As global investment in green projects accelerates, so too does a troubling phenomenon: greenwashing. Companies increasingly tout environmental credentials that are vague, unverifiable or misleading — undermining public trust and the very foundation of sustainable finance.

To restore credibility, green finance needs more than promises. It needs transparency, traceability, and tools that hold stakeholders accountable. That’s where two digital innovations — blockchain and stablecoin — could make a transformative impact.

Blockchain is often described as a “trust machine” because it creates tamper-proof records accessible to all authorized parties. Every transaction or data entry on a blockchain is time-stamped, irreversible, and transparent. This capability is particularly powerful for ESG (environmental, social, and governance) reporting.

Take green bonds, for example. Traditionally, after a bond is issued, investors rely on periodic reports from issuers or third-party auditors to learn how funds are spent and what impact is achieved. But this model has blind spots. Reports are often delayed, incomplete, or unverifiable. A company might overstate achievements or misallocate proceeds — and unless someone investigates thoroughly, the greenwashing goes unnoticed.

Blockchain changes that. If a green bond is issued on a blockchain platform, the movement of every dollar can be traced in real time. Investors can see where their money goes — down to the wallet address of a solar panel manufacturer or subcontractor. Smart contracts, which are self-executing digital rules, can further ensure funds are released only when specific environmental milestones are met.

This level of visibility turns green finance from a “trust us” system into a “show us” one. ESG claims become verifiable actions. For regulators and investors alike, this could be a game-changer.

If blockchain provides the transparency backbone, stablecoin is the muscle that moves money through the system. Stablecoin is a system of digital tokens pegged to traditional currencies like the US dollar or renminbi. They retain the advantages of blockchain — such as speed and traceability — while avoiding the volatility associated with cryptocurrencies like bitcoin.

Using stablecoin in green finance can offer several advantages:

First, full traceability. Every stablecoin transfer is logged on-chain, creating an audit trail from investor to final recipient. This makes it much harder to misappropriate funds or obscure their use.

Second, faster capital deployment. In developing regions where banking infrastructure is slow or unreliable, stablecoin enables nearly instant, cross-border payments — getting funds to climate projects when they are needed most.

Third, lower transaction costs. By bypassing traditional intermediaries like correspondent banks and currency exchanges, stablecoin reduces friction and allows more money to reach projects on the ground.

Fourth, inclusive investment. Stablecoin allows fractional ownership of green assets. That means individuals — not just institutions — can participate in sustainable investing, even with small amounts of capital.

The combination of stablecoin and blockchain offers a new frontier for green finance — one defined by accountability, efficiency and trust. In a time when greenwashing threatens the credibility of the entire ESG movement, these technologies offer something rare — proof

In short, stablecoin democratizes and de-risks green finance, making it more efficient, inclusive, and accountable.

These technologies are no longer theoretical. In February 2023, the Hong Kong Special Administrative Region made headlines by issuing the world’s first tokenized government green bond. The HK$800 million ($101.9 million) offering was settled entirely through digital infrastructure. Investors subscribed using “cash tokens” — a stablecoin version of the Hong Kong dollar issued by the Hong Kong Monetary Authority (HKMA). Blockchain recorded every transaction immutably.

The result? Settlement was reduced to “T+1” (next day), with end-to-end transparency and legal recognition of digital records under Hong Kong law. Interest payments, bond transfers, and redemptions were handled through the blockchain, laying the groundwork for a seamless digital financial ecosystem.

In 2024, Hong Kong scaled this innovation with a HK$6 billion tokenized green bond, issued in multiple currencies and interoperable with global securities depositories like Euroclear. This broadened investor access and proved that digital green finance can scale globally.

More importantly, these bonds tied financial performance to environmental and social results. One pilot program integrated carbon credits directly into the bond’s coupon payments, so investors earned more if the funded project achieved verified emissions reductions or social benefits. This linkage between impact and return helps eliminate greenwashing at the root.

The HKSAR’s innovation fits within the broader context of the nation’s strategy. The Chinese mainland has actively promoted blockchain for use in areas like supply chain management and ESG verification, though it remains cautious about privately issued cryptocurrencies. The People’s Bank of China’s digital yuan reflects this cautious control.

Yet fintech giants like Ant Group are now looking to Hong Kong as a sandbox for experimenting with international blockchain finance — especially in sustainability. Hong Kong’s regulatory clarity, including its new stablecoin framework effective today, offers a bridge between the nation’s scale and global financial markets.

Together, the HKSAR’s tech-forward openness and the mainland’s policy strength position the Guangdong-Hong Kong-Macao Greater Bay Area as a leader in digital green finance.

Despite their potential, stablecoin and blockchain in green finance face real-world hurdles:

First, incomplete transparency. If funds are transferred off-chain midway through a project, opacity returns. Full-chain transparency may require industry standards or regulations mandating end-to-end digital tracking.

Second, regulatory uncertainty. Different countries have different rules around stablecoin and digital assets. A green bond using stablecoin settlements may cross multiple jurisdictions, creating compliance complexity. Harmonizing global standards is essential.

Third, technological integration. Many banks and agencies are not yet equipped to handle blockchain transactions. Interoperability between platforms remains a challenge, as does ensuring systems are secure from bugs or cyberattacks.

Fourth, data verification. Blockchain can’t tell if data entered is true — it only guarantees it’s not altered later. Reliable third-party verification, sensors, and oracles remain critical to prevent false ESG reporting.

Encouragingly, many of these obstacles are being addressed. Ethereum has shifted to proof-of-stake, slashing its energy usage. Projects like the Crypto Climate Accord aim for net-zero blockchain emissions. And new legal frameworks, like those in Hong Kong, are granting digital ledgers full legal status.

The urgency of the climate crisis demands that trillions of dollars flow into sustainable investments. But that funding must be trustworthy, or the public and investors will walk away.

Stablecoin and blockchain offer a rare opportunity to rebuild trust. They let us follow the money, verify impact, and ensure that “green” really means green. This not only deters greenwashing, but also unlocks capital from investors who were previously hesitant due to credibility concerns.

In this vision, financial flows become traceable like never before. Green bonds, ESG-linked loans, and carbon credits can be traded on platforms where every action is recorded, auditable, and tamper-proof. Financial performance is tied to environmental outcomes — and the public has proof, not promises.

To scale this vision, several actions are essential: Governments must create stablecoin regulations that encourage innovation while protecting against misuse; financial institutions must upgrade their systems and invest in blockchain literacy among employees; global bodies like the International Capital Market Association must develop shared standards for data reporting and impact verification; and new alliances may form to govern “green blockchain finance”, ensuring interoperability and common taxonomies.

Hong Kong’s experience shows that with the right legal and technological framework, these changes are possible — and profitable. What began as a 2023 pilot program has already expanded into an internationally respected template for digital green finance.

The combination of stablecoin and blockchain offers a new frontier for green finance — one defined by accountability, efficiency and trust. In a time when greenwashing threatens the credibility of the entire ESG movement, these technologies offer something rare — proof.

The author is director of research at the Institute of Innovative and High-Quality Development (Hong Kong).

The views do not necessarily reflect those of China Daily.