(Yicai) Oct. 31 -- As the Chinese industry's low-carbon transition accelerates, demand for green investment and financing is growing rapidly. However, the development of green finance still faces challenges, such as imperfect credit mechanisms, incomplete standards, and insufficient product innovation. The application of blockchain has emerged as a key practice in driving innovation in green finance.

Blockchain has gradually been applied since China introduced its green finance policies in 2016. As of 2022, 73 percent of financial institutions were using technological tools in their green finance operations, according to data from Klynveld Peat Marwick Goerdeler. Simulation data from HSBC show that the issuance cost for a standard green bond process is about USD6.5 million, which drops to about USD690,000 when blockchain automation is implemented.

Local governments and enterprises have achieved notable results in applying blockchain to green finance. Local governments have leveraged blockchain to establish financing platforms for green projects, enabling efficient capital allocation and oversight. Technology companies have used blockchain to build decentralized data-sharing platforms, facilitating real-time uploading, verification, and sharing of green project data.

The advantages of blockchain in promoting green finance development are evident. Relying on its distributed ledger and robust encryption, blockchain greatly enhances enterprises' ability to manage carbon accounting data internally. Its application helps address the greenwashing issue, as distributed ledger technology promotes transparent and standardized transactions, enabling more effective monitoring and certification while breaking down the information barrier between banks and firms.

Blockchain's built-in programmable scripting allows the automated execution of contract terms, streamlining the issuance, trading, and settlement of green financial products and enabling financial institutions to develop more market-oriented offerings. Moreover, it addresses performance bottlenecks, security risks, and high energy consumption.

To advance blockchain's role in empowering green finance, efforts should be made to optimize consensus algorithms, improve legislative frameworks, and provide fiscal subsidies and tax incentives to support the sustainable development of China's green finance sector.

(The author of this article is Lin Boqiang, dean of the China Institute for Studies in Energy Policy at Xiamen University)

Editor: Futura Costaglione