- Research Needs
- Comparison of Instruments
- Findings
- Thanks
- Appendix A. Taxonomy of Instruments
- Appendix B. Instruments Details
- Green Bonds
- Sustainability-Linked Loans
- Carbon Credits/Offsets
- Conservation Trust Funds
- Green Insurance
- Environmental Impact Bonds (EIBs)
Research Needs
This research explores opportunities for web3 technologies and tokenisation in ecological financial markets. The key focus areas include analysing existing eco-financial instruments, examining Regen Network's strategic positioning, defining market characteristics, and investigating mechanisms to have a predictable revenue within the $REGEN ecosystem.
Within the current ecocredits sales and decreasing token price the $REGEN ecosystem is dry on funding. With some effort those problems could be overcome, but even then we’ll be left with 1 revenue generating product (ecocredits) on a very limited and turbulent market. In order to add sustainability to the economic model we’re doing this market research in order to see our position and other niches on our vision. Hopefully we could have a portfolio of products and much more providers to develop the network.
So far it’s a small exploration into the ecological financial markets and might not be full. With some ideas on tokenisation opportunities (appendix B) it could make the first steps towards positioning our tokens ($regen and ecocredits) in the comparison to existing market solutions. It could also help envisioning the potential $regen token model basics for modelling. Finally, it might be a communication draft for the key players (mentioned below) in conversations about partnerships. Please share your thoughts and questions in the comments.
Comparison of Instruments
Here’s a comprehensive comparison of major ecological financial instruments that help address environmental challenges and promote sustainability. This table provides a general overview based on the characteristics of these instruments (identified in Appendix A).
Carbon Credits | $479.4 billion (2023) (but voluntary only $2-3B) | Voluntary market expected to reach $50B by 2030, compliance markets growing with new regulations | Verra, Gold Standard, Climate Action Reserve. Notable blockchain initiatives include Toucan Protocol and KlimaDAO | Reduce greenhouse gas emissions | Mixed - Quality varies significantly; concerns about additionality and permanence | Companies with emission reduction targets, environmentally conscious investors | Medium | Short to medium-term | Variable, market-dependent | Specialized | Medium | Strict verification and certification |
Green Bonds | $587.7 billion (2023) | Projected to reach $5 trillion by 2025, driven by increasing corporate and government commitments | World Bank, European Investment Bank, HSBC, BNP Paribas. The Singapore Exchange (SGX), HK Central Bank, Cities | Fund environmental/climate projects | High - Well-established standards and third-party verification processes build trust | Investors seeking low-risk, environmentally focused investments | Low | Medium to long-term | Fixed, relatively low | Well-established | High | Third-party verification common |
Sustainability-Linked Loans | ~$850 billion (2024) | Expected to reach $1.5 trillion by 2026, with 30% annual growth rate | BNP Paribas, Crédit Agricole, Société Générale, ING Group, Standard Chartered | Incentivize sustainability performance | Medium - Growing confidence but concerns about greenwashing and metric reliability | Companies seeking to improve sustainability, banks | Medium | Short to medium-term | Variable, tied to ESG metrics | Growing | Medium to high | Regular monitoring of sustainability metrics |
Green Insurance | $4 billion (COP Loss & Damage Fund $300B plan) | Expected to grow to $30-40B by 2030, driven by climate change risks | AXA XL, Swiss Re, Munich Re, Allianz | Environmental risk management and protection against climate-related losses, particularly for infrastructure, agriculture, and natural assets. | Medium-High - Backed by established insurance industry but newer green products still building track record | Insurance companies, governments, businesses with environmental exposure, and organizations seeking climate risk protection | Medium to high, depending on the specific environmental risks being insured and geographic location | Typically short to medium-term (1-5 years) with annual renewal options | Variable, based on risk assessment and market conditions. Usually requires significant premium to cover potential environmental risks | Highly specialized, requiring actuarial expertise in environmental risk assessment and climate modeling | Medium, with growing sophistication in climate risk modeling and increasing demand due to climate change impacts | Detailed risk assessments, regular monitoring of environmental conditions, and professional loss adjustment processes |
Instrument | Estimated Market Size | Growth Potential and Estimates | Key Players | Project needs and goals | Market Perception of Quality and Integrity | Stakeholder preferences | Risk tolerance | Investment horizon | Required returns | Available expertise | Market maturity | Verification requirements |
Conservation Trust Funds | $10 billion to $50 billion in total assets | Moderate growth expected, reaching $75-100B by 2030 with increased biodiversity focus | Conservation International, World Wildlife Fund, The Nature Conservancy, Environmental Defense Fund | Protect biodiversity and ecosystems | High - Strong governance structures but limited market visibility | Conservation organizations, governments, long-term impact investors | Low to medium | Long-term | Variable | Specialized | Medium | Governance structures and grant-making processes |
Environmental Impact Bonds | $100 million to $1 billion annually | Projected to reach $5-7B annually by 2027, with increasing municipal adoption | Quantified Ventures, Goldman Sachs, DC Water, Environmental Defense Fund | Pay-for-success environmental projects | Medium - Innovative but limited track record affects market confidence | Impact investors, government agencies | High | Medium to long-term | Performance-based | Highly specialized | Low to medium | Rigorous performance metrics |
Findings
Some immediate thoughts:
- Green bonds and loans are much bigger markets than carbon credits (where $regen is working now), where tokenization could bring next benefits:
- Enhanced liquidity through tokenized bond trading / Enhanced market accessibility
- Automated interest payments via smart contracts / Automated interest rate adjustments based on ESG metrics
- Real-time reporting and transparency / Transparent performance tracking / Streamlined monitoring and reporting
- Reduced issuance and administrative costs
- Biodiversity credits seems to have more relations to conservation funds. Here benefits could touch more of
- Community token governance for transparent fund management
- Long-term commitment incentives
- Better stakeholder engagement mechanisms
- We need to check regen credits for the benefits identified for carbon credits, probably with case studies focused on
- Reduced intermediary costs
- Enhanced trading efficiency
- Improved verification and transparent tracking
Some comments from reviewers:
Most markets in the environmental sector do not function according to the same logic as markets that are mostly private. This might be worth examining and weaving into the analysis. – Jürgen Stolzlechner
There are definitely theoretical applications of Web3 to support some of these, but that would require long-term engagement and buy-in with specific standard setters (think the Climate Bonds Initiative) and a real incentive for them to do this in ways that their donors/funders/clients would see real value for investing time into something so new and because it's so new, it's considered risky. – Juan C. Ramos
If there’s room for innovation on financial mechanisms for regeneration, lets explore together what the ideal mechanism for both supply and demand side would looklike… what are the qualities of the ideal one and how can we get closer to that. – Gisel Booman
Thanks
Huge thanks to Mark Siebert for the initial idea and consultations and Jürgen Stolzlechner, Will Szal, Gisel Booman and Juan C. Ramos for reviews.
Appendix A. Taxonomy of Instruments
Financial instruments like green bonds, carbon credits, and conservation finance mechanisms are often shaped by regulatory goals. For example, the EPA emphasizes the alignment of ecological financial products with public management goals, such as preserving water quality or restoring ecosystems.
EPA’s Ecological Risk Assessment Guidelines – The U.S. Environmental Protection Agency (EPA) offers comprehensive guidance on ecological risk assessments. Their framework includes endpoints for evaluating ecosystem impacts, which can guide financial products aimed at ecological preservation or restoration. Examples include evaluating stressor-response relationships and the role of specific ecological entities in their environments.
These endpoints, developed by the EPA, aim to connect ecological values with financial instruments by linking stressors (like pollution) to economic mechanisms designed to mitigate them. These are useful for tailoring ecological financial products to specific environmental issues.
The EU Taxonomy for Sustainable Activities is a well-known framework that categorizes financial instruments based on their contribution to environmental objectives like climate change mitigation and biodiversity protection. This taxonomy provides clear criteria for identifying “green” investments and has influenced global sustainable finance practices.
ICMA Green Bond Principles - Standard taxonomy for green bonds and sustainable debt instruments
Links:
- A growing toolbox of sustainable finance instruments
- Environmental Finance. (2024). Market Analysis and Reports
- US EPA. (2024). Environmental Economics
- OECD's Comprehensive Overview of Global Biodiversity Finance - Detailed classification of biodiversity financing instruments
- UNEP Centre/BNEF Global Trends in Renewable Energy Investment - Analysis of sustainable finance instruments
- https://www.naturefinance.net/resources-tools/towards-a-common-framework/
- https://cdn.prod.website-files.com/623899567434bf1b32de3c10/6241b7778e487649ef7b01dd_20220325_TNM_WhitePaper.pdf
- https://openknowledge.worldbank.org/entities/publication/c0e89d6b-e90a-592b-a4c7-1c5a20d82f2c