Building Blocks of a Green Fintech System – Towards an Regulatory Antidote to Greenwashing

17 Pages Posted: 25 Jul 2022

See all articles by Dirk A. Zetzsche

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; European Banking Institute

Linn Anker-Sørensen

Ernst & Young Norway; University of Oslo - Faculty of Law

Date Written: July 14, 2022

Abstract

Green FinTech is one of the latest buzzwords in finance, yet little is known about how the use of FinTech may support the transformation of the world’s economies towards sustainability.

Assuming that information asymmetry paired with agency conflicts present the core issues of sustainable finance – as both together lead to ‘greenwashing’ and a ‘green asset bubble’ in the sense that investors overpay in relation to the true sustainability impact of a given asset – the paper analyzes how Green FinTech can be utilized for sustainability objectives, and details what law can do to further Green FinTech.

Borrowing other use cases from distributed ledger technologies, we showcase the use of tokenization for the inseparable pairing of cash flow data with sustainability data in a given token. Such token may then inform about the sustainability profile of the cash flow rights to which it is linked. This information flow may be relied upon by all financial and informational intermediaries across the financial services value chain, from the issuer (where tokenization takes places) to the end investor. If tokenization is paired with appropriate regulation, Green FinTech could contribute to addressing the main problem of sustainable finance, namely greenwashing.

For Green FinTech to become effective against greenwashing, the law must provide for standardized data points (and technologists need to develop the formats for such) for pairing sustainability and cash flow data, ensure reliability, responsibility and accountability of token originators for all sustainability data embedded in the token, and allow for the smooth flow through processing of the data embedded in the tokens.

Keywords: Sustainable Finance, Green FinTech, Tokenization, Decentralized Finance, Distributed Ledger Technologies, RegTech.

JEL Classification: K22, K23, O16, O33

Suggested Citation

Zetzsche, Dirk Andreas and Anker-Sørensen, Linn, Building Blocks of a Green Fintech System – Towards an Regulatory Antidote to Greenwashing (July 14, 2022). Available at SSRN: https://ssrn.com/abstract=4163002 or http://dx.doi.org/10.2139/ssrn.4163002

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

European Banking Institute ( email )

Frankfurt
Germany

Linn Anker-Sørensen

Ernst & Young Norway ( email )

Oslo
Norway

University of Oslo - Faculty of Law ( email )

PO Box 6706 St Olavsplass
Oslo, 0130
Norway

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