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Validation

Diana edited this page Jan 21, 2019 · 10 revisions

For Issuers seeking advice on how to create validation reports please visit the Issuer Guide

What does Validation refer to in the Green Assets Wallet?

Validation in the Green Assets Wallet refers to the process by which the Issuer provides proof of delivery on commitments. The commitments refer to promises made to investors about the use of proceeds raised via green debt instruments, and are typically found in the Green Bond Framework or equivalent document.

What is Validation?

Validation objects can be traditional (such as certification document or audit report) to automated technical solutions (such as remote sensing footage).

Who or what validates?

Validation can be delivered either by the issuer or by a third party, the issuer decides what best serves their investment offering to the market. A third party validator can be an actor (certification agency, auditing firm) or in the future; a device (such as remote sensing, sim card).

How does Validation happen in the Green Assets Wallet?

The validation process can be separated into a few distinct steps:

  1. Validation commitments are defined: When registering a Green Bond Framework and related green bond(s) in the Green Assets Wallet and/or when registering a project, the Issuer defines a set of green commitments (based on criteria in the green bond framework and/or other important guiding principles) which it intends to follow-up and provide proof of delivery upon to investors. For example: “Installing solar power plants in a specific location.” These commitments are stored on the blockchain.

  2. Process for validation of delivery on commitments is defined: When registering concrete projects on the Green Assets Wallet, the Issuer defines which green commitments are applicable to the project and how it intends to show, i.e. “validate”, delivery on these commitments. This includes defining what type of proof (for example, a report, a satellite photo, etc) will be provided, and what entity will provide the proof (either a third party, or the issuer). These promises of data to be provided are stored on the blockchain and visible to investors. The ambition of the Green Assets Wallet is to cut costs for issuers by introducing technology into the validation, one example, “solar panels will be validated through remote sensing”.

  3. Validation of delivery on commitment is met: The pre-defined proof is submitted by the authorised entity, i.e. either the issuer or a third party validator. The data object is stored on the blockchain and visible to investors. For example, a satellite footage of solar panels.

What’s the role of the blockchain in Validation here?

The blockchain provides the trustworthy storage of data and therefore mediation of the relationship and transfer of information between the Issuer and the Investor.

How can I as an investor trust that the Validation is accurate?

Investors are presented with a transparent means of verification of green debt deliveries. It is up to the investor to assess the trustworthiness of the validation. Validators may in turn register GAW accounts and demonstrate their trustworthiness and track record on the blockchain for issuers and investors.

Does the technology validate that an actor or any given piece of information is trustworthy?

No, the Green Assets Wallet does not sign off on the trustworthiness or quality of the information provided in the Validation section. The Green Assets Wallet cannot take responsibility for the quality of the data submitted by a user. It provides a system for actors to exchange information in a transparent manner but it doesn’t take away responsibility from any user.

The Issuer is responsible for submitting relevant and quality data and should be incentivized to do so, as it will be stored in a transparent way on the blockchain. As an investor, you have the responsibility to make your own judgement on the relevance and quality of the information provided by the Issuer. The Green Assets Wallet provides space for Issuers to ask third party “validators”, such as audit firms, expert bodies, etc to submit validation data in order to strengthen the credibility of the Validation. What validator that has provided the validation is visible to investors on the project profile.

What is the benefit of Project Validation?

For Issuers - especially those who are new in the market - it provides the opportunity to showcase trustworthiness and in the future to build up a track record. For Investors it provides reassurance that the invested capital is being used as intended.

What type of data/information can I use to Validate delivery on my commitments? Typically, the data is either a document (a consultancy report, a certificate, an audit, etc), or a photography (a satellite image or other).

How do I engage a third party to validate?

When creating a validation report you will be required to select a validator from a drop down menu listing all validators with active GAW accounts. This means that currently the validator must have an active account prior to report creation.

Why should I put a date on when a certain commitment will be validated? The question of when a certain project will be delivered is a relevant information for investors, especially as there may be several years between investment and delivery.

What do I do if plans change and I will not be able to meet the commitment that I registered on time, or even at all?

When creating an validation report to validate a specific commitment, the status will be "pending" until the chosen validator has provided the validation document/report. When the report is uploaded the status will be "delivered". In cases where the commitment is no longer applicable, the Issuer can edit the text belonging to the validation and make a comment as to why it has been cancelled. The issuer can instead enter a new commitment, with a new date. The cancelled one will remain visible to investors, for transparency.

What is the difference between “Validation” and “Assurance” in the Green Assets Wallet?

Assurance in the Green Assets Wallet simply refers to the Assurance that takes place already today in the green bond market, which is usually performed by an audit firm and at aggregate (bond/portfolio) level. The Validation in the Green Assets Wallet adds value as it provides greater transparency and more detailed level information about underlying projects. It can replace Assurance, which may be costly, but not always. It is up to the Issuer to decide what is appropriate and doable in its unique case. If, for example, the Issuer is a bank and the underlying projects are subject to confidentiality agreements with the borrowers, it might not be possible to do project level validation, or perhaps to do so only on a few selected cases where there are side agreements.

The framework level Assurance document will then be very important. For other actors it might be fully possible to do Validation of all projects underlying the debt instrument, and it can reduce costs to do so instead of paying an audit firm for an assurance that provides little added value. The ambition is that the Green Assets Wallet should be flexible enough to accommodate the different needs and situations of the actors in the market.

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