Tokenisation can accelerate sustainability objectives: Northern Trust

Project Acacia identified significant economic growth opportunities with tokenised financial infrastructure in Australia, but the initiative extends further for those that are currently looking for more efficient ways to offset their carbon footprints.

Speaking to FS Sustainability, Northern Trust head of digital assets innovation for Asia Pacific Alvin Chia said the carbon credit use case presented in the project depicted a huge opportunity for the local market should tokenisation become more mainstream.

Explaining, Chia said when acquiring carbon credits, the lack of transparency and robustness via the current model is far from efficient and creates a void for fraudulent activities.

"We observed that the voluntary carbon market has historically been dependent on fragmented record keeping, ranging from private databases to, in some instances, manual processes. That creates operational inefficiencies and increases the risk of duplicate claims when governance is weak," Chia said.

"What we can promise is the immutability of the data on our blockchain. Every change is time-stamped, traceable and attributed, giving market participants a transparent view of an asset's lifecycle while strengthening governance and reducing risk.

"Market participants can access key information about a credit in real-time, providing great visibility into provenance, ownership and transaction history. That level of transparency is the core of our value proposition to enable greater institutional participation."

Although Chia predicts only around 10% of Northern Trust's assets under custody will be some form of digital assets by 2035, the digital market adoption will only continue to grow.

"Investors are focusing on some of the more topical areas like AI, but when they start to realise there is a lot going on in digital assets that pique their interest, their engagement increases," Chia explained.

"I'm sure this technology will garner significant interest from the secondary market as well. We are excited to see that come to life."

He also highlighted the push for tokenisation of carbon credits can help bring forth the ESG agenda and help develop a more sustainable society and is currently being realised among the more innovative jurisdictions, stressing that Australia should advance with the technology swiftly if they do not want to be left behind.

"One of the markets that we have seen the active tokenisation of assets includes Hong Kong, where the government have issued multiple tranches of green bonds on chain, and that has been very well received by the local stakeholders. We believe that the bond markets will be the one that will quickly move on chain in the future," he added.

"In Australia, we want to help educate the market in different ways, so when a transaction happens, we can handle them in the best way possible. If the Australian market evolves, allowing tokenised securities trading in the future, we will be there to support them."