Social funding of green financing: An application of distributed ledger technologies

Abstract

AbstractTechnical developments in the sphere of distributed ledger technologies (DLTs) provide the opportunity to enhance existing tools of social funding. In a first step, we elaborate their application to the community‐based hometown investment trust (HIT) fund, which provides financing for small‐scale renewable energy projects. In a second step, we model the investment decision problem of households to illustrate through which channel the use of DLTs impacts the household's behaviour. Our model captures the return–risk trade‐off between two forms of investments for households with different risk preferences. It reveals that the use of DLTs can mitigate the associated risk of an investment in a HIT fund causing more risk‐averse households to change their investment behaviour. Although our theoretical analysis ascertains the potentials of DLTs to enhance social funding schemes, it also works out challenges for the establishment of DLT based funds.