The COP28 conference offers a real opportunity to rethink how we look at green finance solutions, Atlas Capital Team’s Chief Economist Nouriel Roubini and CEO Reza Bundy recently wrote.
To reach a net-zero world economy, the world will have to “mobilize capital at scale,” they argue. To that end, “We must draw on the global savings of individual investors as well as institutions such as pension funds, insurers, and sovereign funds.”
Interestingly, digital tokenization is how they expect to reach this potentially enormous pool of individual investors.
Tokenization is converting ownership or rights to real-world assets (RWA) into digital tokens that can be sold to individuals, institutions, and governments. Imagine buying a one-millionth ownership share of the Empire State Building in the form of a single token, for instance. Tokens are typically entered, tracked, and traded on a digital ledger, often a public blockchain. The basic idea is to create liquidity for things that aren’t themselves liquid.
Roubini, a co-founder of Atlas Capital, is still viewed in many circles—rightly or wrongly—as a fervid blockchain skeptic; but that’s a story for another day.
The potential for tokenization is vast. According to a 2022 Boston Consulting Group report’s authors, the total size of illiquid asset tokenization globally could reach $16 trillion by 2030. Anything can be tokenized, including private debt, small- and midsize-enterprise revenues and physical art, they add.
The authors also propose broad asset groups that can be tokenized, including green real estate investment trusts centered in climate-resilient locales, and green commodities like “soy, wheat, copper, rare-earth elements, cobalt, lithium, and so forth.”
This notion that public plus institutional investment won’t avert ecological disaster themselves—that what’s needed is a of democratization of finance—is beguiling, but it raises some questions.
First, there may not be enough sound green projects out there to tokenize. Second, just because something is tokenized doesn’t mean global investors will invest in it. Third, sovereign governments will need to support such efforts with enabling legislation and regulations.