On this fourth episode of #MXTalks, we discuss the issue of the blockchain's environmental impact and how it can address ESG concerns. How do carbon credits benefit the environment, and potentially lead to the planet's survival? What is the key benefit of the blockchain when it comes to sustainability? (Hint: transparency.) For all you busy people out there, here's the gist of the episode condensed into a 5 minute read! You're welcome.
1. A Breakdown of ESG
– ESG stands for environmental, social and governance and is a framework meant to govern sustainable actions by companies.
– Sustainability cannot be achieved without addressing the tragedy of the commons, which is the exploitation of common resources by the powerful.
– It’s time to recalibrate and redefine the purpose of corporations for all stakeholders, not just for shareholders.
– The balance sheet is only one angle of how companies are viewed and there are other angles such as risk disclosure.
– Over the last 20 years, risk disclosure has become important and companies are beginning to put in risk factors such as market risk and ESG elements in their disclosure.
– Some exchanges, such as SGX, have mandated that sustainability reports be put in by listed companies.
– A lot of costs are not accounted for in businesses such as social pollution, consumption of toxic fish and plastics, and all other beings consuming plastics.
– Carbon credits are based on the “sinner pays” concept, where companies pay for their pollution.
– Big oil companies are the largest purchasers of carbon credits to offset the pollution they have caused.
– Carbon credits encourage owners of natural areas like mangroves and forests not to engage in deforestation.
2. ESG Principles and Their Importance
– Companies that follow ESG principles take into account long-term gains instead of short-term profits
– Profits do matter but the way a company gets there also matters.
– Companies that prioritize ESG principles are more robust to stock market volatilities.
3. Let’s Talk About Carbon Credits
– Carbon credits/offsets can mitigate the effects of emissions through actions like planting trees or investing in renewable energy projects.
– Achieving a 100% clean economy state may require an economic shock in the short term.
– The cost of auditing carbon credits is currently very high using common standards like the Verra and Gold Standards.
– Blockchain technology can solve this issue by making standards consensus-built and transparent for all, which would significantly reduce auditing costs.
– Project Green Print is a nascent initiative started by MAS in 2021, with the potential to create a consensus-based effort for sustainability accessible to everyone.
– The ultimate goal is to make sustainability a game for everyone and avoid a dystopian future where only the wealthy can survive.
4. The Blockchain’s Environmental Impact
– The blockchain’s environmental impact has been a concern for some people in the community.
– However, the blockchain is not always reliant on proof of work and there has been a transition to using proof of stake, which is more energy-efficient and reduces the carbon footprint by over 90%.
– Blockchain is an evolving technology and is constantly improving, with more developments aimed at ESG and saving the environment.
5. Blockchain’s Partnership with Sustainability
– Blockchain is decentralized and for the common good, as too many resources were being concentrated in too few hands.
– Philosophically, blockchain and sustainability are good partners.
– There are many reporting standards for sustainability, and blockchain can help by carrying these standards forward.
– Blockchain is the perfect vehicle to carry sustainability forward, as it is about working for everybody’s benefit.
– Blockchain is a new database tool that has the potential to reduce the costs of carbon credit generation and prices by making audits more transparent and cheaper.
– The transparency of ledgers on the blockchain could make it easier for companies to make public disclosures and for third-party auditors to review the data.
– Decentralization of blockchain technology could also help prevent silos and allow for more collaboration across the industry.
– Blockchain could also have applications in social and governance aspects, such as tracking foreign aid donations and ensuring transparency in how the funds are used.
– The key theme throughout is transparency, and we are enthusiastic about the potential for blockchain technology to provide more visibility and accountability in these areas.