digital assets will work better if we all converge to a similar way of working."

The banks expect the platform’s open, transparent and secure model will foster trust between market participants and allow for further innovations, including a central bank digital currency.

In mid-March, the European Stability Mechanism backed the establishment of a digital euro to ease the capital market’s path to the wholesale use of blockchain bonds.

Adds details of Verbund's Schuldschein