A Framework for Digitizing Green Bond Issuance to Reduce Information Asymmetry

Abstract

Green bond issuance is a highly technical and challenging procedure involving many parties with conflicting goals. In this chapter, a framework for digitalization of green bonds is provided. We propose a blockchain-enabled green bond-issuing platform that will provide an adaptive and efficient system that lowers intermediary costs by reducing information asymmetry and facilitates compliance, scalability, disclosure, and security by increasing transaction transparency. We utilize a separate smart contract to integrate forensic services within the smart contracts designed to adapt bond issuance operations to a blockchain-enabled framework and recommend the use of smart contract technology in blockchain environments to cope with the agency problems and risk aversion of the main players in green bonds (green bond issuers, green bondholders, validators, and regulators). Participants in the green bond market can use smart contracts to increase transaction transparency and avoid the problem of moral hazard (overbilling, fraudulent environmental–social–governance activities, and misappropriation of funds). We believe that the proposed architecture could be of significant value to researchers and practitioners in the financial domain. Further research is needed to identify barriers to blockchain adoption as well as its main vulnerabilities.