By Alice Uribe


SYDNEY--A tokenized exchange, which allows carbon to be accessed as an investable asset through a digital marketplace such as blockchain, provides the best chance to create a global and efficient market, with Australia having the potential to be at the forefront of its development, Australia & New Zealand Banking Group Ltd. Chairman Paul O'Sullivan said.

Speaking at the launch of the Digital Finance Cooperative Research Center in Sydney on Monday night, Mr. O'Sullivan said that ANZ's ability to tokenize carbon credits but also operate a digital means of settlement via its stablecoin is an example of how the Australian major lender can participate in the transition and help accelerate it.

"It is a frontier opportunity and brings together the requirements of ESG with this carbon transition need, with the fact that the major banks in Australia, including ANZ, are trusted by consumers with their money," he said in an address at the launch.

The Reserve Bank of Australia, along with ANZ, is among 25 DFCRC partners from the finance, academia and regulatory sectors. The DFCRC is a 10-year, 180 million Australian dollar (US$124.3 million) research program aiming to develop opportunities arising from the digitization of assets that can be traded and exchanged directly and in real-time on digital platforms.

ANZ in March said it executed the first-ever Australian bank-issued Australian dollar stablecoin, known as A$DC, payment through a public permissionless blockchain transaction. A stablecoin is a cryptocurrency with a value linked to a commodity, currency or algorithm to manage supply.

While the first transaction was focused on the digital asset management space, it has now completed a follow-up transaction.

"The second has been squarely in the ESG realm, where we see enormous scope, which is around tokenizing our carbon credits," Mr. O'Sullivan said. Carbon credits are used by companies seeking to effectively offset their greenhouse-gas emissions.

Despite the opportunity for an emerging asset class of carbon credits to be tokenized and exchanged in a digital asset marketplace, with the market currently lacking liquidity rules and structure, challenges remain.

Australia's carbon market, Mr. O'Sullivan said, remains quite immature, marked by "uncertain, often fuzzy carbon credits with very clunky ways of transacting, and yet we're looking to move to a world which is enabled by digital tokens and decentralized finance."

Building confidence around the provenance of carbon offsets is one key challenge, according to Mr. O'Sullivan. For this reason, ANZ thinks that these challenges can be mitigated by "verifying and codifying project-specific credentials using nonfungible token, which addresses many of the concerns around greenwashing."

"For example, if I want to buy an Australian carbon credit unit then it can be coded into that, where it's come from, who is going to originate it and when I'm going to see the end results," he said.


Write to Alice Uribe at alice.uribe@wsj.com


(END) Dow Jones Newswires

08-29-22 2315ET