This article is an extract from our eBook – Engineering a Smarter and Greener Financial World with Tokenovate.

As we approach the 28th Conference of the Parties (COP28) dedicated to addressing climate change, the corporate world finds itself increasingly emphasising the significance of green initiatives, particularly within the realm of carbon trading.

Carbon trading represents a market-driven strategy crafted to mitigate the adverse effects of greenhouse gas emissions on our planet’s climate. Essentially, carbon trading functions as a regulatory approach aimed at curbing the overall emissions of greenhouse gases, including carbon dioxide (CO2), originating from various industrial sectors, organisations, and nations. Here’s a breakdown of how this mechanism operates:

Government authorities or regulatory bodies establish a specific limit on the total volume of greenhouse gas emissions allowable within a defined time period. Typically, this limit is allocated in the form of emissions allowances, which grant the holder the privilege to release a specific quantity of carbon dioxide or other greenhouse gases.

Companies and entities that fall under these regulations are subsequently allocated a portion of these emissions allowances. The allocation can fluctuate depending on factors such as historical emissions, industry benchmarks, or government policies. These allowances effectively function as finite and tradable assets.

While carbon trading and other initiatives focused on Environmental, Social, and Corporate Governance (ESG) occupy a central role in the considerations of many companies, keeping track of these transactions is far from a straightforward task. Various marketplaces facilitate the trading of credits, the occurrence of deals isn’t always transparent, and unscrupulous actors may attempt to manipulate the system to portray themselves as more environmentally responsible than they truly are.

The good, the bad and the ugly of carbon accounting

In the fight against climate change, blockchain offers a transparent and immutable ledger to record and verify carbon credits and emissions reductions. This ensures trust in environmental initiatives.

Carbon credits, often referred to as carbon offsets, are a key instrument in the global fight against climate change. These credits represent a quantifiable reduction in greenhouse gas emissions, typically measured in metric tons of CO2 equivalent. Companies or organisations can earn these credits by implementing projects or initiatives that reduce their carbon footprint.

These projects can range from reforestation efforts and renewable energy installations to methane capture from landfills. Once earned, carbon credits can be sold or traded on carbon markets, allowing businesses to offset their emissions by investing in environmentally beneficial projects elsewhere.

Carbon credits play a pivotal role in encouraging emissions reduction strategies and fostering environmental accountability among corporations. However, it’s essential to scrutinise the legitimacy and transparency of carbon credit markets to ensure their effectiveness in mitigating climate change.

While the world seeks sustainable solutions to pressing environmental challenges, some less scrupulous businesses engage in a practice known as “greenwashing.” Greenwashing refers to the deceptive marketing and branding efforts employed by companies to create an illusion of environmental responsibility without making meaningful changes to their practices.

This deceptive facade often includes using misleading labels, vague claims of eco-friendliness, or showcasing isolated green initiatives while ignoring the larger, more harmful aspects of their operations. Greenwashing not only misleads consumers but also undermines genuine efforts to address environmental issues.

Notably, a recent study published in the journal Science has delivered strong evidence that challenges the credibility of corporations that rely on carbon credits to support their environmentally friendly claims. The research examined 18 carbon-offset projects in Peru, Colombia, Cambodia, Tanzania, and the Democratic Republic of Congo.

The findings revealed that out of a possible 89 million carbon credits, only 5.4 million, or a mere 6%, were genuinely associated with meaningful carbon reductions achieved through the preservation of forests. In contrast, over 60 million carbon credits were derived from projects that made minimal contributions to reducing deforestation.

As consumers and investors become increasingly conscious of environmental concerns, it’s crucial to scrutinise claims made by companies and hold them accountable for their sustainability efforts to combat greenwashing and foster genuine environmental responsibility.

Tokenovate – ensuring the validation of credits

Tokenovate aims to address these issues by providing distributed financial market infrastructure, and smart legal contracts, enabling programmatic lifecycle event management of the pre-trade to post-trade workflow for OTC and exchange-traded derivatives, including VCCs.

Recently, Tokenovate forged a strategic partnership with GMEX Group, leading to a successful demonstration of a high-calibre, smart legal contract for waste-to-energy VCC trades, built on the BSV blockchain. These trades have their origins in the Bio-CNG Project AJS Fuels, situated in Gujarat, India, where cutting-edge biogas technology captures methane from animal waste.

This accomplishment was realised by seamlessly integrating Tokenovate’s dFMI into the ZERO13 Hub, a distributed orchestration layer that digitally links participants in the carbon market, as well as registries and exchanges across various jurisdictions. This interconnected ecosystem enables the trading, clearance, and settlement of VCC spot and derivatives contracts.

Notably, these trades were executed on the SECDEX exchange, a regulated marketplace intricately tied to the Universal Carbon Registry for voluntary carbon credits, all of which are seamlessly registered through GMEX and the ZERO13 Hub.

Pre-order the ebook now

To learn about how blockchain can prevent greenwashing, we encourage you to pre-order the upcoming release of our latest eBook – Engineering a Smarter and Greener Financial World with Tokenovate. The eBook will officially be available to download in early November 2023, at which time we will send you the download link by email.

In this eBook, we delve into the fascinating world of blockchain technology and its profound impact on the ESG (Environmental, Social, and Governance) landscape. The potential for blockchain to revolutionise the way we approach ESG issues is truly remarkable. From reducing carbon footprints to promoting ethical supply chains and enhancing corporate governance, blockchain offers a multifaceted approach to addressing the key pillars of ESG.

The eBook will explore how Tokenovate is actively working to address these critical issues. Through the provision of distributed financial market infrastructure and smart legal contracts, Tokenovate enables programmatic lifecycle event management of the pre-trade to post-trade workflow for OTC and exchange-traded derivatives, including Voluntary Carbon Credits (VCCs). This innovative approach is set to transform the landscape of sustainable finance and ESG practices.

Other topics which are set to be discussed include:

• In-depth insights into the intersection of blockchain and ESG;

• A detailed overview of Tokenovate’s mission and groundbreaking solutions;

• A discussion of powerful use cases for Tokenovate and the BSV blockchain, illustrating how transparency, accountability, and sustainability can be achieved across various industries.