Reinventing Sustainability for the Digital Age: ESG and the Promise of Web3

When working with founders or vcs in the web3 space, my team and I are often asked if there are any ventures focusing on ESG and what they look like.

So, is there a connection or potential synergies between ESG and web3?

Of course, there is. It’s not a strong established relationship between the two just yet, but there is enough development in the market to say that it’s shaping up well.

ESG stands for environmental, social and governance, and refers to the three central factors in measuring the sustainability and ethical impact of an investment or company. There has been a growing focus on ESG in recent years from investors, corporations, and governments.

Web3 generally refers to a vision for the next phase of the internet that is decentralized, transparent and governed by community rather than large corporations. It encompasses technologies like blockchain, cryptocurrencies and decentralised apps.

Some argue that blockchain and cryptocurrencies have a large environmental footprint due to their energy usage. However, blockchain industry captains such as Dapper Labs, Rarible, Coinbase, Gemini, Algorand Foundation and others, are working relentlessly on mitigating this impact and building energy efficient solutions and upgrades. In addition, many believe web3 technologies could be harnessed to track supply chains, monitor pollution, and enable a more sustainable economy.

Here are some examples

Dapper Labs and Rarible are developing standards for disclosure of environmental impact NFT minting and tracking social impact for artists and creators.

Coinbase and Gemini are disclosing their own energy usage and carbon footprint and integrating ESG consideration into projects they list.

Algorand foundation is known for the stance it is taking for sustainability and energy efficiency. It’s creating partnerships to demonstrate how blockchains can support United Nations Sustainable Development goals.

Web3 advocates argue that decentralization could enable more inclusive participation, increased transparency and the creation of new economic and business models that better serve society. Although there are concerns that exist about web3's potential to increase economic inequalities, we believe that with individual ownership and global accessibility to internet, equality should improve.

For us at Asia SGE governance is an area of focus. The decentralized and community-driven nature of some web3 projects could align well with the "Governance" pillar of ESG. However, governance issues around transparency, accountability and ethics still exist within web3 and this seems unlikely to be resolved easily. Part of that is the bullish approach of large investment funds which fuel the development of web3 projects and until recently had very little by the way of ESG considerations.

There are opportunities to develop ESG reporting frameworks and metrics that are tailored for web3 companies and technologies. Blockdaemon does good work on this front. It developed an ESG reporting solution for blockchain networks that helps monitor and manage their footprint. This in turn helps offset those emissions and create stronger sustainability frameworks. Still, this is at an early stage, and we feel following this (and similar) developments is imperative.

We can only hope, for the sake of our planet and the future of humans that as focus on ESG continues to grow, web3 companies may increasingly look to demonstrate their own sustainability and ethical impact similar to other ESG leaders. We at Asia SGE frequently encourage clients and partners to explore ESG and help them develop a strategy. We recognize that for smaller newer companies this is something that seems too far from core business and often being postponed, but don’t be mistaken – investors and accelerators look for it. This is serious. Don’t be left behind.