"Investing in sustainable outcomes is critical to reach the 2030 SDGs, not just in large-scale clean technology and energy infrastructure, but also in ground-level community projects, where microbusinesses are the heartbeat of the economy and supporting the future sustainability of their environments". Foto: Pexels.

Security Tokens are here, Next Up Sustainability Tokens

BLOG: Blockchain regulations for securities are emerging in more and more countries. This movement will help to unlock trillions of dollars in sleeping savings to cash starved small and medium size companies. It’s also the first step to use tokens as a tool to deliver on the policy goals of the Paris Agreement and the Sustainable Development Goals.

BitBond, the German peer to peer lending platform encouraging investors to take a stake in SMEs, has been authorised by the German BaFin to issue the first German Security Token Offering (STO), which went on sale on 11th of March 2019.

The STO is based on the Stellar blockchain, offering a fixed 4% return, with an additional variable coupon each year, maturing after 10 years.

This means that global investors can now easily participate in directly benefiting small businesses, who lack access to credit and investment through traditional mechanisms.

The emergence of STOs paves the way for tokens as a new tool to deliver on sustainability.

STOs are fully regulated securities, protecting investors from the well-documented risks of ICOs (Initial Coin Offerings) made popular in the rush of 2017/18.

The emergence of STOs paves the way for tokens as a new tool to deliver on sustainability.

Here we dive into two ways this can happen – first, by channelling capital to female-led businesses in developing countries and secondly, by giving small businesses a new tool to finance the transition of products and production towards sustainability.

A Wake Up Call for Sleeping Capital

Security Tokens are the next step in releasing sleeping savings and capital into companies which traditionally can’t get their hands on growth capital.

Global savings today are at US$7 trillion annually; releasing some of this capital will help fuel growth of sustainable SMEs and thereby create jobs.

Many of these savings are sleeping to zero interest rate in banks, but now there is a new option. Prior to these new regulations the risks of investing in token offerings were too high, but no longer.

Channel capital to Developing Countries

Small businesses are at the back of the queue when it comes to bank lending and in many economies, most lack access to formal banking.

Investors have traditionally ignored this market, except for a tiny sector of high-growth companies favoured by Venture Capitalists, as the administration cost and risk make investing in small businesses difficult.

Opening up this market to greater investment opportunity brings access to a growth market of small businesses, that today is responsible for over half the world’s employment and generating over half of the world’s GDP, but today receiving less than 3% of the investment and lending available to large corporations and governments through debt and equity markets.

Many of these businesses, a significant number led by women, are in developing economies, where entrepreneurs are twice as likely to build businesses than in developed economies.

Sustainable STOs for growth and impact

These entrepreneurs may be building businesses out of necessity, due to weak formal economies, but show resilience and growth potential despite a lack of opportunity and often lack of access to basic services.

Releasing additional capital to these business communities can result in not just better outcomes for individual businesses, but for the whole community, where micro entrepreneurs may be supporting over ten individuals and are known to collaborate on community projects such as health, education, infrastructure and energy when funds become available.

Many of these businesses, a significant number led by women, are in developing economies, where entrepreneurs are twice as likely to build businesses than in developed economies.

These business communities in developing economies are likely to form collectives and more formal groupings, initially without formal digital records.

But with the growth of digital communications, rapid adoption of mobile technology and the increasing availability of digital solutions for mobile money and microfinance, it’s now possible to tap into these communities, and for investors to realise a range of investments in hundreds of millions of potential target businesses, using investment vehicles such as sustainable STOs.

Investing in Transition

Legal clarity around security tokens is a step towards innovating and modernising capital market instruments that lowers the costs of fundraising for small businesses.

It opens up access to capital that allows small businesses to reap the benefits of sustainability. Companies make more money when they invest in sustainability.

Consumers want to buy products from companies that use socially responsible business practices. Small businesses are lagging behind large corporates in transitioning to sustainable operations and products for two obvious reasons: 1) time and 2) money.

Small companies lag behind large ones on sustainability. But small businesses, that manage to comply with sustainability standards, finds it easier to enter global value chains. According to one piece of research produce exporters in sub-Saharan Africa earned €2.6 million more than they would have if they hadn’t met these standards.

With clear regulation of Security Tokens, an avenue is open for small businesses or collaboratives of small businesses to issue Sustainable Token Offerings – a token where the funds are used to invest in transitioning the business by allowing it to e.g. invest in energy upgrades that comes with quick paybacks.

A Sustainability Token will usually be tied to delivering on sustainability standards but can also be used for early stage fundraising of teams that wants to present sustainable products to the market and regulation can give specific advantages such as tax deductions to people choosing to invest in Sustainability Tokens.

Next Up Sustainability Tokens

After many years of predictions, technology is now meeting the required regulatory frameworks to build investment products such as the BitBond STO.

The time has come for sustainable STOs to build the growth economy for micro-businesses and sustainable communities.

The same technology that allows for this democratisation of investment in small businesses, removing traditional barriers to investment but allowing unprecedented traceability and auditability, enables investors to track sustainable outcomes of projects and businesses.

Investing in sustainable outcomes is critical to reach the 2030 SDGs, not just in large-scale clean technology and energy infrastructure, but also in ground-level community projects, where microbusinesses are the heartbeat of the economy and supporting the future sustainability of their environments.

The time has come for sustainable STOs to build the growth economy for micro-businesses and sustainable communities.