ESG’s “Waterloo” moment

ABBA, one of the most successful bands in history performed in London recently. Agnetha, Björn, Benny and Anni-Frid looked real, authentic and amazing for their years. The crowds loved it. Regrettably, the singers were holograms created with weeks of performing on a stage in Stockholm, in front of hundreds of cameras collecting their every movement and using state of the art technology to map the past onto the present.  

These avatars look amazing…. “I just look very good for my age,” said Benny. And in the purpose-built auditorium in London’s east-end, they can appear just as real close up.

Many ESG claims are performing a similar illusion. Last month, DWS, one of Germany’s largest asset managers Asoka Wöhrmann resigned as CEO after ESG claims made by the group to support their investment thesis were being investigated by the US Securities and Exchange Commission and Germany’s financial regulator BaFin.

Greenwashing is the term used to describe companies or corporates that are promoted as green on the outside but less so on the inside. There have been some very high profile examples such as the Volkswagen emissions scandal over the years but ESG mislabeling may surpass them all.

ESG compliance cannot be relegated to a simple checklist. Each element of E “Environmental’, S “Social” and G “Governance” needs evidence to support each and every claim. Even where a claim may be assigned a numerical score the assessment (a challenge in itself when measuring qualitative factors such as compliance with Modern Slavery requirements, etc.) the scorecard is not a universally accepted yardstick yet.

Consider, S&P 500 ESG index (by S&P Global the independent index provider), which recently decided to exclude Tesla and include ExxonMobil provoking Elon Musk to say “ESG is a scam. It has been weaponized by phony social justice warriors.”

However, this should not be ESG’s “Waterloo” moment. Throwing out all the good work the renewed focus brings may be convenient in the time of rising inflation, Putin’s war on Ukraine and supply chain shocks all driving up living costs and slowing world growth.

I have consistently maintained that if you don’t record it, you can’t measure it and then change it. The business world needs to adapt to invest in a renewable world where what we take out, is replenished for future generations otherwise we are accelerating our demise. We cannot lose our long-term objective despite the need to adapt to short term pressures. As a result, leaders and forward-thinking companies recognize ESG excellence as a competitive differentiator.

To achieve the ESG advantage, data needs to be correct and accurate from the start, collected in a way that is infallible. The data may not yet support your presentations, but the DWS scandal has demonstrated that the window for unsubstantiated claims are closing - we need accuracy and realism if we are to change our climate trajectory.

Integrating Blockchain into the digital transformation roadmap of the corporation can address this challenge.

Blockchain technology can provide transparency and create the supply chain agility required in the new normal. In an enterprise, blockchain can be used as a private permissioned framework for a group of stakeholders, such as suppliers, customers and regulators, to manage the sourcing, production and movement of goods dynamically throughout the supply chain.  Blockchains are immutable, ensuring that each item of data can be traced back to each stakeholder providing recourse.

Furthermore, each individual asset could be assigned its own digital twin aka “Digital Passport.” The passport contains the provenance, it’s manufacturing process and its environmental footprint as well as its warranties, etc. This passport can move between owners throughout the manufacturing process to the end consumer and beyond to regulators to provide the necessary evidence to validate ESG claims.

This implies a world of interconnected blockchain networks where data can be shared with those with the right permissions in a compliant, safe and secure manner. In essence, a network of networks where each party can finally trust what they are being told because the history is stored and is immutable.

Blockchain is reengineering business processes and systems to enable a secure, trusted environment of data management and sharing between parties in a trusted way. This will allow organisations to exist beyond their current boundaries operating to build a renewable, safe and trusted world.

Some US$ 2 trillion has flowed into ESG themed assets which demonstrates the investor commitment to the cause. This can be used to raise the threshold of corporate claims. Where such claims have the right backing – accountable data on a blockchain, investment should flow, raising bar of operating standards.

We shouldn’t feel ‘blue’... but instead ‘shine like the sun’ on those who are thinking beyond short-term challenges to build a sustainable future when we emerge from these current economic shocks.