The End of Greenwashing? How blockchain is driving certification of sustainable practices

September 1, 2023
Posted in Climate, Tech
September 1, 2023 soraiaprod
How blockchain is driving certification of sustainable practices

This article was co-written by Sabrina Goerlich and Soraia Carmo as part of DLT Talents Certification 2023 and you can find it on Medium:

“We met during the DLT-Talent program, sharing a mutual passion for sustainability in blockchain.”

In an era where information is abundant and easily accessible, distinguishing fact from fiction has become an increasingly complex challenge.

This article explores how blockchain technology can revolutionize the transparency and trust in Carbon Credits and BCorp Certifications, making it a must-read for those interested in sustainable business practices and their digital verification.

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Use Case 1: Carbon Credits

We all want to make the world a better place. And Carbon Credits seem like a viable way to support that goal. Let’s find out how blockchain can be a driver for positive climate impact.

In short:

Carbon (offset) credits are transferable financial instruments representing a reduction or removal of greenhouse gas emissions, traded in a market-based system to incentivize companies to offset their emissions by purchasing credits from projects that have successfully reduced or removed greenhouse gases (e.g., through land restoration or the planting of trees). They are certified by governments or independent certification bodies.

The biggest problems to unfold the power of Carbon Credits are:

  1. The lack of standardization of the carbon credits hampers the development of unified marketplaces as the validation of their values is a complicated process and can even lead to fraud.
  2. Trust in the verification bodies and their mechanisms to verify that emission reductions actually happened.
  3. Regulations make the market uncertain with the lack of a robust and consistent policy which leads to disruption in the market.

Now blockchain technology has some technical advantages that can help to improve trust in the Carbon Credit market through:

1. Transparency and Traceability

It can help track the lifecycle of carbon credits from issuance to retirement. Each transaction is recorded on the blockchain, providing a clear, immutable record of who owns the credit and whether it has been retired. This transparency can reduce fraud and double counting (where the same credit is sold more than once).

2. Automation and Efficiency

Smart contracts can help to automate the trading of carbon credits, potentially reducing transaction costs and speeding up the process. It also helps enforce compliance with regulations and standards, ensuring that credits are only issued for verified emissions reductions.

3. Accessibility and Liquidity

Tokenization allows for small-scale projects and investors to access the market and this could lead to more liquidity for the projects.

4. Trust and Verification

I guess the trust in the blockchain as an immutable ledger and as a verifiable record of emissions reductions is there. One remaining question is the certification of truth for the carbon credits. “Crap in — crap out” — if you add wrong information to the blockchain there is no magic the technology can do.

5. Innovation

With blockchain, we can support new types of carbon market models and mechanisms, such as peer-to-peer trading of credits, fractional ownership, dynamic NFTs, or integrating carbon credits into other digital assets or currencies.

KlimaDao is one example that Sabrina is spending more time on as a research project. She found controversial information about it and was recently hooked by an interview from Web3Academy with KlimaDao and got pointed to these articles here and here by a community member.

KlimaDAO is a decentralized autonomous organization (DAO) aiming to fight climate change. They use blockchain technology to create a cryptocurrency ($KLIMA) that is backed by carbon offsets. Their goal is to raise the price of carbon credits to incentivize reduced carbon emissions. They continually buy these tokenized carbon credits, locking them away to increase their demand and price. This approach is aimed at making it more financially attractive for companies to reduce their carbon emissions. However, the effectiveness of this strategy remains to be seen.

They claim on their website (2023, May18):

  • 1.1B off-chain credits have been created, with 557M retired.
  • 25.4M credits have been brought on-chain, with 578K retired.
How blockchain is driving certification of sustainable practices

How blockchain is driving certification of sustainable practices:

The purpose of KlimaDao is to decrease the supply of available carbon credits, which should, in theory, drive up the price. If carbon credits are more expensive, it becomes more costly for companies to offset their carbon emissions by buying these credits. Theoretically, this would incentivize companies to reduce their actual carbon emissions instead of relying on offsets.

Their Carbon Credits get validated by Verra, a nonprofit organization that operates the world’s leading carbon crediting program, the Verified Carbon Standard (VCS) Program and has decided to prohibit creating tokens based on retired credits to maintain the integrity of the carbon credit’s environmental benefit.

While the approach of tokenizing carbon credits is a promising step towards transparency and traceability in the carbon market, it remains crucial to address potential risks and ensure that the measures taken truly serve environmental protection and not just financial interests.

Use Case 2: BCorp Certification

B Corp Certified companies are those who meet high standards of performance, accountability and transparency. To achieve it, companies must demonstrate social and environmental performance, make a legal commitment to stakeholder accountability, and exhibit transparency by sharing their performance information publicly. This includes achieving a score of 80 or above on the B Impact Assessment and, in the case of multinational companies, changing their corporate governance structure to be accountable to all stakeholders.

Certification process:

A company applying for the certification must fill the B Impact assessment that touches on governance, community, environment, workers employment conditions and customers. The company also has to provide financial data and be an active trading company for longer than one year.

If the score of, at least, 80 is achieved, the company will work with BCorp to provide evidence to corroborate the answers from the form. This evidence is the one made available to the public on BCorp’s website, accounting for transparency.

The certificate is valid for 3 years, and when recertifying, companies have to demonstrate improvements since the previous assessment, otherwise, the certification is lost.

RAZ Finance, is an example of a B Corp company. RAZ is a decentralised web3 startup that has the goal to “unlock the power of verifiable data across a $55 trillion global impact on ESG data measurement and authentication. It has been awarded two years in a row as “Best In The World: Workers”.

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In a future not too far, technology will keep evolving to match a world that expects more privacy and simultaneously, transparency. Companies, brands, small businesses will all have to match consumers expectations with those two topics. Who fails to provide evidence of good practices and standards, fails to build trust with consumers and ultimately out of the realm.

Decentralised companies like RAZ are enabling large networks of stakeholders across several industries to come clean in their structure and company procedures. Soon it will be easier to make a judgement about information read and seen in the media from the increasing transparency provided by companies, and new tools in the market.

About the Authors

Sabrina Goerlich is founder of the Designsprintstudio, a innovation consultancy transitioning into web3. As a Design and Innovation Strategist, she is passionate about sustainability projects, collaboration design, blue economy innovation, and community-driven projects. She co-founded a blockchain startup and works as a LUMA Design Thinking instructor. Sabrina creates strategic design tools and processes that empower people to innovate in the Web3 space.

Soraia Carmo is a developer working in the creator economy world, with experience in the health industry, fintech, e-commerce and branding. She’s recently been doing research with focus on authenticity and traceability in daily life assets, digital and physical. You can find her on LinkedIn.

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