Regulators, investors and consumers are turning their attention to the carbon footprint of financial transactions as a way to measure and then minimise negative environmental impacts from their commercial and financial activity. The World Bank estimates the carbon credit market, worth around $50 billion today, will exceed $185 billion by 2030. Other agencies consider that a conservative figure.
However, the carbon market remains poorly understood and under-used due partly to a lack of visibility, which undermines investor trust in carbon credits as an asset, and to jurisdictions’ differing standards and regulations. The potential for double counting (where the same credit is sold more than once) has also affected confidence.
That is set to change as fintech pioneers deploy blockchain technology. US environmental consultancy Sustainable Brands reports that Swiss non profit organisation Poseidon is collaborating with other financial services providers to harness blockchain to measure the carbon footprint of financial transactions.
Blockchain refers to a digital ledger in which transactions (made with "tokens" or a cryptocurrency such as bitcoin) are recorded chronologically and publicly. Fintech firms believe that applying this technology to carbon credits to create a "carbon currency" will quickly demystify and consolidate the carbon market.
The technology creates a scaleable universal ledger to track how much carbon is being used or offset, and therefore the tangible impact of each transaction. Data-driven carbon credits are perfect for a digital currency, as they rely on multiple approval steps and exist separately to their physical impact.
Poseidon will use Stellar blockchain technology to calculate a carbon value for each transaction. Stellar is a US non-stock, non-profit organisation which offers financial firms an open-source distributed payments infrastructure. It was initially funded by payments start-up Stripe, and is now supported by individual donations and corporates BlackRock, Google,org and FastForward.
The Stellar digital ecosystem allows stakeholders to see, assess and compare the environmental impact of supply chains, in part or as a whole. It meets the challenges of consistency across jurisdictions and can offer buyers the option of climate-positive products and services. Governments and companies will be able to measure, track and trade emissions transparently to demonstrate regulatory compliance.
Blockchain technology has already demonstrated its effectiveness in tackling commercial, environmental and social issues. IBM has used it to enhance agricultural production chains in east Africa, with improved pricing and financial transparency for producers and food traceability for consumers. A partnership between US digital platform Sourcemap and the UK’s Provenance has successfully enhanced supply chain transparency, labour practices and environmental impacts in consumer food and fashion industries.
From January 2018 Poseidon will source carbon credits through Ecosphere+, a venture founded by the UK-based Althelia Climate Fund which finance high-quality environmental assets around the world. Poseidon will also create a mobile app which enables investors, businesses and consumers to see the impact their carbon positive purchases are having on the ground.