Australia’s big banks play a huge role in the carbon transition, with digital finance seen as an enabler of sustainability.
Speaking at the launch of the Digital Finance Cooperative Research Centre on Monday, ANZ chair Paul O’Sullivan underlined the important role banks like ANZ play in helping the community understand the challenges of the carbon transition.
Moreover, Mr O’Sullivan explained, ANZ and its peers have a responsibility to work with the public sector and industries to develop products to support the transition process, while also training their own staff and developing their own decarbonisation processes.
“Our ability to tokenise carbon credits and offer a digital means of settlement with our stablecoin is a great example of how we think we can participate in that transition and help accelerate it,” Mr O’Sullivan said.
“It is a frontier opportunity and it brings together the requirements of ESG along with this carbon transition need and with the fact that the major banks in Australia, including ANZ, are trusted by consumers and by businesses with their money.”
ANZ became the first bank to issue an Australian dollar stablecoin earlier this year. The A$DC stablecoin, which is pegged to the Australian dollar, was used to purchase BCAU carbon tokens from Zerocap back in June.
On this milestone transaction, Mr O’Sullivan explained that ANZ sees enormous scope in the ESG realm, especially in relation to the tokenisation of carbon credits.
“As a bank, we see ESG as a huge issue. I probably spend the first 20 minutes of every investor meeting answering questions on ESG and there are some important reasons for that,” he said.
“First of all, climate change is an existential threat to our community and therefore, it’s a key issue for our customers and for the wellbeing of the community that we rely on in order to thrive,” Mr O’Sullivan noted, while highlighting the “huge business opportunity” climate change presents to everyone working in financial services.
“The number I like to quote is that they estimate that at least $125 trillion will be spent globally on the transition to a low carbon economy, with the bulk of that interestingly spent here in the Asia-Pacific region.”
Tokenised carbon exchange to boost market maturity
But carbon markets, a key component of the low-carbon transition, are still quite immature, particularly in Australia, Mr O’Sullivan cautioned.
In fact, their status at present is being compared to the transition from analogue to digital banking.
“We’re in that space today where we’ve got really uncertain, often fuzzy carbon credits with fairly clunky ways of transacting, and yet we’re looking to move to a world which is enabled by digital tokens and decentralised finance,” he said.
According to Mr O’Sullivan, the carbon market currently lacks liquidity, rules and clear market structures, with questions also surrounding the most suitable infrastructure for the market.
In his eyes, a tokenised exchange, which would enable access to carbon as an investable asset through a digital marketplace, could ensure an efficient and global carbon market.
“Digital finance can very much address the issue around what’s the right market infrastructure for that sort of marketplace by leveraging the benefits of tokenisation and distributed networks,” Mr O’Sullivan said.
“Since the sustainability markets are immature, the adoption of a highly efficient and secure infrastructure, we believe, will accelerate the scaling and credibility of these marketplaces.”
Speaking about ways to mitigate challenges related to confidence around carbon offsets, particularly around their authenticity, Mr O’Sullivan said project-specific credentials could be verified and codified through the use of non-fungible tokens (NFTs).
He indicated that this would also help to address many concerns related to greenwashing, which has emerged as a significant issue for regulators such as ASIC.
Digital currency not for every market
Finally, while acknowledging the impact digital currencies and distributed finance have globally, Mr O’Sullivan suggested that a central bank digital currency (CBDC) may not necessarily be appropriate in the local context.
“Australia already has a mature, innovative, reliable and, indeed, digital payments and broader financial system and by and large the system and its governance works,” he said.
“Obviously, we need to keep reviewing it and make sure we don’t let any gaps emerge, but it is the case that even though we may have seen some extraordinary innovation, it may not necessarily belong here.
“Indeed, when we look at central bank digital currencies, and the RBA has made this point, the question is not whether they are exciting or possible or transformative, but actually whether there is a need in Australia and, if so, what is that need.”
At the time, the RBA stated that, while it and other central banks had undertaken considerable research on the feasibility and technical design of a CBDC, less attention had been given to the potential use cases and economic benefits.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.