As heatwaves and flooding dominate headlines, the urgency to combat climate change has never been more apparent. Developing countries require an annual investment of US$1 trillion, but climate finance, reliant on governments and institutions, has fallen short, leading to missed obligations and false promises. However, hope lies in retail investors eager to support sustainable investments.
According to Standard Chartered’s “Sustainable Banking Report 2022,” a staggering US$8.2 trillion of “investable retail wealth” is currently available for deployment in sustainable causes like fighting climate change. However, the lack of suitable investment opportunities has left these funds on the sidelines. Retail investors seek direct access to impactful investments, such as renewable energy, reforestation, and preservation initiatives, rather than indirect and carbon-focused options like “sustainable” exchange-traded funds (ETFs).
Web3 presents a transformative solution in tandem with precise regulations. Tokenized assets and decentralized autonomous organizations (DAOs) can bridge the gap between retail investor capital and climate finance, enabling the potential deployment of trillions of dollars. Climate assets, both on- and off-chain, can be made accessible to retail investors, leading to innovative solutions in decentralized finance.
Tokenized Climate Assets: Climate assets encompass renewable energy credits, carbon credits, equity in climate projects, and green bonds. Making these assets accessible to retail investors is crucial. By bringing them on-chain or issuing them natively on-chain, fractionalization can be leveraged to create new asset classes. Climate index funds, carbon credit futures, and climate-asset-backed stablecoins are potential innovations in decentralized finance, allowing investors to earn interest based on on-chain carbon credit sales.
Special-purpose DAOs: DAOs have demonstrated their ability to rally global support and funding for specific causes. Climate projects can benefit from special-purpose DAOs, where funds are managed transparently and responsibly. For instance, a DAO could raise funds to preserve threatened land and issue tokenized avoidance carbon credits, distributing dividends to investors or reinvesting in projects.
Micro Green Bonds: Traditionally limited to large institutional investors, green bonds can be brought to a micro level through Web3 solutions. Retail investors gain access to a new class of sustainable investments by lowering financing barriers for small projects. For instance, community-based renewable energy projects can issue micro-green bonds, fractionalize them, and make on-chain repayments using revenue generated from clean energy production.
Funding Infrastructure: Retail capital influx can fuel grassroots climate projects with local impact. Web3 launchpads, already successful in other sectors, can be tailored to fund climate projects. Climate experts can evaluate the impact of projects, ensuring the right ones receive funding. For example, a launchpad can connect retail investors with reforestation projects, offering project equity and on-chain carbon credit revenue.
Web3’s potential as the connective tissue binding projects, investors, and climate assets together in a regulated and transparent way should not be underestimated. Governments, companies, entrepreneurs, and communities must seize this potential to give their all in the fight against climate change. By empowering retail investors, we can collectively make a tangible impact on the world’s most pressing environmental challenges.