BBVA and Madrid’s government close the first blockchain-powered sustainable “Schuldschein” loan.
The deal, structured as per the German debt instrument, is worth €220 million, which will be allocated to sustainable projects. Blockchain technology was used to manage the negotiation of the deal, and both BBVA and Madrid’s regional government used their own nodes to establish a network between the two parties.
This loan, the first of its kind with a public sector administration, was prepared under the Region of Madrid’s Sustainable Financing Framework. The financing is earmarked to fund eligible projects: those projects that have a positive environmental and social impact for the residents of the region.
Digital loans (or D-loans) are a type of corporate bank financing (which could also come in the form of credit facilities) for which the price is linked to the company’s degree of digitization. The digital maturity level is determined annually by specialized independent consulting firms after a thorough analysis. If the company improves its level of digitization, the conditions of the bank financing also improve. By doing so, the company aligns its financial instruments with its corporate strategy, and has a financial incentive to improve its degree of digitization and accelerate its digital transformation over time.
This type of debt instrument is designed to foster transparency and finance sustainable development in the region of Madrid. To this end, Madrid’s regional government has produced a sustainable financing framework, which the leading ESG rating and research agency, Sustainalytics, assessed and deemed to be solid, trustworthy, and aligned with the Green Bond Principles. These Principles are standards that guide major financial institutions and other market participants in the selection and governance of projects that are aligned to environmental sustainability. BBVA was the structurer of this framework.
Furthermore, the deal enabled both parties to make progress with their digitization processes as they collaborated and shared their experience of using new technology. This deal is especially important having been negotiated using blockchain, a technology the bank is exploring given its obvious benefits. This technology facilitates access for all the participants involved in the transaction and reduces the negotiation time thanks to the digitization of the entire process. Additionally, the DLT (distributed ledger technology) network that was established between the two parties ensured traceability and immutability during the negotiations and in the resulting agreements.
The Region of Madrid is a BBVA strategic client. The bank is one of the leading finance groups with whom Madrid collaborates, both for its financing products as well as in the placement of different debt issues.
