France’s third-largest bank issues its first green bond on ETH[2024]

While banks have been actively exploring the many options offered by cryptocurrencies and, more broadly, by blockchain technology, there has been a notable uptick in interest and adoption throughout 2023. The trend is particularly noticeable among European banks.

France’s third-largest bank, Societe Generale, became the latest to further the trend on December 4 as it unveiled the launch of its first-ever digital green bond. The bond has been registered directly by the company as a Security Token on the Ethereum (ETH) blockchain.

It is a €10 million senior preferred unsecured bond and has a maturity of 3 years. Societe Generale explains that not only does the placing of the bond on the blockchain boost its fluidity, transparency, and transaction speed, but is also meant to serve as the first step in the drive to use blockchain technology as a certification tool and a data repository.

Societe Generale, the third-largest bank in France, has marked a significant milestone by issuing its inaugural digital green bond on the Ethereum public blockchain.

Societe Generale announced Monday that it issued its first green bond on the Ethereum blockchain. The bond, valued at 10 million euros (approximately $11 million), was executed in late November and carries a three-year maturity. This initiative was facilitated through Forge, a subsidiary of Societe Generale.

This pioneering digital green bond is dedicated to financing or refinancing products and companies falling under the eligible green activities category. The “green” status underscores Societe Generale’s commitment to environmentally responsible financing. The net proceeds generated from the bond will be directed towards financing or refinancing products and companies falling within the eligible green activities category.

One of the key innovations accompanying this digital bond is its transparent and accessible digital infrastructure. Through the bond’s smart contract, stakeholders, including issuers and investors, gain 24/7 open access to data pertaining to its carbon footprint.

The bank aims to leverage the Ethereum blockchain as a data repository and certification tool for issuers and investors, particularly in the context of environmental, social, and governance (ESG) considerations. The issuance of tokenized bonds aligns with the bank’s commitment to enabling greater transparency on ESG matters.

This empowers market participants to measure the carbon emissions associated with their securities directly on the financial infrastructure. The smart contract governing the green bond includes comprehensive carbon footprint information accessible to the public.

What are Green Bonds?

Green bonds are debt instruments issued by companies, governments, or international organizations to raise capital for projects with positive environmental and climate benefits. The proceeds from these bonds are earmarked for financing initiatives such as renewable energy development, clean transportation, and energy efficiency projects. Green bonds have emerged as a powerful tool for mobilizing capital for sustainable projects, aligning investor interests with environmental goals.

Why Ethereum?

The decision to leverage the Ethereum blockchain for this green bond issuance is noteworthy for several reasons:

• Transparency and Traceability: Ethereum, a public blockchain, offers a transparent and immutable record of transactions. This allows investors to track the use of funds raised through the bond, ensuring they are indeed directed towards the designated green projects.
• Improved Efficiency: Traditional bond issuance processes can be cumbersome and time-consuming. Blockchain technology streamlines the process, potentially reducing issuance costs and settlement times.
• Enhanced Liquidity: Tokenizing the bond on Ethereum allows for fractional ownership, potentially increasing liquidity and attracting a broader range of investors.

Details of the Societe Generale Green Bond

The Societe Generale green bond is a €10 million (approximately $11 million USD) unsecured bond with a three-year maturity. The proceeds will exclusively finance eligible green activities as defined by the International Capital Market Association (ICMA) Green Bond Principles. Forge, a subsidiary of Societe Generale specializing in digital asset securities, facilitated the tokenization and issuance process on the Ethereum blockchain.

Industry Reactions and Potential Implications

This pioneering move by Societe Generale has garnered significant attention within the financial and blockchain communities. Here are some potential implications:

• A Catalyst for Green Bond Innovation: Societe Generale’s success could pave the way for other financial institutions to explore blockchain-based green bond issuance. This could significantly increase the volume and accessibility of green finance instruments.
• Boosting Blockchain Adoption in Traditional Finance: The successful execution of this project demonstrates the potential of blockchain technology to streamline and enhance traditional financial processes. This could accelerate the adoption of blockchain across various financial sectors.
• Challenges and Considerations: While promising, integrating blockchain with traditional finance still faces challenges. Regulatory uncertainties and the need for robust security protocols need to be addressed to ensure the widespread adoption of blockchain-based financial instruments.

Growing institutional blockchain adoption

Societe Generale is neither the first nor alone in its efforts. In February 2023, for example, the government of Hong Kong issued its own $100 million tokenized green bond as part of its effort to further improve its digital assets framework – both in terms of infrastructure and regulation – while simultaneously promoting sustainable development of the city.

Various other European banks have also been increasingly focused on improving their cryptocurrency-related capabilities. German banks have been particularly active in this regard, with multiple companies – including the $1.4 trillion giant Deutsche Bank – seeking relevant permits from the government and others like DZ Bank becoming licensed crypto custodians.

As in Hong Kong, certain government institutions have been active when it comes to boosting their involvement with blockchain technology. While the Swiss city of Lugano made a significant step late in November when it integrated Polygon (MATIC) into its payment app and announced its plans to expand it to include other major blockchains.

Societe Generale Embraces Blockchain for Tokenized Bonds to Boost Transparency and Efficiency

In a bid to enhance transparency, traceability, and efficiency in financial transactions and settlements, Societe Generale emphasized the tokenized nature of these bonds. The move towards blockchain technology is a strategic initiative by the bank’s crypto team to harness the advantages of decentralized ledger technology.

By leveraging the Ethereum blockchain to provide increased transparency and traceability, it also improves fluidity and speed in transactions. Additionally, the bond introduces a technical option for investors to settle securities on-chain using the EUR CoinVertible, a stablecoin pegged to the euro that Forge issued in April 2023.

This approach not only enhances efficiency in settlement processes but also positions the bank to navigate the evolving landscape of central bank digital currencies (CBDCs). The bank acknowledges the ongoing experimentation with CBDC solutions and positions itself as a provider of a comprehensive range of on-chain services.

The Third-Largest Bank in France Continues Crypto Initiatives with Tokenized Bond and Focuses on Environmental Impact

Beyond its collaborative efforts, Societe Generale has been an active participant in the cryptocurrency space. Prior to this digital green bond on Ethereum, the bank had successfully issued Eurobonds on the Ethereum blockchain and security tokens on the Tezos blockchain.

Moreover, Societe Generale has proposed Dai stablecoin loans in exchange for bond tokens. The team’s proactive approach resulted in the acquisition of the highest access license to operate as a digital asset service provider in France in July.

In November, Societe Generale-FORGE, in collaboration with the Lamarck Group, Institut Louis Bachelier, and the Crypto Carbon Ratings Institute, released a report focusing on the lifecycle of security tokens. The report aimed to establish a methodology for calculating the carbon footprint of financial products issued in token form on the Ethereum public blockchain infrastructure.

The report specifically focused on Ethereum’s network due to its relatively low greenhouse gas emissions following the merge in September of the previous year.

In June, the European Investment Bank (EIB) issued a tokenized bond using Credit Agricole CIB and SEB’s blockchain-based bond platform. The EIB’s bond was denominated as a Swedish Krona 1 billion bond, equivalent to approximately $95 million, with a maturity period of 2 years.

While this is SocGen’s first tokenized bond, the bank had previously collaborated with the EIB on its inaugural digital bond issuance in 2021.

The Future of Green Finance and Blockchain

The Societe Generale green bond issuance marks a significant step towards a future where sustainable finance leverages the power of blockchain technology. While challenges remain, this pioneering project serves as a positive indicator of the potential for innovation and collaboration between these two dynamic sectors.

The recent issuance of France’s first green bond on the Ethereum blockchain by Societe Generale is a glimpse into a future where green finance and blockchain technology work together seamlessly. This innovative approach presents exciting possibilities for mobilizing capital towards sustainable projects and transforming the financial landscape.

Synergistic Advantages:

• Enhanced Transparency and Traceability: Blockchain’s immutable ledger ensures a clear audit trail for green bond proceeds. Investors can be confident that funds are directed towards the intended environmental or climate projects. This fosters trust and attracts environmentally conscious investors.
• Streamlined Processes: Blockchain technology can significantly reduce the time and cost associated with traditional bond issuance. Streamlined processes make green finance more accessible to a wider range of issuers, including smaller organizations with impactful green projects.
• Fractional Ownership and Increased Liquidity: Tokenizing green bonds on a blockchain allows for fractional ownership. This opens up the market to a broader investor base, including those who might not be able to afford a full traditional bond. Increased liquidity promotes a more efficient and dynamic green finance ecosystem.
• Automated Processes and Reduced Risks: Smart contracts, self-executing code on the blockchain, can automate processes like coupon payments and maturity redemption. This reduces operational costs and human error, mitigating risks associated with traditional financial instruments.

Unlocking Potential:

• Scaling Up Green Investments: The combined forces of green finance and blockchain have the potential to unlock a significant amount of capital for sustainable projects. This could pave the way for a faster transition towards a low-carbon economy.
• Democratizing Green Finance: By making green bonds more accessible and transparent, blockchain can empower individual investors to contribute to environmental solutions. This fosters a more democratized approach to green finance.
• New Financial Products: The integration of blockchain could lead to the development of innovative green financial products, such as tokenized carbon credits or nature-based solutions bonds. This could expand the range of options available to investors seeking to support environmental initiatives.

Conclusion

The issuance of France’s first green bond on Ethereum by Societe Generale is a landmark development with far-reaching potential. By harnessing the power of blockchain technology, this initiative holds the promise of unlocking new avenues for sustainable finance and fostering a more transparent and efficient financial ecosystem. As this space continues to evolve, it will be fascinating to witness how traditional finance and blockchain technology converge to create a future that prioritizes both environmental responsibility and financial innovation.

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