Public, market, and legislative interest in the ESG agenda is growing, and companies are increasingly required to disclose their ESG results and conduct ESG due diligence. This is leading to increased scrutiny and a proliferation of practices that influence corporate financial, credit, investment, and transaction policies, supply chain assessments, and business relationships with partners in an ESG context. However, existing transparency technologies can make ESG statements traceable and accountable.
Governments and organizations are working to make the ESG environment more understandable. Various organizations and committees are being formed to help investors and clients make ESG statements and actions clear and transparent, and they're relying on technological solutions to do so. The new committee, announced June 3 by French President Emmanuel Macron and Special Envoy for Climate Action Michael Bloomberg (UN), will use
an open data platform, among other tools.
Without proper legal regulation of ESG principles, the reputational risks to companies increase significantly, and their consequences move into the realm of judicial discretion. Even the largest companies, including financial firms, are affected by these risks. DWS Group was accused
of greenwashing after it set high sustainable investment criteria. In late May, German police raided the headquarters of Deutsche Bank in Frankfurt and DWS Group because the latter had been accused of greenwashing.
The companies' insufficiently transparent statements may have misled investors and consumers. Currently, emerging case law doesn't consider statements about plans and desired changes but only actual statements made by companies. Many greenwashing claims go unanswered, and companies may continue to create a false impression of their sustainability and climate change plans. Plans and desires are difficult to measure.
From another perspective, companies need a way to prove their commitment to ESG principles and protect themselves from reputational risks when they publish non-financial reports and statements about their environmental performance.
Researchers from the Vienna University of Economics and Business believe
that the adoption of digital technologies such as smart contracts and blockchain could potentially “create new foundations for our economic and social systems.”
Smart contracts can act as an insurance element in contracts backed by monetary deposits. When companies make their plans and intentions known, execution is difficult to track. But when backed by smart contracts
, investors and consumers can verify how a company is meeting its obligations.
The ESG agenda must become visible through information technology
Blockchain is a tool to make smart, sustainable contracts and build trust
Companies reduce their risks when using blockchain to secure their ESG statements
Blockchain also works for other contracts that incorporate ESG principles: credit contracts, joint venture agreements, mergers and acquisitions, and long-term investment contracts, including in energy, mining, and infrastructure. Such contracts may include a commitment to meet certain ESG standards and automatically track compliance with those commitments if companies use Internet of Things equipment for traceability.
The use of ESG terms or ESG clauses in contracts is becoming one of the most important ways to manage sustainability risks. The concept of the “sustainable contract” is currently taking shape in legal doctrine. Smart contracts and blockchain tracking are also needed to ensure transparency in supply chains
and create a new contract paradigm for “sustainable contracts”.
The interplay of innovative technologies is enabling new ways to track the origin and current condition of products, identify suppliers and their reputations, and reduce fraud risks and costs throughout the supply chain.
This is what Cult Beauty and Provenance have already done
by collecting and verifying information about the origin of Cult beauty’s cosmetics, their composition, manufacturing processes, and advertising. The Verified mark appears next to the descriptions of some products, signifying that their safety has been confirmed by a third party.
The TransparenTerra team is also working
on a way to verify and track the certifications, agreements, and sustainability progress of projects on the blockchain. The platform will also take into account and track the opinions of sustainability experts and note their agreement or disagreement with companies' statements.
We're witnessing and exploring how the legal and institutional space is being reshaped to embrace the concept of sustainability. Social patterns are changing, and business models and management practices are being restructured. When companies walk their ESG talk and back it up with technology, they get more than just good PR. They create an innovative foundation for new revenue streams, the ability to hire new employees, and a chance to provide new funding opportunities for their communities. Institutional systems are gradually adapting to the new realities and discovering technological tools that can enable a transparent and trustworthy future
MediaArticlesThe risks of greenwashing accusations, sustainable contracts, and blockchain as a gateway to transparency