Leveraging Blockchain Technology for Innovative Climate Finance Under the Green Climate Fund

The rapid development of nascent technologies such as blockchain and distributed ledger-based systems holds transformative potential for the financial sector. Applications of these novel technologies include financial transactions, asset management through smart contracts, as well as peer-to-peer exchange networks. International climate finance, aimed at supporting developing countries’ responses to climate change, stands to benefit in particular ways from the new possibilities in financial technology. Distributed ledger-based systems offer promising solutions for common issues in international climate finance, such as ensuring accountability and local-level impact. Yet, distributed ledger-based systems may be at odds with established institutional structures and operational principles, and their technical limitations need to be considered. Based on a range of plausible use cases for innovative mitigation and adaptation finance, we explore how the targeted application of distributed ledger technology may foster effective and transparent climate finance under the Green Climate Fund. We then discuss key political and technical challenges that may arise, for example regarding scalability, standards and safeguards, country ownership, and further capitalization. We conclude our investigation by identifying priority action tracks for innovative mitigation and adaptation finance based on existing use cases of distributed ledger technology.