Web3 Could Revolutionize Climate Finance

Grassroots crypto initiatives can close the "climate funding gap," incentivize a new generation of climate projects and help finance the optimistic ideas for fighting climate governments and institutions have not.

AccessTimeIconJul 24, 2023 at 7:13 p.m. UTC
Updated Jul 24, 2023 at 7:39 p.m. UTC
AccessTimeIconJul 24, 2023 at 7:13 p.m. UTCUpdated Jul 24, 2023 at 7:39 p.m. UTC
AccessTimeIconJul 24, 2023 at 7:13 p.m. UTCUpdated Jul 24, 2023 at 7:39 p.m. UTC

As extreme weather events continue to increase in frequency as a result of rising temperatures, Web3 stands ready to address one of the biggest issues impacting the global fight against climate change: the climate funding gap.

In 2009, delegates at the 15th United Nations Climate Change Conference (COP 15) pledged to reach a target of $100 billion in annual climate financing for developing countries by 2020. Nearly a decade and a half later, the amount of actual funding is estimated to be between $21 billion and $83.3 billion – a fraction of the now-estimated $1 trillion needed annually.

Elizabeth Tan is the founder of Intent Capital Group, a financial services firm focused on impact investing, development financing and green funds. She is also the founder and managing partner of Intent Fund, and a Web3 investor and strategy adviser.

Of the financing that is provided, the vast majority comes from governments and institutions in developed countries, some of which use climate financing as a means to greenwash their thinly veiled support for resource exploitation. The result is financing terms dictated by the donor countries and few financing alternatives for developing countries.

The good news is that Web3 can help close the funding gap – and may even allow citizen activists to wrest control of climate finance away from governments and institutions. It can get trillions in retail capital into the space, incentivize a new generation of climate projects and give developing countries alternative funding options.

Onboarding retail capital

A major part of the problem is that climate finance has long been the domain of governments and institutional investors. Retail investors are simply not allowed to participate, despite their $8.2 trillion in untouched “investable retail wealth.”

Evidence suggests that most retail investors would take a lower return in exchange for significant environmental impact. It’s a clear signal that they want to be part of the fight against climate change and invest their money into projects they believe will have a big environmental impact.

Web3 can make that happen. In regulated jurisdictions, it can enable the creation of new financial instruments specifically designed for retail investors. This includes the tokenization of existing climate assets, fractionalization of big-ticket instruments like green bonds and creation of special-purpose decentralized autonomous organizations (DAOs). Web3 also provides a method of low-cost and accessible value transfer through fiat-backed stablecoins.

Retail investors can also participate in transparent crowdfunding campaigns through licensed Web3 launchpads and launch pools. While this was theoretically possible before through platforms such as Kickstarter, Web3 platforms have the crucial advantage of being part of an interconnected system in which most components are put on a blockchain – from project evaluation and escrow to carbon credit issuance and stablecoin disbursements to investors.

Onboarding retail investors into Web3 so that they can leverage these tools remains a challenge, however. And while it will take time and effort for Web3-powered climate investments to become mainstream, there are tens of millions of retail investors already in Web3 and working towards creating a better world. This segment has more than enough capital to invest in new projects and climate assets.

A new generation of grassroots climate projects

Demand for carbon and renewable energy credits is steadily growing. McKinsey suggests that it could increase by a factor of 100 by 2050. Supply, in contrast, has struggled to keep pace. The reason: non-tech climate projects, like reforestation and preservation, struggle to raise the upfront investment needed to get started and then scale.

In Asia, institutional investors have demonstrated their preference for scalability, opting for consumer startups like fast-coffee chains and fintech startups. Climate tech has fared well in the venture funding space, but these are seen as high-risk long-term bets that may never pan out. Non-tech climate projects, in contrast, just don’t offer the returns that VCs have become accustomed to.

Web3 has proven its worth as a fundraising platform. Launchpads, special-purpose DAOs and other mechanisms such as quadratic funding have helped raise billions of dollars to get Web3 projects off the ground.

The same can be used for climate and other regenerative projects. Not only would this open up access to retail investors, but institutional investors may find returns that are more in line with their expectations. With these kinds of opportunities in place, there will be a much greater financial incentive to start climate projects.

Giving at-risk countries alternative climate financing options

Debt distress and climate change are mutually existential. When developed countries loan money to developing countries to fight a problem that they themselves caused, it perpetuates a vicious cycle in which the debtors need to continuously borrow to both service crippling debt obligations and deal with the impact of climate change. This isn’t a sustainable path forward.

Web3 funding solutions offer hope. Developing countries tend to be rich in climate assets. Resources such as forests, mangroves, coral reefs and sunlight have significant untapped value. Through their environment and natural resource ministries or agencies, governments can leverage Web3 fundraising platforms such as green bond protocols to help finance projects that generate on-chain carbon and renewable energy credits that can then be sold to governments, companies and individuals with net-zero aspirations. Consider it a form of sustainable wealth transfer in which both sides benefit.

These are the kinds of solutions we need if we’re going to reach $1 trillion in annual climate financing, let alone $100 billion. Grand gestures by governments and institutions, while good for headlines, make very little difference on the ground. Web3 stands poised to be the catalyst that unlocks access to retail capital, spawns and scales a new generation of grassroots climate projects, and finally gives at-risk countries a chance to leverage their climate assets.

The bottom line is that we – investors, governments, companies and individuals – need to look seriously at how Web3 can change climate finance for the better. If we don’t, we will continue in our role as the perpetrators of our own demise.

Edited by Daniel Kuhn.


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Elizabeth Tan

Elizabeth Tan is the head of impact and sustainability at Enjinstarter, a Web3 launchpad and advisory company, and founding partner of Intent Fund. She also founded Intent Capital Group, a financial services firm focused on alternative assets in impact investing, development financing and green funds. She is an active Web3 investor and adviser.