DEGREE PROJECT
REAL ESTATE AND CONSTRUCTION MANAGEMENT BUILDING AND REAL ESTATE ECONOMICS
MASTER OF SCIENCE, 30 CREDITS, SECOND LEVEL STOCKHOLM, SWEDEN 2020
A Framework of Blockchain Technology for Green
Real Estate Bonds
Julian Bauer and Benjamin Bachmaier
June 5th, 2020
DEPARTMENT OF REAL ESTATE AND CONSTRACTION MANAGEMENT
Master of Science thesis
Title:
Author(s):
Department:
Master Thesis number:
Supervisor:
Keywords:
A framework of blockchain technology
for green real estate bonds
Julian Bauer, Benjamin Bachmaier
Real Estate and Construction
Management
TRITA-ABE-MBT-20497
Kent Eriksson
Real estate, Green bonds, Sustainability,
Blockchain, Transparency
Abstract
This thesis investigates potential solutions to blockchain technology to develop the
green real estate bond market further. Previous research focused mostly on the
technology itself, or in connection to other real estate processes such as transactions
or land registries. However, due to climate change and the increasing awareness of
sustainability, a growing interest in sustainable bonds developed. As a result, the
number of bond issuers increased, and various guidelines, which impose different
requirements on green real estate bonds, were developed. The result was a lack of
transparency as well as an increased number of discounted sustainable real estate
investments, so-called greenwashing. This also led to a loss of confidence.
Additionally, conventional green bond structures are costly due to administrative effort.
The goal of the study is to investigate how blockchain technology could increase the
transparency of, and trust in, sustainable real estate bonds. Also, the technology's
influence on the process is examined from a financial perspective. A further goal is to
see what additional data on sustainable real estate bonds could be added to address
the problems.
To answer the research questions, interviews with experts were conducted due to the
limited literature available on the subject. The evaluation of the interviews led to the
conclusion that uniform guidelines, and the linking of CO2 emissions from building
components with sustainable certification, can reduce greenwashing. Furthermore, an
improved risk assessment of real estate plays an important role in times of increasing
climatic changes and should, therefore, be considered in the risk assessment of
sustainable real estate bonds. The combination with blockchain technology could
reduce costs and increase confidence in the investment form.
Acknowledgement
This thesis has been written as the final degree project in the Master’s program in
Real Estate & Construction Management at the Royal Institute of Technology in
Stockholm, Sweden. The specialization is in Building and Real Estate Economics.
We want to thank our supervisor Kent Eriksson for his guidance and support
throughout the thesis project.
Furthermore, we would like to thank all interview participants for dedicating their time
and sharing their knowledge with us. Without them the thesis would not have been
possible in this extent.
Royal Institute of Technology, Stockholm
June 5th, 2020
Examensarbete
Titel:
Författare:
Institution:
Examensarbete Master nivå:
Handledare:
Nyckelord:
Ett ramverk för blockchain-teknik för
gröna fastighetsobligationer
Julian Bauer, Benjamin Bachmaier
Fastigheter och Byggande
TRITA-ABE-MBT-20497
Kent Eriksson
Fastigheter, Gröna obligationer,
Hållbarhet, Blockchain, Genomskinlighet
Sammanfattning
Denna avhandling undersöker möjliga lösningar av blockchain-teknik för att
vidareutveckla den gröna fastighetsobligationsmarknaden. Tidigare forskning
fokuserade mest på själva tekniken eller i samband med andra fastighetsprocesser
som transaktioner eller markregister.
På grund av klimatförändringar och ökad medvetenhet om hållbarhet utvecklades
emellertid ett växande intresse för hållbara obligationer. Ett resultat av växande
intresse är antalet personer som vill investera ökades och fler riktlinjer utvecklades för
att ställa olika krav på gröna fastighetsobligationer.
Detta orsakade olika problem så som brist på klarhet och hållbara
fastighetsinvesteringar, som kallas för greenwashing. Konventionella gröna
fastighetsobligationer är dyra på grund av det administrativa arbetet som krävs.
Studiemålen är att undersöka hur blockchain-teknik skulle kunna öka transparens och
förtroendet för hållbara fastighetsobligationer. Teknikens inflytande på processen
granskas ur ett finansiellt perspektiv. Studien undersöker också vilka ytterligare
uppgifter om hållbara fastighetsobligationer som kan vara till nytta för att lösa
problemen.
På grund av den begränsade kurslitteraturen i detta ämne så besvarades
forskningsfrågor med hjälp av expertintervjuer. Enligt utvärdering för att minska
greenwash, behövs det: enhetliga riktlinjer och koldioxidutsläpp från
byggnadskomponenter med hållbara certifieringar
Med tanke på klimatförändringar finns det en ökad riskbedömning av fastigheter.
Därför bör riskbedömningen göras på hållbara fastighetsobligationer. Kombinationen
med blockchain-teknik kan minska kostnaderna och öka förtroendet för investeringar.
Table of Content
1 INTRODUCTION ... 1
1.1 Background ... 1
1.2 Issues of current bond environments ... 1
1.3 Purpose ... 2
1.4 Research design ... 3
1.5 Limitations and restrictions ... 3
1.6 Disposition of the thesis ... 3
2 METHODS ... 4
2.1 Literature study ... 5
2.2 Interviews ... 5
2.3 Analysis ... 7
2.4 Reliability and validity ... 7
2.5 Limitations ... 8
3 THEORY ... 8
3.1 Blockchain technology ... 9
3.1.1 Public / private key ... 9
3.1.2 Consensus mechanism ... 10
3.1.3 Smart contracts ... 10
3.2 Blockchain in real estate transactions ... 10
3.3 Blockchain in green investments ... 11
3.4 Bonds ... 12
3.4.1 Green bonds ... 13
3.4.2 Green bond guidelines ... 14
3.4.3 Green property bonds ... 15
4. GREEN ASSET WALLET FRAMEWORK ... 20
4.1 GAW guidelines ... 21
4.2 GAW blockchain ... 21
5 RESULTS ... 21
5.1 Cecilia Repinski, CEO Stockholm Green Digital Finance ... 22
5.2 Thomas Barker, Blockchain Expert at Stockholm Green Digital Finance ... 22
5.3 Anna Denell, Head of Sustainability at Vasakronan ... 23
5.4 Thomas Nystedt, Group Treasurer at Vasakronan ... 24
5.5 Harald Francke Lund, Project Manager at CICERO ... 25
5.6 Walter Strametz, Founder of Element36 ... 27
5.7 Achim Jedelsky, Founder of FIBREE ... 27
6 ANALYSIS AND DISCUSSION ... 28
6.1 Analysis ... 28
6.2 Results of analysis and discussion ... 30
6.2.1 Green bonds & sustainability ... 30
6.2.2 Trust & costs ... 33
6.2.3 Data and sources ... 36
6.2.4 Smart contracts for green real estate bonds ... 38
6.3 Answers to the research questions ... 39
6.4 Final framework ... 39
7 CONCLUSION ... 41
7.1 Summary ... 41
7.2 Outlook and further research ... 43
8 REFERENCE LIST ... 45
9 APPENDIX ... A1
9.2 Interview Guideline ... A8 9.3 Transcription of interviews ... A9
List of figures
Figure 1: Visualization of thesis procedure ... 5
Figure 2: Coupon payment ... 12
Figure 3: Weighted average cost of capital ... 13
Figure 4: LEED minimum criteria categories ... 18
Figure 5: LEED maximum criteria categories ... 18
Figure 6: BREEAM criteria categories of property ... 19
Figure 7: BREEAM criteria categories for building operations ... 19
Figure 8: BREEAM criteria categories of User ... 20
Figure 9: Blockchain based Green Bond Process ... 40
List of tables
Table 1: Green bond guidelines ... 14
Table 2: LEED & BREEAM certification systems ... 17
Table 3: Results in coding system according to Mayring 1994 ... 28
1 Introduction
This chapter gives a general overview of the executed study. It shows the problem statement with background information about blockchain technology and green property bonds as well as the subject’s relevance due to an increased awareness of sustainable finance. Furthermore, limitations and restrictions of the study are outlined, and a brief content description of every chapter is presented in the disposition.
1.1 Background
Since around 35% of greenhouse gas emissions and waste is attributable to the building sector (Geiger et al., 2013), sustainability plays an important role in this field. Thus, Sweden’s National Board of Housing, Building and Planning have become more aware of energy efficiency in buildings. This increasing attention is based on the European Council’s goal to build all new construction as nearly-zero energy buildings in the EU area (Zalejska-Jonsson et al., 2012). As the property market is a significant driver for a country’s economy and usually exceeds stock and financial markets in value (Shiller, 2014), improvements here can have impacts on a high scale. Besides the property market, the established conservative capital market still takes a major part of investments (EU, 2019). One of many capital structures are so called bonds, which are fixed income securities with the purpose to finance projects (Ehlers, Packers, 2017). However, due to climate awareness, investments in sustainable bonds have risen and will become increasingly popular in the future (Geiger et al., 2013). These financial vehicles thereby focus on investments that are environmentally compatible (Ehlers, Packers, 2017). Different motives can be the cause for green bond investments. For instance, a better financial performance (Bauer, Smeets, 2015) or lower risks (Krüger, 2015). Projects with sustainable orientation are prepared to allow for increasingly strict requirements such as the sustainable development goals introduced by governments (Ayre, Callway, 2005). Nevertheless, proceeds from sustainable bonds must be verifiable. By transparency, documentation and reporting, the traceability of the right application in sustainable assets can be certified (Gonzalez-Ruiz et al., 2019). Recently, blockchain technology gained increasing awareness (Wouda, Opdenakker, 2019). As this technology has already been applied within property transaction processes (Wouda, Opdenakker, 2019), it could also be implemented in a variety of other environments. One potentially applicable area of blockchain technology could be the field of green property bonds.
1.2 Issues of current bond environments
This chapter is investigating the issues that both non green (“conventional bond” in the following paper) and green bonds are facing. Green bonds currently face various issues such as unreliability of information, the associated risk of Greenwashing (EU, 2019) or just the varying definitions of “green” and different guidelines for sustainable certification (Ehlers, Packers, 2017). Furthermore,
high transaction costs, which are a result of profit-oriented NGOs driving up the costs by issuing green certificates (Shishlov et al., 2016), impact the bonds’ returns and decrease their attractiveness. The analysis of 121 European sustainable bonds distributed from 2013 to 2017, showed that sustainable bonds incurred lower interests of 0.18% of the distributed bond volume, even though costs are charged for the certification of sustainability and higher costs remain for the transaction due to the monitoring of reinvesting proceeds (Gianfrate, Peri, 2019). However, transaction costs can increase in markets of less liquidity. This especially occurs in narrow market environments for bonds of small issuing size, or when the demand by investors is limited (Jiang, McCauley, 2004). Depending on the volume, risk profile of the bond, and the legal situation in which the issuer finds itself, the costs for services such as validation or impact reporting can sum up to five percent of the face value. The main difference of green bonds is the verification by an external institution, but also the monitoring and reporting system. Here the verification costs range from USD 5,000 to 50,000 (UNDP, 2020).
Through the issuance of green bonds, companies show their environmental commitment. Only approved third party verifications can assure that funding will support specific sustainable projects following the initial statement of the bond (Climate Bonds Initiative, 2019). As compliance checking from different stakeholders is time consuming, it leads to higher costs for the issuer compared to conventional bonds (Flammer, 2020). Another issue that can arise within green bonds is “greenwashing” (EU, 2019) which means that bond issuers are providing misleading information regarding the environmental dedication of the company (Flammer, 2020) without actually generating considerable sustainable impact through the project (Lyon, Maxwell, 2011; Lyon, Montgomery, 2015). Based on Shishlov et al. (2016) the green bond market is lacking on clear definitions as well as on exact objectives and governmental long-term sustainability strategies. This view is also shared by Sanderson (2018), who shows that bonds can be issued as sustainable bonds, without being checked for accuracy. Ehlers and Packers (2017) argue that national guidelines can solely limit the relevance of specific green certifications to a domestic level. Numerous options and inconsistent definitions give the issuers of sustainable bonds many different options and lead to less traceability and overview. Therefore, the demand for transparency and trust is of ever-increasing importance (Sanderson, 2018).
1.3 Purpose
Even though blockchain is not a completely new technology, it still lacks applications in real industries. It slowly finds its way from cryptocurrencies to first projects of various fields such as supply chain management or real estate transactions. Besides recently founded companies such as the German crowdfunding platform Exporo, well established companies and financial institutions like Nasdaq started working on the implementation of blockchain technology (Nasdaq, 2019), which means financial products can be improved by the technology’s implementation in various processes. Thus, the purpose of this thesis is to focus on the application of blockchain strategies for sustainable bonds that aim to finance real estate. Therefore, a framework is developed to work out which data should usefully be linked to the technology. In addition, the
study shall contribute to the status quo of research by investigating the potential of the technology for green property bonds. This objective leads to the following research questions:
Which data and additional information should be connected to green real estate bonds to decrease the industry’s issues?
How can blockchain technology support green real estate bonds to increase transparency and trust as well as improve the underlying financial process?
1.4 Research design
With the literature study about sustainable real estate bonds, certification systems to measure sustainability and blockchain technology, a necessary foundation is created to provide the reader with information that helps to understand the final framework for the topic of this thesis. As there are no multiple real-world observations of blockchain technology applied to green real estate bonds, a qualitative data approach is seen as most appropriate for the underlying study. Thus, the knowledge from the literature analysis is then used to build the framework which then is either confirmed or disproved by interviews. The following interviews with a group of relevant market actors such as real estate developers that issue real estate bonds, climate institutes or blockchain experts, give clarity about feasibility and new input to implement the right data into the framework.
1.5 Limitations and restrictions
This thesis focuses on potential applications of blockchain technology in green property bonds. In order to define green property bonds, the focus is on real estate, which is certified by either BREEAM or LEED, two commonly used certification systems. As these are often linked to green bond guidelines, they represent the most established and important certification systems. Even though it limits the research to a specific set of green bonds, it gives a practical overview of existing green property bonds, its challenges such as verification procedures, transparency or traceability and the potential solutions through blockchain technology. Furthermore, blockchain technology is explained only briefly and not in detail, as the focus of the thesis is set on the outcome and effects of the technology on the future green property bond market rather than the information technology itself.
1.6 Disposition of the thesis
Chapter 1 - IntroductionChapter one starts with an introduction about the topic and its current issues. Then the purpose of the thesis is discussed, and the research questions are stated. It also describes the research design with chosen methods shortly, ending with the limitations and restrictions of the thesis.
Chapter 2 - Methods
Chapter two shows the chosen methods and clarifies its use by outlining theory. It explains and justifies the approach of gathering specific data. Furthermore, it reasons the selected interview participant and explains the limitations of the circumstances in which the thesis was written in.
Chapter 3 - Theory
The third chapter explains the two main thematics of the thesis, blockchain technology and green bonds. More detailed information about blockchain related terms, the application of blockchain technology in real estate investments and transactions as well as specific green bond guidelines and green building certifications is provided in sub-chapters.
Chapter 4 - Green Asset Wallet framework
Chapter four shows the framework of the Green Asset Wallet and its concept.
Chapter 5 - Results
Chapter five shows the outcome of the performed interviews and gives a summary of these results.
Chapter 6 - Analysis & Discussion
In chapter six, the results from the interviews are analyzed and connected to the previously performed literature review in order to develop a final framework and answer the research questions.
Chapter 7 - Conclusion
Within chapter seven, a summary of the study including its main results is provided. In the last part, an outlook for future research in the area of blockchain technology and green real estate bonds is provided to the reader.
2 Methods
Within this section an overview of the research method is demonstrated. Chosen methods will be explained and brought into context to the research design and the validity of the thesis.
Generally, the authors’ chosen method follows an inductive approach. According to Saunders et al. (2009), explored data is used to develop a theory and eventually put in connection to a literature study. This approach is useful since the topic is relatively new and literature is not available in large extent. Also, pre-established theories or frameworks are not necessarily required. Due to the lack of sufficient previous research, a qualitative method is the most appropriate approach as this method’s aim is to study possible applications in the future (Robson, McCartan, 2002). Semi-standardized interviews in combination with literature review are used as a mixed method study to generate confirmatory results despite differences in methods of data collection, analysis and interpretation (Harris, Brown, 2010). The literature study will focus on explaining the status quo and current problems as well as determining the framework. The interviews will rather test and verify the determined framework through expert insights (Cook, Reichardt, 1979).
By summarizing the gathered information from the literature study, findings are derived and connected to the research questions. Through the analysis of the conducted interviews, the previously defined research questions will be answered by newly gained information.
Figure 1: Visualization of thesis procedure (authors' illustration)
2.1 Literature study
The literature study analyzes the status quo of research in the field of green real estate bonds and blockchain technology. Therefore, various articles were studied in greater detail by using the backward system. Thus, references that were referred to in a journal were examined more closely (Webster, Watson, 2002). With that approach, previous stages of the technology and its development can be observed. This is of importance since, the knowledge about blockchain technology but also the fundamentals of sustainable real estate bonds are a required base to understand the final framework of this thesis. Furthermore, several reports and guidelines from trustworthy institutions are reviewed in order to figure out the certification criteria of sustainable properties and to demonstrate the difference between conventional bonds and green bonds in general. A more detailed distinction can be found in section 3.4 about bonds and sustainable bonds.
2.2 Interviews
The guideline-based interview is semi-standardized and serves merely as an orientation guide. Depending on the course of the interview, the order of the questions can be adapted to the changed situation at short notice (Schulz, Ruddat, 2012). The combination of the guideline and variable handling of the questions, supplemented by the possibility of additional questions, makes the interview a flexible but systematic instrument for data collection (Hussy et al., 2013). The partial standardization of the interview method chosen, ensures that all relevant aspects are covered and allows for comparability of the answers and statements from the interview participants (Helfferich, 2014).
For the interdisciplinary framework, the areas of blockchain, sustainability and real estate bonds must be linked. Therefore, it was searched for experts from these different subject areas via identifying authors of topic related reports, books but also stakeholders of companies or organisations such as the Green Asset Wallet. According to Meuser and Nagel (1991), experts are persons who have special knowledge due to their professional or social position and are part of the field of action. Ergo, this special knowledge gives the interviewer a knowledge advantage, which the interview is aiming for. Thus, compiling the experts’ names, related to their company, position and profession. This allows to compare the expert opinions with each other and focus on the most qualified persons according to previously mentioned criteria.
The chosen interview participants shall demonstrate insights about the subject of the thesis from different professional backgrounds. Within the real estate ecosystem, the companies of selected interview participants fulfill different areas of expertise. The second opinion provider is chosen as it is a necessary third party in the green bond process. Furthermore, the issuer of green real estate bonds plays a pioneer role in the industry. The technical expertise is brought in by blockchain experts who were previously working with blockchain technology for the real estate or financial market.
Seven experts were interviewed. Their field of work is briefly explained below:
Cecilia Repinski & Thomas Barker, Stockholm Green Digital Finance
The focus of Stockholm Green Digital Finance is on sustainable investments. One of the organisations projects is the Green Asset Wallet, a project which deals with the digitalization of green finance processes as well as the development of green investments in emerging markets by the use of blockchain. Two persons from this organisation were interviewed: Cecilia Repinski, the founder and main actor within the project as well as Thomas Barker, a blockchain expert with a computer science and FinTech background to concierge the technical side such as the evaluation of different components. Both have great insights about potential digital solutions in the green debt market.
Anna Denell & Thomas Nystedt, Vasakronan
Vasakronan is a property developer and real estate management company, headquartered in Stockholm. In 2013 Vasakronan got the industry's attention by issuing the world’s first corporate green bond. One year later Vasakronan started implementing LEED volume which requires a certain volume of LEED certified buildings and shows the company’s long-term goal to get more properties with sustainable certification. Two persons from Vasakronan participated in the interview: Anna Denell, Head of Sustainability and Thomas Nystedt, Group Treasurer, who have both been working for the company for more than ten years and therefore have very good insights in the fields of green finance and sustainable real estate.
Harald Francke Lund, CICERO
CICERO is the Centre for International Climate and Environmental Research. Its main area of activity is climate impact reporting, consisting on finance, policy and systems. Furthermore. it provides second opinions for green bonds. The chosen expert Harald Francke Lund holds a law degree from the University of Oslo and is the CEO of CICERO's “Shades of Green”. He was also involved as project manager in the Green Asset Wallet for the delivery and advisory of eligible data.
Walter Strametz, Element36
Element36, a Swiss based company which specializes in blockchain technology applied to real estate processes with the combination of real money and cryptocurrencies by a technology simplification. Walter Strametz, the founder of Element 36 is one of the participants. He is chosen
as he has an in-depth knowledge of blockchain technology as well as several years of experience in IT solutions for financial purposes, such as for big international banks.
Achim Jedelsky, Foundation of FIBREE
FIBREE is the leading international network for exchanging knowledge between the real estate industry, the IT sector and blockchain technology. Its founder, Achim Jedelsky, holds an Architecture degree from the Bauhaus University Weimar and a Master of Business Administration from Vlerick Business School. Previously he worked for Daimler Real Estate being responsible for digital real estate processes and the digital strategy for the Daimler AG subsidiary. His tasks can be described as an interface between real estate and information technology through which his in-depth know-how about the thesis topic is justified.
The interviews were held in either English or in German, audio recorded and then transcribed to have it in written form for further evaluation. Due to the global COVID-19 pandemic, all interviews were held through virtual meeting platforms in order to avoid personal contact. The process of the interview can be separated into different steps. First of all, data is being collected from interviewed persons. Secondly, the explored data is analyzed and then in step three put in connection to the developed framework which is mainly based on the literature study. The questions for the interviews are in accordance to the predeveloped framework which is based on the literature study. Detailed results of the interviews are shown in section 5 Results.
2.3 Analysis
In this thesis, qualitative research data has been analyzed. The interviews are categorized using a coding system which should result in a material assignment that is as clear as possible (Mayring, 1994). When the interview was held in German and therefore the transcription is as well, respective passages of the text were translated into English in order to make it comparable to other interview data and usable for this thesis. Through this procedure, the data can be analyzed systematically by extracting only relevant data from the interviews for further investigation (Collins, Hussey, 2013). The findings from the coded text are evaluated and interpreted. The most important results gained from the interviews will be implemented into the framework and shown visually. Care is taken to remain as close as possible to the original text in order not to draw conclusions that deviate from the meaning. This prevents statements from being falsified. Mainly the inductive method is used. Thereby, the conclusion is drawn from the individual interview to a general context (Mayring, 1994). The method explicitly aims at the content of and the gain from the information received in order to answer the underlying questions clearly and comprehensively (Mayring, 2010).
2.4 Reliability and validity
Important aspects of the research are validity and reliability as they ensure the outcome can be considered trustworthy and credible (Brink, 1993). When it comes to validity, LeCompte and Götz
(1982) argue that it shows the accuracy and truthfulness of the scientific results while Brains et al. (2011) mentions that it measures the correspondence of a study and the findings with the real world. The interviews are executed with relevant experts from the fields of real estate investments, sustainability or blockchain technology. Moreover, the interviews are semi-structured so the participating persons can answer in a detail level they want to, as there are no strict binary answers required. Also, the answers can vary from interview to interview due to additional in-depth questions about specific topics based on an individual's background and knowledge.
However, even though precautions were taken, there still might be some issues regarding reliability and validity. Participants who work for specific firms can be limited in sharing data or processes due to company security reasons. Also, the interview participants originate from different company structures, from start-ups to well-established firms so their understanding of new technologies and willingness to implement them in long-established processes can vary.
2.5 Limitations
The experts for interviews were contacted either via LinkedIn or Email. In total 29 persons were found to be relevant due to their experience and current position. Responses from nine persons were received which is equal to a response rate of 31%. However, two persons were sorted out because they were considered unsuitable for this work after correspondence. It must be mentioned that all experts were contacted either in the end of March or beginning of April 2020. At that time, a lot of work requirements were changed in companies due to the pandemic of COVID-19. As this might have been challenging circumstances for many, it can be assumed that the outbreak influenced the response rate in a negative way. Moreover, all the interviews were conducted via online communication tools. According to Bryman (2008) this way of communication is different to face-to-face communication. As you not always recognize the conversation partner’s gesticulation which can correlate to the actual spoken, it might lead to interruptions and therefore to a loss of data. Furthermore, sometimes one party had technical difficulties which delayed the start of the interview and decreased the remaining time for the interview. This also could have led to gathering less data.
3 Theory
The theoretical section of the thesis gives an overview of green property bonds. Furthermore, respective guidelines and criteria on the evaluation process of green bonds compared to conservative bonds and certification procedures on sustainable properties associated to green property bonds are demonstrated. Also, the basics of blockchain technology are explained in order to clarify its underlying technology and the areas where it can be applied to. Additionally, already existing blockchain applications like in real estate transactions are analyzed to give an overview of the potential benefits this technology is contributing towards the bond and real estate market.
3.1 Blockchain technology
That key term’s underlying technology is based on distributed ledger technology (DLT), peer to peer (P2P) network, cryptography, consensus mechanism and validity rules. Thereby one ledger is shared by a minimum of two users on a P2P basis. Transactions on that framework can be made without or with less intermediaries in a validated matter, following the previously set consensus mechanism. This structure lets authorized parties in the P2P network create new blocks by following the validity rules (Wouda, Opdenakker, 2019). A blockchain system consists of individuals that participate by connecting their devices to the internet. The internet is thereby the communication medium which allows the individuals - so called nodes - to enter and leave the network at any time. The nodes thereby work on a peer to peer basis in a distributed consensus mechanism. This mechanism updates the data on every node by solving cryptographic tasks using processing power. Since this power comes from the nodes, the system is resistant against a manipulation by attacks through coordinated nodes. Furthermore, this synchronization of data allows the previously mentioned entry and exit of individuals at any time (Böhme, Pesch, 2017). As one of the current problems related to blockchain, Casino et al. (2019) mentions that experts often present blockchain as the solution to everything. However, there are projects where the data does not need to be stored and therefore blockchain cannot provide any added value. Another issue Bartoletti et al. (2020) mention is the difference between programming of Smart Contracts and other programming languages. Thus, it is not always easy to understand, and its complexity can lead to errors in the programming. If a blockchain participant loses its private key, the data is inaccessible (Joshi et al., 2018). Even though no one else can access the data, this however is still problematic, as the key can’t be restored and thus the access is lost. Furthermore, Biggs et al. (2017) state that blockchain technology is facing challenges regarding widely spread adoption like legal supervision as well as governance and implementation to existing process infrastructures. Also, social acceptance of this emerging technology is highly correlated with the end users’ behavioral intention to actually use it (Lou, Li, 2017).
In the following are some technical definitions which promote the understanding of the reader.
3.1.1 Public / private key
To participate in a blockchain system an individual needs a combination of public and private key. This combination of keys constitutes a cryptographic identity. Since any number of key pairs can be generated, they act as pseudonyms under which persons appear in the blockchain system (Böhme, Pesch, 2017). This combination of both keys constitutes a special security mechanism. Thereby, the stakeholder can sign and encrypt messages by using the public key. The message receiver then needs its private key to decrypt the message (Joshi et al., 2018).
3.1.2 Consensus mechanism
The consensus algorithm stores the new information on the newly added block. In the following, a few of the consensus mechanisms are briefly explained.
3.1.2.1 Proof of Work
Proof of Work (PoW) are nodes creating a system by bundling their computational power that is measured in hash rates. Thereby a node’s influence on this system proportionally depends on its hash rates. So, the higher an entity’s computational power provided, the higher its probability (Bentov et al., 2016) on creating a new block that’s added to a string of ordered blocks (Duong et al., 2016). By this, users can be confident of a system’s validity as long as one’s computational power has no higher share than 50% of the total provided hash rate. For a transaction in a blockchain network, a so-called node or user is randomly selected to record the transaction. This is nominated and selected by the initiator of the transaction. The nominee is then validated by the other participants. In this process the nonce (number only used once) in the header of a block is calculated. By continuously changing the value, different hash values are calculated. This is how the newly created block is authenticated (Joshi et al., 2018).
3.1.2.2 Proof of Stake
Different to PoW mechanisms, the Proof of Stake alternately gives one of the stakeholders in the system the authority to create the next block. Thereby, a stakeholder’s interest is to maintain the system by not creating fraudulent chains, as otherwise its stake will be diminished in value. Every entity’s probability of being chosen to extend the ledger depends on its share of stakes (Bentov et al., 2016). This means that the probability of being selected as validator depends on the height of the previously stored stake. To be able to falsify data in the system, at least 51% of the value in circulation in the network would have to be kept by one stakeholder (Joshi et al., 2018).
3.1.3 Smart contracts
Under the assumption that the stakeholders are trustworthy, blockchain itself is mainly secure but not private. That’s why an arbitrary program, defined by the user, is put on the blockchain. This program can be a so-called smart contract (Kosba et al., 2016). This is neither just a digital contract nor a vehicle based on artificial intelligence. Rather, it is a tamper-proof, self-triggering system. This decreases human interaction and the accompanying risks of uncertainty or increasing costs. By smart contracts, goods such as real estate can be more easily exchanged through automatically executed processes by a pre-defined algorithm (Cong, He, 2019).
3.2 Blockchain in real estate transactions
Tapscott (2016) states that due to a technological change, various markets require additional technology for faster processing and increasing transparency and safety. Therefore, technology will potentially have various effects on the real estate sector due to big data, artificial intelligence, or blockchain (Wouda, Opdenakker, 2019). According to Wouda and Openakker (2019),
blockchain can help to decrease the necessity of intermediaries which can save costs and decrease the time in the real estate transaction process. Based on Kempe (2016), blockchain technology brings higher security compared to common transaction processes. Through this technology the process of transactions can be decreased and potentially minimize scams. The pilot project of the Swedish Land Register Lantmäteriert in cooperation with banks and several companies focuses on the improvements by an implementation of blockchain in the real estate transaction processes. The blockchain based process is decreasing the time between the contract writing and registration of the transaction drastically from four months to several days. That time saving is attributable to the immediate available, completely and correctly stored information and contracts on blockchain, which decrease the time of interaction between different parties (Kempe, 2017).
Another study investigates the effects of an implemented blockchain technology on real estate transaction time, its costs, security, transparency and reliability in Kosovo. As the transaction process currently consists of different intermediaries, modifications, manipulations or even counterfights can occur. This would be countered by greater transparency through the possibility of proving any changes by documentation on the blockchain (Hoxha, Sadiku, 2019). The blockchain technology brings security against manipulation and counterfeiting (Veuger, 2018) which makes it a viable system. Additionally, it makes digital units impossible to get duplicated (Kempe, 2017). Among all the possibilities of blockchain technology, there are still challenges like the missing full legal validity of digital signatures which lead to uncertainty and prevent the adoption in economical processes. Furthermore, the roll-out of the testbed carried out by Lantmäteriet, Kairos Future, Chromaway and Telia among others, would involve more parties like buyers, sellers, technical partners, etc. This in turn requires acceptance and willingness to adopt the system by those newly involved parties (McMurren et al., 2018). With this the implementation of blockchain technology would be scalable. Nevertheless, according to Treiblmaier from the MODUL University Vienna the elaboration of such rules and regulations is a long-time process that requires to enforce EU-regulations by national government (Sandner et al., 2019). These strict rules and elaborated laws would bring clarity, security and therewith would be elementary for further progress in a digital direction.
3.3 Blockchain in green investments
Based on the Sustainable Digital Finance Alliance, the financing of sustainable development is a key factor due to current global challenges (Bayat-Renoux et al., 2018). The United Nations Environment and Ant Financial Services have founded this alliance with the aim to investigate the potential of FinTech innovations regarding sustainable development. Three case studies have been executed in order to demonstrate the feasibility of innovative processes within green investments, including the application of blockchain technology. In 2017 a Chinese project led by the Shenzhen Green Finance Committee worked on a process of digitization and automatisation of green finance certifications with the appliance of Internet of Things (IoT) and blockchain. The aim is to find better solutions for certification systems in green investments. Potential issues which
should be solved through new approaches include insufficient information as well as inefficient certification processes. Moreover, Beijing Nenglian Zhonghe Technology has created a blockchain based green asset information system for the financial sector (EU, 2019) with the aim to fulfill requirements regarding trusted and traceable information in the financial market. Another project with a blockchain based solution for sustainable investments is the “Green Asset Wallet” in Sweden which provides market actors a platform to increase efficiency as well as transparency (EU, 2019). More detailed infromation regarding this project can be seen in section 4.
3.4 Bonds
Today investors are free to invest in any asset class. Thereby, investors with a long investment horizon often choose bonds over others. This is due to the security of this asset class. Bonds in particular, protect long time investors against declining interest rates on the one hand. On the other hand, they also give relatively high reliability on constant returns and thus, planning security (Brennan et al., 1997). While bonds are securities issued by either governments or corporations, this work focuses on the latter. Every bond consists of several terminologies such as the bond certificate, showing the amount and periods of payments. This period of constant payouts usually ends by a final payout of the last coupon, determined by the bond’s coupon rate, and the initially paid face value. That’s also called date of maturity. However, between the actual payout and the date of maturity, some time may pass. This period is the so-called term. The following explanation shall contribute to the reader’s understanding by visualizing the previously mentioned terminology. When the coupon rate can be seen as an annual percentage rate, the Coupon Payment (CPN) is:
Figure 2: Coupon payment (Berk, DeMarzo, 2017, p. 206)
While governmental bonds are usually considered as risk free investments, bonds issued by corporations are not. That is because cash flows of corporate bonds accompany with the risk of default. Depending on the probability of default, the risk premium demanded by the investor increases the higher the chance of a credit default becomes. Nevertheless, it does not always mean a higher return rather than a consequently lower bond price (Berk, DeMarzo, 2017). Besides the risk premium a project’s cost of capital depends on the rate of return demanded by investors. So, the higher the required return for provided capital, the more costly it becomes for a corporation to finance itself while decreasing chances of being profitable. Additionally, the cost of capital determines the present value of the project’s future cash flows, meaning the higher the cost of capital, the lower its present value and vice versa. This in turn affects a project’s valuation and after comparing the project to other possible investments of similarity, an investor’s choice will fall on the higher valued one (Sharfman, Fernando, 2007). However, projects that are financed by bonds usually make use of both, equity and debt capital. In this scenario the weighted average cost of capital can be calculated by calculating the corporation’s cost of capital for debt after taxes:
Figure 3: Weighted average cost of capital (Berk, DeMarzo, 2017)
where E = market value of equity, D = market value of debt, rE = equity cost of capital, rD = debt
cost of capital, tc = marginal corporate tax rate.
After calculating the WACC, a project’s value can be determined by the sum of each year’s free cash flow divided by 1 + rwaccn where n = year. When an investment gives a higher internal rate
of return (IRR) than the opportunity costs of capital, the costs of financing or the project’s WACC. As investors always have to choose the ratio of debt to equity, the investor’s total cost of capital is of importance (Liapis et al., 2011). This section shows the fundamentals of bond pricing but is not considered further in this work, rather than supporting the reader’s understanding of bonds as a financial vehicle.
3.4.1 Green bonds
Due to the investors’ climate awareness and the higher returns associated with sustainable investments, the European Investment Bank (EIB) started the first “Climate Awareness Bond” (Kreivi, 2016) in 2007, with the aim of generating funds for environmentally friendly investments. In 2008, the World Bank and Skandinaviska Enskilda Banken (SEB) started to issue green bonds too (World Bank, 2018). 2018 green bonds experienced a momentum by reaching a 4.4% share of the worldwide issued bond volume. In Europe the share of sustainable bonds was at 5.3%, whereas the green bonds issued in Swedish Krona (SEK) even peaked to a 11% share of all bonds’ volume in SEK (EU, 2019). A rapid increase over the next years is estimated by Ehlers and Packer (2017), while SEB (2020) states that the global green bond volume will exceed one trillion USD in 2020. Shishlov et al. (2016) see the growth as a reason of greater investors’ recognition of investing in green assets and the consequent advantages while Caldecott (2017) and Schoenmaker (2017) state climate change as an important factor related to asset investments. In order to achieve green investments, the specific financial tool - green bond - has been established which reveals several positive environmental as well as economic features (Pham, 2016). Green bonds are often used to refinance existing projects. That so-called equity release can be used to start other sustainable projects (EU, 2019) by using the investors’ money as leverage. Based on the Climate Bonds Initiative (2020), the total issuance of green bonds in 2019 reached 257.7 billion USD, of which approximately 30% can be accounted to properties. According to the Climate Bonds Initiative (2020), the majority of green bonds are bonds for the use of proceeds or asset-linked bonds. This paper mainly focuses on the use of proceeds (revenue) bonds. Proceeds are either used to finance new green projects or to refinance already existing sustainable projects (Climate Bonds Initiative, 2020).
3.4.2 Green bond guidelines
According to the EU’s Report on Green Bond Standards (2019), sustainable bonds are directly connected to the issuer’s sustainability goals which should be seen by every stakeholder. However, reviews by external institutions are necessary for validation. Those reviews can be based on different guidelines and benchmarks from various institutions. This can bring ambiguity regarding the level of a bond’s greenness (EU, 2019). Based on the benchmark report from the European Union (2019), emissions show a company's climate impact. The greenhouse gas emissions are separated into three scope levels, where scope one shows direct emissions and scope two indirect emissions such as heat or electricity consumption. Moreover, scope three evaluates other indirect emissions which can be fuels or materials, transportation or waste disposal (EU, 2019).
Table 1 shows common guidelines for sustainability and green bonds.
Table 1: Green bond guidelines (authors' illustration)
Name (Abbreviation) Publisher Version
Green Bond Principles (GBP) ICMA Paris Representative Office 2018 Social Bond Principles (SBG) ICMA Paris Representative Office 2018 Sustainability Bond Guidelines ICMA Paris Representative Office 2018 Nasdaq Green Bond Criteria Nasdaq 2019 Nasdaq Social Bond Criteria Nasdaq 2018 Nasdaq Sustainable Bond Criteria Nasdaq 2017 Green Bond Guidelines for the
Real Estate Sector GRESB 2016
Report on Benchmarks European Union 2019 Report on Green Bond Standard European Union 2019
The GRESB Green Bond Guidelines are specifically designed for the real estate sector and can help analyze frameworks of sustainable real estate bonds. The four groups Use of Proceeds, Process of Project Evaluation and Selection, Management of Proceeds and Reporting are considered. Each group is divided into several categories. Existing certification systems such as LEED and BREEAM serve as a basis for the assessment. In the GRESB each category refers to the respective category in the LEED or BREEAM system and the respective environmental impact is presented. It is also explicitly pointed out that issuers should clearly present the respective criteria for their sustainable projects, group them according to the type of property and establish investment objectives that consider both direct and indirect impacts achieved through the Green Property framework. Furthermore, issuers of green bonds should inform investors at regular
intervals about the use of the proceeds and the activities affecting the bonds. This information and a detailed development of certifications and ESG indicators should be reported on an annual basis. In addition, the reporting should be reviewed externally (GRESB, 2016). The ICMA Principles define a green bond as an instrument where its proceeds are only used for financing new sustainable projects or refinance existing green projects. However, they have the same four groups like the GRESB guideline (ICMA, 2018). The Nasdaq differentiates in its green bond criteria between the three main categories Use of Proceeds, Third Party Review and Reporting. In addition, the Nasdaq reserves the right to remove bonds from the trading platform if the criteria are violated (Nasdaq, 2019). There are also Sustainable Bond Criteria, for which compliance with the Social Bond Guidelines is also required. However, the criteria are based on other guidelines such as from ICMA (Nasdaq, 2017). In 2018 a technical expert group started to develop green bond standards for the EU. By that, the rules and requirements of the GBP were tightened up. For example, the use of proceeds was recommended to show in legal documentation from the GBP and now are required to report according to the EU standards (EU, 2019). Beyond that, benchmarks were developed to bring clarity and harmonisation of methodologies into alignment with the Paris Climate Agreement to limit global warming to a maximum temperature increase of 2°C. Moreover, the benchmarks shall help to prevent greenwashing. Additionally, greenhouse gas emissions (GHG) are divided into three scopes, such as scope one, defining all direct GHG emissions. Scope two including indirect GHG emissions which are caused by the consumption of electricity, heat or steam. Finally, scope three covers all indirect greenhouse gas emissions that are produced by others in the value or consumption chain, such as CO2 for the production of material or fuel for transportation (EU, 2019).
As many criteria are a modified version of the GRESB Guidelines and those are related to Real Estate, these are taken as main basis for this underlying work.
3.4.3 Green property bonds
As the real estate industry is accountable for 45% of the energy consumption and responsible for 35% of greenhouse gas emissions, investors are increasingly aware to green investments (Geiger et al., 2013). Investments in green assets, which are assets with low environmental impact, can be caused by different motives (Zerbib, 2019). Bauer and Smeets (2015) refer to an increase of the financial performance while Krüger (2015) is stating a lower risk. The aim of investing in green assets can also be driven by non-financial factors (Zerbib, 2019) such as an increased ethical responsibility related to environmentally focused actions (Riedl, Smeets, 2017; Hartzmark, Sussmann, 2018).
Green buildings are energy and resource conserving, environmentally compatible buildings. Those kinds of properties impact the users’ health and comfort while promoting socio-cultural aspects. Furthermore, sustainable construction considers functionality, value stability, return and technical quality over the building’s life cycle (Waibel, 2010). In order to demonstrate these characteristics and make them comparable, sustainable building certifications entered the market. Besides, companies implemented an index to measure their social responsibility. These corporate
social responsibility (CSR) guidelines look at social, economic and ecological problems. As it is assumed that green buildings decrease a portfolio’s risk and improves its performance, sustainable real estate is implemented in mutual funds (Geiger et al., 2013). As it will be further explained in the next chapter, one of the motivations accompanying sustainable buildings are higher returns as several studies investigated.
3.4.4 Green building certifications
After sustainability became an important factor in economic and social decision making, certification systems to prove sustainability of buildings gained significance. These certificates are standards to measure the level of a property’s greenness by pre-defined criteria. These criteria show the characteristics of the objectives which can be evaluated by measurable indicators. Finally, a rating system shows the evaluation method, criteria weight and the minimum indicator that needs to be achieved in each part. All together the result is summarized in a clear and specific matter, making it easy to classify and compare the building on a scale with others (Pacetti et al., 2012). Over time, different certification systems were established. In the following, the focus will be on Leadership in Energy and Environmental Design (LEED) and Building Research Establishment Environmental Assessment Method (BREEAM) as these are the two most well known and commonly used rating systems.
BREEAM was introduced for the first time in 1990 by the Building Research Establishment (BRE) in the UK. In 2016, the rating system led the industry with a market share of 80% in Europe. It focuses on main criteria such as Management, Health & Wellbeing, Energy, Transport, Water, Materials, Waste, Land Use & Ecology and Pollution. The rating is from the level “Pass” to “Outstanding”. Derived from BREEAM, the US Green Building Council (USGBC) entered the sustainable building market with its Leadership in Energy and Environmental Design (LEED) approach in 1998. After BREEAM, it is the second most commonly used sustainable building rating system and focuses on criteria such as an Integrative process, Indoor Environment Quality, Energy & Atmosphere, Location and Transportation, Water Efficiency, Material & Resources, Sustainable Sites, Regional Priority and Innovation. The rating starts at “certified” and allows several levels up to the highest certification level “Platinum” (Doan et al., 2017).
According to Fuerst and McAllister (2011), Leadership in Energy and Environmental Design (LEED) certified commercial office buildings on the US market bring a 3-5% higher return in rents than non-certified buildings. Furthermore, the LEED certification brings a premium of up to 25% in sales price. In addition, another hedonic pricing model investigates if sustainable commercial buildings in Shanghai result in a higher rental price. It’s shown an around 12.8% higher rental price for LEED certified buildings (Hui et al., 2015). Cajias and Piazolo (2013) investigated 2,630 building observations from the German Investment Property Databank and came to the result that 1% decline in energy consumption shifts the total return +0.015% up. On the other hand, a one percentage increase in energy consumption lowers the rent by -0.08% and the building value by -0.045%.
The previously mentioned green bond guidelines (see section 3.4.2) aim to limit the assets’ Greenhouse Gas (GHG) emissions. Therefore, they consider criteria like the use of construction materials, the transportation system, water and wastewater management and energy efficiency, among others. There are various certification systems for measuring, weighting and proving the criteria laid down in the guidelines. The two most commonly used green building certification systems LEED and BREEAM are shown in Table 2.
Table 2: LEED & BREEAM certification systems (authors' illustration)
Name (Abbreviation) Publisher, Country
Leadership in Energy and Environmental
Design (LEED) U.S. Green Building Council (USGBC), USA Building Research Establishment
Environmental Assessment Methodology (BREEAM)
Building Research Establishment (BRE), UK
While the USGBC has listed 125,438 LEED certified buildings by June 2020 (USGBC, 2020) the BRE databank counts more than 2,309,467 registered buildings and 590,595 certificates (BREEAM, 2020).
In the following, LEED and BREEAM certification criteria will be introduced and looked into more detailed, as those systems are the most relevant in Europe. BREEAM was selected for existing buildings and compared with LEED criteria for new buildings, making the differences visible depending on the certification and type of property. For the visualizations, only the criteria which are necessary for all building types and not mandatory required for the scoring, are considered.
3.4.4.1 LEED criteria
The following gives an overview of the LEED certification criteria, based on the latest version of the USGBC’s “LEED v4 for Building Design and Construction” from July 25th, 2019 (USGBC, 2019). The criteria categories include the building types Core and Shell, New Construction, Schools, Retail, Data Centers, Warehouses and Distribution Centers, Hospitality and Healthcare.
Figure 4: LEED minimum criteria categories (authors’ illustration, data from USGBC, V4, July 15th, 2019)
Figure 5: LEED maximum criteria categories (authors’ illustration, data from USGBC, V4, July 15th, 2019)
Figure 4 and 5 show the weighted LEED criteria for Building Design and Construction, sorted by categories. To be comparable with each other, the evaluation only takes those criteria into account that apply to all eight categories. The left graph shows the weight of the lowest number of credits per category compared to the highest possible credits on the right side. Even though the weight of one category differs from one to another scenario, it can be seen that the main focus is on location and transportation. This main category is divided into eight different sub-categories with the main focus on Neighborhood Development Location (7-13%). In the second most relevant category Energy & Atmosphere the most weighted criteria are Optimized Energy Performance (2-16%) and Enhanced Commissioning (5%). The reduction of a building’s impact over the life-cycle is with 5% the highest weight in the main category Materials and Resources. All other criteria have lower importance. The criteria with where improvements can have the highest impact on the certification result are Optimization of Energy Performance (13%), Neighborhood Development Location with 6% and the Reduction of Indoor Water Use (3%).
3.4.4.2 BREEAM criteria
Below the BREEAM certification categories according to the BREEAM Certification Handbook Germany for Existing Commercial Properties from July 2017 are demonstrated. The system differs between the categories 1) “Real Estate”, 2) “Building Operation” and 3) “User”. Although all three parts have the highest weighting of the category "Energy", what is measured in the category "Energy" differs.
Part 1 focuses on the quality of the building envelope, the technical building equipment and the share of renewable energies.
Figure 6: BREEAM criteria categories of property (authors’ illustration, data from BREEAM DE, 2017)
Part 2 looks at energy consumption and monitoring, the handling and optimization of energy consumption and energy-efficient technical building equipment.
Part 3 evaluates the measures taken by the building user to reduce energy consumption and the use of renewable energies.
Figure 8: BREEAM criteria categories of User (authors’ illustration, data from BREEAM DE, 2017)
It can be seen that there are some synergies. However, they differ in points and the respective weight. This shows that different priorities prevail depending on the part.
4. Green Asset Wallet framework
To guarantee a high transparency of the conducted qualitative data, this paper makes use of the framework approach. Furthermore, it ensures a higher validity due to the ability to track the connection between the original data and the interpretations (Smith, Firth, 2011).
According to Maxwell (2008), a theory can identify relationships that otherwise would have been overseen. Furthermore, concepts allow to add new data to already existing theory. Nevertheless, assumptions made in previous research might bias the outcome from different data as it becomes difficult to let those go and move in a different research direction. However, due to the previously mentioned lack of research to the topic of blockchain technology in relation to green real estate bonds, this paper does not mainly face the risk of biased research. It follows a description of today’s status quo using the Green Asset Wallet as an example as this is one of few existing projects that links green bonds to blockchain.
The “Green Asset Wallet” is a project group initiated by the organization Stockholm Green Digital Finance, providing an approach for sustainable bond impact reporting and verification. Through a blockchain based system, it shall bring security by the provision of immutable data and thus increase trust and transparency. The three main stakeholders participating in the system are green bond issuers, validators and investors (GAW, 2020). Even though the blockchain technology is not directly visible for the user, it runs in the background as a database. Beyond that, every change or addition of information is documented in the changelog and visible for the stakeholders without possibility of manipulation. This is ensured by using the consortium database, based on blockchain
technology, managed by different nodes. The individual stakeholders have different functions. The issuer provides information about a green bond or reports a bond’s impact. That information is then verified by the validator, who creates a report which is once again checked by another validator and uploaded as a trusted second opinion. Finally, the investor has access to all information as soon as they are submitted and saved on the blockchain. This access to data allows the investor to compare, choose and track his investments made. Even though it is still possible to upload falsified data, this data would continuously remain on the blockchain and incorrect information would be detected by validators or other stakeholders. Finally, by putting the process on blockchain, data is transparently and securely replicated. Standards for the validation of information are established and digital signatures are applied at any time.
4.1 GAW guidelines
The GAW’s aim is to provide a blockchain based solution for increasing transparency of an investment’s greenness. However, since the organization tries an independent globally scalable approach, it allows the issuer to choose a guideline adequate to a project’s circumstances and environment. Nevertheless, the superior objective is the support of the Sustainable Development Goals of the Paris Agreement and the EU’s Green Deal (GAW, 2020).
4.2 GAW blockchain
The GAW’s underlying technology is a combination of conventional database structure and blockchain, so-called Relational Blockchain (GAW, 2020). While the plain blockchain technology has a very basic querying data, the addition of relational database, lets the data be structured and controlled. By using relational blockchain, the blockchain represents the database (Chromaway, 2020). A database releases information through queries. These queries are made using languages such as Structured Query Language (SQL). The query is compared and checked against the database, and the information is then released or not (Litwin, Risch, 1994).
5 Results
This section shows the output of performed interviews as well as an overall summary.
Due to the lack of access to adequate data, empirical data was gathered by conducting semi-structured interviews. In total, seven persons were interviewed. Thereby, it was important to get different perspectives from the field of real estate finance, blockchain technology and sustainability. The interviewed persons are either persons with a long track record of field related projects, more senior level positions with higher decision-making abilities or founders of companies. The guideline for the interviews is structured and divided into four different parts. Starting with questions about the interviewee’s background and experience, it shall be ensured that the person can be considered as an appropriate expert. As we focused on the GAW project, which serves as a basis, the second block is about the person’s role in the Green Asset Wallet
organization, its progress and goals. This is especially important to figure out, which intentions every stakeholder is following and how this could influence and bias their decision making. However, not every interview partner was involved in the GAW. The third sector is about the blockchain technology itself and is used more for technically sophisticated experts. Thereby, the results shall bring further understanding of the technology and an assessment of the feasibility of technical implementation. The fourth part shall uncover the GAW project’s further development goals in order to assess where this thesis can build on. However, the depth of their questions highly depends on the interviewee’s background, expertise and therewith ability of answering the questions. In the following the main information of the conducted interviews is shown for each interview participant.
5.1 Cecilia Repinski, CEO Stockholm Green Digital Finance
Cecilia mentions that there is a very high demand for sustainable investments as well big investment needs to deliver on the SED’s and the Paris agreement. Capital is required for a sustainability transition; however, sustainable investments are often not accessible to potential investors due to lack of information. The goal is to expand credibility of greenness, for instance avoiding greenwashing, and scale green investments by the use of blockchain technology. Moreover, impact reporting is a big barrier for issuers as it requires a lot of administration. Once it comes to validation, a cost effective and trusted opinion is required in order to demonstrate the connection between capital and impact for the assets, especially in emerging markets. Cecilia also points out that more and more investors want to know detailed information about the delivery of their investments, for instance whether they are compliant with the EU taxonomy. For all this, the blockchain is the underlying technology where all the information is stored and can be trusted. For example, if an issuer makes changes after making certain promises it will be recorded and investors are able to see it. In case fraudulent or misleading information is uploaded to the blockchain reputation can be lost quickly. Thus, accountability increases with blockchain. The critical step is when data is entering the blockchain and quality needs to be assured and for this reason validators check this information. Cecilia argues that the blockchain can be seen as a digital data source for validators as well, by using the information with their own analytical processes. Basically, the issuer decides on the validation process to serve their purposes in the most effective way whereby it can be a combination of technological solutions plus local engineering firms as well as proof from NGOs. Conclusively Cecilia points out that transparency and efficiency are key factors and main demands which shall be delivered through a blockchain based system.
5.2 Thomas Barker, Blockchain Expert at Stockholm Green Digital
Finance
According to Thomas, the different pension funds have a genuine problem as they need to have timely accurate proof about their investments to auditors. An issue regarding that is the access to data storage which should be available after the upload of data. Furthermore, he indicates
