Tokenized ESG Assets: Making Sustainability Investable

Blockchain adoption is steadily growing, with a notable increase this year as retail, institutions, and enterprises recognize and leverage the technology’s enhanced efficiency, increased transparency, and improved security.

One of the critical trends driving this adoption is real-world assets (RWA) being increasingly put on-chain.

Interestingly, just this week, the US government announced that it is bringing even the nation’s gross domestic product (GDP) on blockchain, creating another avenue for publishing economic data. The government has already begun distributing the key economic data on several public blockchains. For this, blockchain oracle providers Pyth and Chainlink have been selected to provide related data feeds.

“We are making America’s economic truth immutable and globally accessible like never before, cementing our role as the blockchain capital of the world,” said Secretary of Commerce Howard Lutnick in a statement.

Proposals to publish public spending data and other macroeconomic numbers on-chain are currently being formed in the UK, the Philippines, and El Salvador.

While that’s a relatively recent development, a wide range of assets, including art, stocks, commodities, treasuries, bonds, private credit, institutional funds, fiat-backed stablecoins, and real estate, have already been tokenized. Tokenization efforts are now also extending into ESG-linked instruments, further broadening the landscape.

ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate the sustainability efforts of a company and its ethical impact. 

It comprises three key areas. One is environmental factors, such as resource use, pollution, carbon emissions, climate change effects, and renewable energy. Then, there are social factors such as labor practices, diversity, and community relations. Finally, governance factors relate to a company’s leadership, ethics, accountability, shareholder rights, executive compensation, and political contributions.

Using these three principles, investors and stakeholders screen investments. Meanwhile, companies publish their ESG reports to demonstrate their commitment to long-term value creation and responsible operations.

A public survey of listed companies reports strong ESG adoption, with 88% of them having ESG initiatives in place.

Taking advantage of this traction, blockchain companies are tokenizing ESG to enhance transparency, improve traceability of sustainability efforts, and create new financial instruments for investors to allocate capital more efficiently toward sustainable projects.

Preventing Emissions at Scale by Tokenizing Environmental Assets

The most recent ESG-aligned tokenization efforts aim to prevent emissions that are more than a hundred times the yearly CO2 emissions of Iceland. 

This initiative is being undertaken by tokenization infrastructure firm Blubird and wealth management firm Arx Veritas, which are utilizing blockchain technology to prevent approximately 400 million tons of carbon dioxide emissions, marking a record for the tokenization industry.

With an aim to set a “new standard” for the tracking as well as financing of sustainability efforts, the two platforms have already tokenized a massive $32 bln worth of ERAs. ERAs or Emission Reduction Assets involve projects like capping oil wells or inactive coal mines that prevent the release of CO2 and GHG into the atmosphere. 

The $32 bln worth of ERAs are being tokenized on Blubird’s Redbelly Network, which uses Democratic Byzantine Fault Tolerant (DBFT) consensus algorithm for security, processes transactions with instant finality, and verifies users with digital identities and zero-knowledge proofs (ZKP).

Late last year, the platform partnered with CarbonHood to tokenize 950 million tons of carbon credits, valued at $70 billion, and issue them directly from a global digital asset registry.

As Blubird’s Founder and CEO, Corey Billington, shared at the time, the company’s goal is to “bring up to $2 trillion in assets on-chain by the end of 2025.”

Working towards this mission, they are collaborating with Arx Veritas to tokenize assets that include capped oil wells and coal mines. Together, they represent over 394 million tons of prevented CO2 emissions.

There are two main sources that are responsible for this much emission, and that’s the extraction, processing, shipping, and burning of coal, and the pollutants from abandoned oil wells. Three hundred ninety-four million tons of CO2 emissions from these two sources are equivalent to almost 395 million round-trip flights from New York to London or 986 billion miles driven by an average passenger car.

These, however, are prevented by Arx Veritas and Blubird, marking one of the biggest tokenization endeavors aligned with the ESG framework. 

In an announcement made by Blubird this week, the firm sees “strong institutional demand for the tokenization of ESG-aligned assets, with more than half a billion dollars’ worth of transactions under negotiation and a major institutional purchase nearing completion.”

Billington believes the growing institutional demand for tokenized assets has the potential to bring trillions of dollars to the blockchain in the coming years, “as institutions chase new liquidity, efficiency, and global access.”

The platform, he noted, already has over $18 billion in active deals lined up, and “we’re just getting started.”

Blubird is actually looking at about 230 million tons of CO2 prevented emissions, equivalent to that additional $18 billion pipeline. This also includes asset classes like commodities, financial instruments, and infrastructure assets.

Combined with the existing $32 billion in tokenized ERAs, the firm’s estimated total environmental impact will be about 600 million tons of prevented CO2 emissions.

Amidst these efforts, the platform launched its native token $BLU this month to provide access to premium features within its platform, including early access to select seed and private rounds, increased project exposure, and promotional space to reach targeted investor audiences. 

$BLU holders can also stake their tokens to unlock service discounts, participate in surveys, and gain access to exclusive features.

With the $BLU token, the idea is to support Blubird’s mission to accelerate the global adoption of RWA tokenization by delivering end-to-end infrastructure without the technical, compliance, and capital-raising barriers for not just investors but also enterprises and institutions.

According to Billington, the ongoing shift towards tokenization is “inevitable,” with Blubird aiming to put another multi-billion-dollar worth of assets on-chain by next year, to strengthen its position in the RWA industry.

How ESG Tokenization Works

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RWA or real-world asset tokenization refers to turning tangible assets into digital tokens by minting them on the immutable blockchain ledger, allowing those assets to be bought, sold, and traded 24/7.

When it comes to the technology forming the foundation of asset tokenization, blockchain and self-executing smart contracts play a key role in turning real-world assets into tokens. 

Additionally, oracles help provide accurate information from creation, valuation, and collateralization to the trading of the assets being tokenized. They basically provide offchain information on-chain.

With this digital upgrade, assets enjoy the benefits of shared ownership, round-the-clock liquidity, and increased accessibility.

These decentralized alternatives to real-world physical products also address the inefficiencies of traditional markets like high fees and long settlement times by removing intermediaries, making the process cheaper, faster, and more seamless.

Not to mention, tokenization increases transparency by recording data such as ownership and transaction history on the immutable blockchain, providing a censorship-resistant record of accounts to enhance accountability and reduce the risk of fraud. Smart contracts, meanwhile, enable greater automation.

Despite presenting so many opportunities, tokenization also faces challenges in terms of regulatory uncertainty, smart contract vulnerabilities, compromised oracles, and unstable infrastructure.

Still, tokenization has come a long way in the past decade. Regulatory clarity and technological advancements have helped tokenized assets become more accessible, liquid, and secure. 

In fact, the asset tokenization market has been estimated to reach a whopping $16 trillion by the end of this decade.

Another major factor that is helping shape the sector and can take it to these new heights is the rising institutional support. Today, major financial institutions like Fidelity, BlackRock (BLK -0.45%), Franklin Templeton, Goldman Sachs (GS -0.46%), JPMorgan (JPM -2.33%), and Deutsche Bank are actively exploring and testing tokenization of a wide variety of assets, pointing to a growing trend of the financial industry’s digital transformation.

In October last year, payment processing giant Visa (V +0.33%) also launched its new Visa Tokenized Asset Platform (VTAP), which allows for issuing and managing stablecoins, CBDCs, and other digital assets. The platform will primarily serve banks, offering them a comprehensive infrastructure to mint, transfer, and settle digital assets securely across public and permissioned blockchains.

Now, when tokenization is applied to ESG initiatives, it aims to transform just how sustainable projects are financed and managed.

Much like any other asset, tokenization of ESG assets offers a more efficient, transparent, and scalable way to issue and trade sustainable investments. With ESG investing lacking liquidity, tokenization can address that problem by fractionalizing assets, making them not only easier to trade but also opening them up to a new, broader, and global investor base.

This way, even retail investors can get a chance to participate in large-scale ESG projects, which have been traditionally accessible only to big names with deep pockets, democratizing sustainable investment.

By leveraging smart contracts, ESG tokenization can also help create a more efficient and seamless investment experience.

Companies’ sustainability claims can further be verified with the real-time record of ESG impact available for anyone to see on blockchain. This can help attract investors who truly support the cause and are interested in making a difference while allowing the companies to build trust and reputation with a broad audience. 

Now, there are a lot of different sustainable assets that can be tokenized. 

For starters, tokenizing carbon credits means simplifying the complexities of traditional carbon markets while providing verified offsets. Turning green bonds into digital tokens, meanwhile, streamlines the issuance and administrative process, automates the bond’s lifecycle, and drives capital toward environmentally beneficial projects.

Renewable energy projects can also be put on blockchain to provide everyone access to clean energy investments. 

Companies can even tokenize the intellectual property (IP) and licensing agreements for their sustainable technology to protect their rights and IP value. Besides using the blockchain for structured investment and capital raising, they can utilize smart contracts to embed conditions like automated royalty payments, revenue splits, and licensing terms, thus enforcing compliance without manual intervention.

So, with ESG adoption strong among companies and the global market size projected to be worth $46.5 trillion by 2034, its tokenization trend stands poised for significant growth. Already, several major initiatives have taken place to help the trend grow and change the world.

The Global Push Towards ESG Tokenization

Now, let’s take a look at some of these prominent real-world initiatives where blockchain tokenization is driving ESG impact across the world.

Pioneering ESG Bonds and Emissions Tracking

While interest in ESG tokenization is fast-growing, it actually began many years ago. Back in 2023, Ernst & Young (EY) launched its very own EY OpsChain ESG to provide a single, verifiable view of CO2 emissions for businesses. The belief behind this was “that blockchains are the glue that can link business processes and global ecosystems across enterprise boundaries.”

Meanwhile, a year before that, French multinational universal bank BNP Paribas and local power utility company EDF’s subsidiary EDF ENR issued an ESG tokenised bond through the former’s digital assets platform AssetFoundry. 

The project showed dual use-cases: the issuance of the solar energy project bond as a native digital asset and its reversibility to prove that the bond value is secured over its entire life.

JPMorgan’s Carbon Credit Tokenization

Earlier last month, banking giant JPMorgan announced that Kinexys, its blockchain business unit that has processed over $1.5 trillion in transactions in the three years since it first began serving clients, is in the process of developing a new blockchain application to tokenize global carbon credits to address standardization, fragmentation, and transparency challenges restraining the voluntary carbon market (VCM).

To test its viability, the bank is collaborating with EcoRegistry, the International Carbon Registry (ICR), and S&P Global Commodity Insights.

VCM, according to Alastair Northway, Head of Natural Resource Advisory at J.P. Morgan Payments, “is ripe for innovation. Tokenization could support development of a globally interoperable system that adds confidence in the integrity of the underlying infrastructure.”

The idea is to help realize the promise of tokenization and the transformation of VCM from the ground up.

JPMorgan also has a Tokenized Collateral Network (TCN), which allows one to tokenize their MMF shares and collateralize them.

Mizuho’s Renewable Energy Fund & NUS’s Green Bonds

Earlier this year, Japan’s investment bank Mizuho Securities collaborated with Blue Sky Solar to launch the nation’s first tokenized private equity fund for renewable energy. The fund has acquired eight solar facilities with a capacity of 9.5 MW that can power 9,000 homes. The assets in the venture are overseen by Blue Sky Asset Management.

The tokens are issued on iBet for Fin, a tokenization platform built by BOOSTRY, which reported the cumulative issuance of public STOs in Japan surpassing JPY160 billion in 2024. Transferability of tokens requires the holder to request the issuer’s approval.

“This initiative showcases the potential of tokenization in revolutionizing infrastructure investments.”

– Mizuho

Meanwhile, in Singapore, the country’s first educational establishment is utilizing blockchain tech for green bonds. The National University of Singapore (NUS) is working with asset manager Northern Trust, which will use its digital assets platform, Northern Trust Matrix Zenith, to mint the token, which will hold environmental impact data from NUS’s third green bond issued in 2023.

“By creating a token that enhances the integrity and transparency of our environmental data, we aim to provide greater confidence to investors, helping them meet their own sustainability reporting goals.”

– Mr. Tan Kian Woo, CFO at NUS

Davis’ ESG Commodity Tokenization & Bitcoin Treasury

Singapore-based agricultural trading firm, Davis Commodities Limited, is deeply involved in crypto and tokenization.

Recently, the company announced that it is looking into a tokenized ESG commodity infrastructure and using Bitcoin (BTC -1.08%) as a corporate treasury asset. Davis is taking a novel approach to BTC with its Fractal Bitcoin Reserve (FBR) framework, which proposes a hybrid treasury backed by Bitcoin, stablecoins, and tokenized instruments. Currently, under review, preliminary internal models suggest FBR may improve the efficiency of capital deployment by as much as 40%.

As for the tokenization of agricultural products, it will begin with ISCC-certified rice and Bonsucro-certified sugar, offering traceable instruments for institutional investors that are ESG compliant. This will allow Davis to tap into the billion-dollar agri-investment market, bring down trade financing cycle times by about 60%, and enable secondary markets for certified commodity exposure.

According to Ms. Li Peng Leck, Executive Chairwoman of Davis Commodities:

“We believe the convergence of Bitcoin treasury models, tokenized real-world assets, and ESG-driven capital formation is creating a rare window for innovation. While still early in our exploration, we are committed to understanding how programmable digital reserves and certified commodity tokens can transform our role in global agri-trade finance.”

In addition to it all, the company is exploring real yield tokenization (RYT) to enhance its finance strategy and promote ESG-aligned capital flows.

Scaling ESG Funds and Industrial Projects

Ant Digital is yet another one that’s been exploring tokenizations. The technology arm of Ant Group, an affiliate company of the Chinese conglomerate Alibaba Group, which owns the world’s largest digital payment platform Alipay, partnered with L1 blockchain Sui to tokenize Chinese solar material manufacturers.

As part of the growing RWA tokenization sector, R3 Sustainability has also partnered with regulated digital assets platform Chintai to launch a $795 million tokenized ESG fund. 

The fund includes four major programs:

• $300 million for a resource efficiency program
• $180 million fund for a reverse osmosis desalination plant
• $165 million early-stage development fund for industrial projects
• $150 million energy-efficient remote workforce housing program.

The Future of ESG Tokenization

RWA tokenization is rapidly gaining traction among institutions, already surpassing $28 bln. While tokenization is primarily revolutionizing traditional finance, that’s not the only one. By putting ESG assets on-chain, tokenization is also making sustainability measurable, transparent, and investable.

With trillions of dollars in potential assets waiting to go on-chain, blockchain is becoming a key enabler of the global sustainability transition, helping ESG’s future be programmable, verifiable, and widely accessible.

Click here for a list of the top ten real-world asset tokenization platforms.