Environmental, social, and governance (ESG) initiatives have received a lot of attention in recent years. However, ESG impact assessments are no longer as accurate and credible due to greenwashing.
Essentially, greenwashing is when a company deceptively overstates or misrepresents its environmental efforts to create a false perception of its sustainability commitment. However, with blockchain's inherent characteristics of transparency, traceability and immutability, this technology can be used to hold companies responsible for their ESG obligations.
In this article, we will delve deeper into the consequences of greenwashing and explore the real-life applications of blockchain in combating this misleading practice.
What is Greenwashing?
In today's age of environmental awareness, the term "greenwashing" has grown in popularity. It describes the practice of representing goods, services or business endeavours as eco-friendly, even when they don't truly adhere to sustainability standards or criteria.
North American companies openly admit to engaging in corporate greenwashing at a surprising rate of 72%, which is 24% higher than the global average. Moreover, the rise of greenwashing is also evident in the financial industry, with the number of global banks and financial service companies engaging in this practice increasing by a whopping 70% between 2022 and 2023. Remarkably, more than half of these incidents involved banks having ties to oil or fossil fuel companies, which directly contradicts their pledges to sustainability.
Greenwashing can come in many different forms. Some examples may include a food company showing a picture of a tree or leaf on its product labels, implying sustainable sourcing practices; an automaker advertising its vehicles as zero-emission without quantitative data on emissions; or a corporation claiming their alignment with ESG policies on social media with no verifiable records.
These examples only highlight how widespread and easy it is to practice greenwashing. While they may appear like “innocent” marketing activities, they can have serious effects on consumers and the environment.
Misleading marketing can influence consumers’ decisions and lead them to make uninformed choices. Because greenwashing is so common, businesses that are genuinely committed to sustainability may find it difficult to win over customers and investors. Furthermore, it may redirect funds from genuine sustainability initiatives, hindering the development of more sustainable practices and causing environmental harm.
How Blockchain Can Help Prevent Greenwashing
Blockchain technology is becoming a powerful tool to combat greenwashing and support genuine sustainability initiatives. Aside from holding companies accountable by bringing transparency and verifiability to green reporting and certification, it also secures and automates the processes.
Here are the ways blockchain prevents greenwashing:
Immutable records
Blockchain can record environmental data and certificates in an immutable ledger. Data integrity is guaranteed, as information added to the blockchain cannot be changed or removed.
Traceability
Blockchain's traceability feature promotes transparency and accountability. Stakeholders, such as investors, regulators, and consumers, can obtain up-to-date, transparent information regarding the environmental impact of a product or company.
Verified data sources
By using blockchain technology to validate data sources, environmental data may be guaranteed to come from reliable sources. The equal access to independent, decentralised record verifiers also reduces the risk of inaccurate information.
Smart contracts
Automating certification processes is possible with smart contracts. By executing predetermined actions only when certain circumstances are met, blockchain lowers the risk of manipulation or human error.
Real-life Applications of Blockchain for Sustainability
A large number of market players understand the need for blockchain technology, and some have even begun to reap its benefits. Here are some real-life applications of blockchain for sustainability initiatives:
Emissions Tracking and Carbon Credits
Digital tokens representing carbon credits are digitally created using blockchain technology. On blockchain platforms like the one developed by IBM, these credits can be bought and traded to encourage environmental preservation and lower greenhouse gas emissions. By streamlining the verification and trading of these credits, it's easier for businesses and individuals to take part in carbon offset programmes.
Renewable Energy Trading
One of the use cases of blockchain in the energy sector is peer-to-peer trade of renewable energy. Businesses and individuals may now directly purchase and sell excess renewable energy, thanks to platforms developed by companies like Power Ledger and LO3 Energy. This encourages the use of sustainable energy sources and minimises dependency on fossil fuels.
Certifying Sustainable Practices
Groups like the Rainforest Foundation and Fair Trade use blockchain to verify the sustainability of products. These companies can provide consumers with verifiable evidence of ethical and ecologically conscious practices by using blockchain technology to record the manufacture and delivery of sustainably sourced products.
Switzerland-based climate protection leader Carbon Connect AG also uses blockchain to issue voluntary cancellation certificates, leveraging the transparency and integrity of the certificates to promote efforts against greenwashing.
Traceability of Provenance and Supply Chain
Several businesses tap into blockchain to improve supply chain transparency and give consumers the ability to track products from source to shelf. For example, to reduce the incidence of illegal fishing and promote responsible sourcing, the seafood industry has witnessed partnerships between blockchain companies and organisations like WWF and OpenSC.
Waste Management
Through blockchain solutions, communities and companies can track recycling efforts and offer tokens or discounts to those who practice eco-friendly habits. For example, Plastic Bank rewards plastic collectors with blockchain-based tokens to encourage the recycling of plastic.
The Fight Against Greenwashing
As consumers and investors become more environmentally conscious, shady businesses increasingly pose a risk of misleading them through greenwashing. Fortunately, blockchain's transparent, immutable and traceable nature positions it as an effective tool to ensure that sustainable claims are supported by genuine efforts and commitment.
In a world where consumers demand authenticity, organisations can leverage emerging technologies like blockchain to not only foster stakeholder loyalty and confidence but also track their progress in meeting sustainability goals accurately.
Posted 07 Aug 2024
