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European Investment Bank issues ‘climate awareness bond’ using blockchain

EIB: the Luxembourg-headquartered institution is breaking new ground with blockchain bond issuances | Credit: © European Investment Bank

The European Investment Bank (EIB) has issued a green bond using blockchain for the first time as the Luxembourg-headquartered institution continues to break new ground in digital finance and capital markets.

The long-term lending institution of the European Union (EU) issued a ‘climate awareness bond’ denominated in Swedish krona – also a first for the EIB – priced at SEK 1 billion (about £73m/€85m).

The two-year bond will run on a platform designed to minimise the environmental footprint of the IT infrastructure and is the EIB’s latest innovative move in the ‘blockchain bonds’ arena – a field attracting mounting attention from public authorities worldwide.

The EIB, which issued its first climate awareness bond in 2007, issued its first euro-denominated digital bond using a public blockchain (valued at €100m) in 2021 and the first euro-denominated ‘digitally native’ bond using private blockchain technology (also at €100m) in November 2022. A couple of months later it launched a digital bond denominated in pound sterling using a combination of private and public blockchains (valued at about £50m/€56m).

The EIB is looking to increase the share of its green financing to reach at least 50 per cent of its yearly ‘new’ operations by 2025. Its vice-president Ricardo Mourinho Félix described the latest blockchain bond issuance as “another ground-breaking milestone” for the EIB, describing the EU member state-owned lender as “leading the charge towards sustainable finance and technological innovation, with the support of our valuable partners and investors”.

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Incentivising to improve environmental impact

The bond was issued on a public permissioned blockchain (PoCRNet) using so|bond, a digital bond platform built on blockchain technology that was launched in April by Crédit Agricole CIB (the corporate and investment banking arm of France-headquartered Crédit Agricole Group) and Sweden-headquartered bank SEB.

The platform uses a new type of blockchain validation logic – ‘Proof of Climate awaReness (PoCR)’ protocol – that its creators say enables an energy consumption ‘comparable to’ non-blockchain systems and incentivises participating nodes to ‘continually improve’ their infrastructures’ environmental footprint. Specifically, each node will be remunerated for its efforts according to a formula linked to its environmental impact evaluated with the Life-Cycle Assessment ISO standard: the lower the environmental footprint it is, the larger the reward.

The World Bank launched bond-i – the world’s first bond to be created, allocated, transferred and managed through its life cycle using DLT – in 2018.

The EIB’s issuance comes just over four months after authorities in Hong Kong announced a successful issuance of tokenised green bonds – the first such issuance by any government globally. The HK$800 million (about £85m) tokenised issuance, in which Crédit Agricole CIB was among the private-sector parties involved, was hailed by public sector leaders in Hong Kong as a significant step in promoting the use of distributed-ledger technology (DLT) in the bond market.

A representative from Latvia’s Ministry of Finance told the audience at the Global Government Fintech Lab in May that the issuance of green bonds using blockchain was an area of governmental interest. Regional administrations have already starting to get in on the act of blockchain bond issuances, with the Swiss city of Lugano’s public authority issuing a six-year bond of up to CHF 100 million (about £88m) via blockchain earlier this year.

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‘Innovative transaction using a new technology’

“We strongly believe that the open so|bond model and the innovative Proof of Climate awaReness blockchain validation protocol respond to EIB’s philosophy and willingness to push boundaries and support new solutions aimed at improving inefficiencies in primary market processes and infrastructures in a sustainable manner,” said Crédit Agricole CIB’s Paris-based global markets division global head Pierre Gay. 

His colleague Tanguy Claquin, who is global head of sustainability, described the bank as a “historic partner of EIB in the green bond market” through its climate awareness bond programme, describing the new issuance as “an innovative transaction using a new technology trying to address some of the concerns associated with the perceived environmental impact of the fast-moving field of DLT.”

Anna Sjulander, Stockholm-based global head of SSA DCM (sovereigns, supra-nationals and agencies debt capital markets) at SEB, described the technology supporting the issuance as “paving the way for efficiency gains” and “introducing transparency of environmental footprint”, as well as “promoting collaboration among industry participants”.

Her colleague Ben Powell, who is global head of sustainable DCM, said that SEB had a long-standing relationship with EIB and that taking the climate awareness bond programme ‘into the digital era’ was a “great evolution”.

“While blockchain has been increasingly deployed in the financial sector in recent years, perceptions of high energy consumption have restrained adoption,” he said.

Luxembourg exchange’s green focus

The issuance was registered with the Luxembourg Stock Exchange (LuxSE), whose director of international capital markets and executive committee member Arnaud Delestienne said it was the first ‘digital native’ green bond to be displayed on its Luxembourg Green Exchange (LGX).

In a separate development, the Global Green Growth Institute (GGGI), a South Korea-headquartered intergovernmental organisation focused on supporting developing countries and emerging markets, has inaugurated a European liaison office in Luxembourg.

It used an event to mark the office’s opening to launch a ‘Global Trust Fund on Sustainable Finance Instruments’ programme that aims to help mobilise capital through the issuance of green bonds and other sustainable finance instruments. In partnership with LuxSE, the GGGI-implemented programme ‘will strengthen the adaptive capacity of more than two million vulnerable people to climate change and significantly reduce greenhouse gas emissions’, the GGGI states.