Northern Trust plans to have the first set of data for the National University of Singapore’s green bonds to be put on the blockchain by the third quarter of the year, marking the first initiative in the market to tokenize green bond credentials, said Alvin Chia, head of digital assets innovation for Asia-Pacific, in an interview.
By the end of September, data points that are already in the public domain will be captured in the token alongside a fresh batch of information such as the reduction in carbon footprint and utility bills, he said.
The asset servicing provider in December signed an agreement with NUS to explore the use of blockchain technology on sustainable finance frameworks and credentials for the university’s green bonds.
The initiative is part of Project Guardian, a project led by the Monetary Authority of Singapore that explores ways to enhance liquidity and efficiency of financial markets through asset tokenization, according to a Jan. 13 joint statement.
In addition, the initiative involves Singapore-based United Overseas Bank, the lead manager and arranger of the NUS bonds, the statement said.
The tokenized information will not be made available directly to investors, but the UOB will help provide insights on investor needs, Chia said.
"UOB, who is our lead manager, will help us understand if this meets the need of our investors, and what we can do if this is unable to meet their needs," he said. "Can we structure the data in a different way? Should we present them in different ways, or should we capture other forms of data? So it will be a learning process for us over the next 12 months."
The Northern Trust team has been speaking with green bond investors to understand what they need to get the maximum value from their investments, Chia said.
"What we found from the conversations is that a lot of the green bond investors today are looking at purchasing green bonds as part of their portfolio diversification strategy," he said. "So they might be investing in coal, they might have been investing in more pollutive industries in the past, but because of the government mandates and regulation have started shifting into green investments."
To justify the green investments, these investors want “accurate, immutable data that they can trust. And I thought that that's where we can bring the whole blockchain conversation in and tie these pieces together,” he added.
Having the green credentials on the blockchain will also help attract foreign investors to green bond issuances, Chia said. A green bond in Singapore may typically issue reports on an annual basis, but regulators in Australia and Hong Kong, for example, may have different reporting timelines.
"We are hoping that we can shift the cadence from an annual basis to quarterly in the first instance," Chia said. "So when the investors look at reporting on how much carbon have they have removed from the atmosphere based on their purchase of green bonds, they have more updated information for themselves."
The tokenization of green bonds has accelerated the past two to three years. The Hong Kong government, for instance, became one of the first governments globally to issue sovereign tokenized green bonds, Chia said.
But tokenized bonds currently are focused on bringing the assets on the blockchain by creating a digital twin that can mirror the bond holding via a token or having a natively issued token that represents the bond holdings.
"We haven't seen any attempt at looking at communicating the data of the green bond credentials," he said. "That hasn't been the focus. And we thought that when we sat down with our clients, we want to make sure that we do something meaningful for the industry."
“We have seen how people have cracked the ownership question,” he added. “Let's look at the second-layer data, and that's where we can give the investors the confidence that the green bonds that they hold is indeed green and is doing good for the environment.”
The initiative will use the International Capital Market Association’s Green Bond Principles to guide the credentials capture for the NUS green bonds, he added.