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How Green Bonds, Tokenization and Goldman Sachs are aiding in Economic Growth

The Government of the Hong Kong Special Administrative Region of the People’s Republic of China announced the successful offering of HK$800 million of tokenized green bonds on Thursday (16th of February 2023). This is the first ever tokenized green bond issued by a government globally. This one-year tokenized green bond was distributed by a four-bank syndicate (Bank of China (Hong Kong), Crédit Agricole CIB, Goldman Sachs, HSBC) and will be leveraging Goldman Sachs tokenization platform GS DAP to increase efficiency and digitalisation across debt issuance (Hong Kong Monetary Authority, 2023).

In this blog post will break down what green bonds are and how Goldman Sachs are using their tokenization platform to help facilitate green bonds. The economic benefits of green bonds and how they are aiding the UN in reaching their global sustainable development goals by their target of 2030.  

So, what are Green Bonds?

Green bonds have been increasing in popularity in recent years with Morgan Stanley referring to this period as the “Green Bond Boom” (Morgan Stanley, 2017).  But what exactly are green bonds and why have they become so popular?

A bond is a debt capital instrument issued by a borrower, who repays the lender the amount borrowed plus interest over a set period of time (Choudhry, 2010). A green bond has the same principal functions of normal bonds with one key difference, their proceeds must be committed to financing environmental and climate friendly projects. These bonds must go through a third-party verification process to gain a certification that its funding is going towards projects that are environmentally beneficial (Flammer, 2021).

                              (Source: YouTube)

The Rise of Green Bonds 

The European Investment Bank (EIB) issued the first green bond the ‘Climate Awareness Bond’ in 2007 (European Investment Bank, 2020) and the market has been continually growing since with 189% increase in green bond issuance between 2018 and 2022 in the US (Sugrue & Popoola, 2022).

Green bonds allow issuers to externally communicate their sustainability plans and create synergies between financial and sustainability departments to finance their green activities at a lower cost than conventional bonds (Chen & Zhao, 2021). But they also allow investors to credibly signal their commitment towards the environment. Studies have shown that there is a positive correlation between stock market outcomes and eco-friendly behaviour (Flammer, 2021). This makes it a win-win for both issuers and investors and is likely the cause for increased popularity over the last number of years.

What is Goldman Sachs tokenisation platform GS DAP?

In November of 2022 Goldman Sachs launched GS DAP. This is a digital assets platform built on private permissioned blockchain technology (Ledger Insights, 2022).

But what is blockchain?

Blockchain is essentially just a digital ledger of data, it records information and transactions in a way that is impossible to change and distributes it across a network (Pierro,2017). Bitcoin is a great example of blockchain that has had some recent notoriety. The key difference between bitcoin and GS DAP, is that bitcoin is a public blockchain meaning anyone at any level can trade on this blockchain. Whereas GS DAP is a permissioned blockchain, meaning Goldman Sachs can control the role individuals will play in the network. They also use a distribution system that uses a native token, which is something exclusive to permissioned blockchain (Laurence, 2019).

                           (Source: YouTube)


How will this aid Economic Growth?

The tokenized green bonds should enable further transparency, enhance efficiency and reduce the cost of bond issuance and settlement (Huang, 2023). Should this pilot programme by the Chinese government and Goldman Sachs be successful, it will streamline the process of onboarding investors facilitate direct payment and settlement between the issuer and investor (Bank of International Settlement, 2022).


These green bonds are being used as tools to actively address the impacts of climate change. The OECD stated that countries in the G20 could add an additional 5% to GDP by 2050, through investment into climate change solutions and avoiding climate change damage such as extreme droughts and storm damages (OECD, 2017).

Infrastructure is a key driver for economic growth and investment into modern infrastructure is pivotal for economies to grow. However, many modern economies have seen a massive underfunding in this area (OECD, 2018). Low carbon infrastructure creates fewer greenhouse emissions than traditional infrastructure and protects vulnerable countries against their exposure to climate disasters, while simultaneously promoting growth, employment and an enhanced quality of life within emerging markets (World Bank, 2018).

This is a really exciting time for both environmentalist and financial enthusiasts alike. It will be interesting to see how this new tokenized green bond pans out as it could be the perfect solution to getting the world back on track to meeting the UN's SDGs by 2030.

Reference List: 

Bank of International Settlement, 2022. Project Genesis 1.0: Prototype digital platforms for green bond tokenisation. [Online]
Available at: https://www.bis.org/about/bisih/topics/green_finance/green_bonds.htm
[Accessed 18 February 2023].

Chen , Y. & Zhao, Z. J., 2021. The rise of green bonds for sustainable finance: global standards and issues with the expanding Chinese market. Current Opinion in Environmental Sustainability, Volume 52, pp. 54-57.

Choudhry, M., 2010. Introduction to Bonds. 4th ed. West Sussex: Wiley.

European Investment Bank, 2020. Climate Awareness Bonds. [Online]
Available at: https://www.eib.org/en/OLD-investor_relations/cab/index.htm
[Accessed 18 February 2023].

Flammer, C., 2021. Corporate green bonds. Journal of Financial Economics, 142(2), pp. 499-516.

Hong Kong Monetary Authority, 2023. HKSAR Government’s Inaugural Tokenised Green Bond Offering. [Online]
Available at: https://www.hkma.gov.hk/eng/news-and-media/press-releases/2023/02/20230216-3/
[Accessed 18 February 2023].

Huang, A., 2023. Hong Kong hires banks for debut digital green bond sale. Bloomberg News, 15 February.

Imperial College London, 2017. How will acting on climate change affect the economy?. [Online]
Available at: https://www.imperial.ac.uk/grantham/publications/climate-change-faqs/how-will-acting-on-climate-change-affect-the-economy/
[Accessed 18 February 2023].

Laurence, T., 2019. Blockchain For Dummies. 2nd ed. New Jersey: Wiley.

Ledger Insights, 2022. Goldman Sachs unveils digital asset platform with EIB €100m blockchain bond. Ledger Insights, 2022 November.

Morgan Stanley, 2017. Behind the Green Bond Boom. [Online]
Available at: https://www.morganstanley.com/ideas/green-bond-boom
[Accessed 18 February 2023].

OECD, 2017. Taking action on climate change will boost economic growth. [Online]
Available at: https://www.oecd.org/economy/taking-action-on-climate-change-will-boost-economic-growth.htm
[Accessed 18 February 2023].

OECD, 2018. Investing in Climate,, Paris: Organisation for Economic Co-operation and Development.

ONS, 2023. Low carbon and renewable energy economy, UK: 2021, London : Office for National Statistics .

Pierro, M. D., 2017. What Is the Blockchain?. Computing in Science & Engineering, 19(5), pp. 92-95.

Sugrue, D. & Popoola, B., 2022. Global Sustainable Bond Issuance Likely To Fall In 2022, New York: S&P Global Ratings.

The World Bank, 2021. What You Need to Know About IFC’s Green Bonds. [Online]
Available at: https://www.worldbank.org/en/news/feature/2021/12/08/what-you-need-to-know-about-ifc-s-green-bonds
[Accessed 18 February 2023].

World Bank, 2018. Low-carbon infrastructure: an essential solution to climate change?. [Online]
Available at: https://blogs.worldbank.org/ppps/low-carbon-infrastructure-essential-solution-climate-change
[Accessed 18 February 18].


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