Why is transparency in green finance important?

As climate change becomes more pertinent than ever, more emphasis has also been placed on green finance to help countries work towards net zero. However, along the way, there have been many issues, the biggest of them being the transparency around green finance.

To date, there have been many debates on whether green finance is a marketing gimmick for big corporations to earn more money and whether it truly makes a difference in the environment or not. This is also referred to as greenwashing, which is the practice of convincing investors and the general public that a company, fund, or sustainable investment is doing more to help the environment and claims to be sustainable – more than they actually are. This results in a false impression conveyed to consumers and investors and spreads misleading information about a company’s practices and its efforts towards sustainability.

The risks of greenwashing and a lack of full, transparent, and sufficient information provided to consumers and investors regarding the true impacts of the investment have resulted in many being very skeptical of such claims.

One example of opaque and unclear information being passed onto the public is the Carbon Border Adjustment Mechanism (CBAM) which holds exporters accountable for the direct and embedded emissions of their goods as they enter the European Union (EU). Coming into effect in January 2023, the so-called carbon border tax covers industries and commodities including iron and steel, refineries, cement, and fertilizers, and was recently expanded to include organic chemicals, plastics, hydrogen, and ammonia.

However, the CBAM raises critical questions about emissions accountability and the transparency of where the money goes. There are two main concerns regarding this. Firstly, the CBAM points to trade and climate protectionism that will severely disadvantage emerging economies in the Global South, particularly emerging economies in Asia.

The second issue is regarding where the money is being channeled towards. According to The Financial Times, the CBAM revenues have been earmarked to help cover the cost of the EU’s €750bn recovery fund – money that Brussels has borrowed to support its member states to boost their economies in the wake of the pandemic. This is in contrast to information that was presented to countries that the CBAM is a ‘climate measure’ that is aimed at preventing the risk of carbon leakage.

This has resulted in much debate and criticism, as well as the fear that the CBAM will implicate emerging economies that are least responsible for the climate crisis and burden them with the developed countries’ past pollutive actions. Furthermore, the developed countries have not fulfilled their promise to the emerging economies to channel US$100 billion to them by 2020 to help them adapt to climate change.

These two concerns have highlighted that there is still much to be done to ensure transparency in green finance. With the growing urgency for climate solutions and the need for transparency in green finance, blockchain technology could be a powerful tool. As blockchain technology enables transparency and traceability, it would ensure the integrity of information relating to measuring and monitoring climate impact and organizations’ climate efforts.

At MetaVerse Green Exchange, we use blockchain technology to ensure the integrity and transparency of our Carbon Suite products; including our Carbon Neutrality Tokens (CNT™), our Carbon Management System, etc. We have also developed the Non-Fungible Digital Twin (NFDT™) which creates a digital representation of an asset that is traceable, immutable, and able to update information in real-time. Combined with blockchain technology, we ensure that better transparency and integrity for carbon trading.

More efforts need to be taken at an organizational and national scale to ensure transparency in green finance so that real climate action is taken. To find out how you can make a difference today, contact us at conact@mvgx.com.

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