The trend towards conscious capitalism is just as significant for listed companies who want to drive their share price as it is for startups trying to get their product off the ground. As the baby boomer generation come closer to mass retirement and they readjust to more defensive investment portfolios (divesting of large amounts stocks for more low-risk bonds) public companies will have to start thinking about the next generation of investors who they want to buy their stock.
Investors' move to smart beta is reflected in the proliferation and performance of environmental, social and governance (ESG) and low-carbon exchange-traded funds (ETFs) in recent years, the most prominent iShares MSCI Social ETF (DSI) which tracks US companies that have positive ESG characteristics has even outperformed the S&P500 SPY ETF year to date.
Synonymous with smart beta, the ESG premium for listed companies has been widely accepted and "companies with strong corporate oversight have tended to outperform their poorly governed competitors by an average of over 30bps per month since the beginning of 2009,” Hermes Investment Management said in their latest ESG report.
Environmental responsibility on the blockchain
IBM has announced it is collaborating with environmental technology firm Veridium Labs with a goal of shaking up the carbon credit industry. Veridium’s token Verde will run on the Stellar network and is backed by carbon credit company Infinite Earth. The company’s REDD+ carbon credits are traded by companies to offset their carbon footprint and the credits are backed by projects which pursue long-term strategies to counter deforestation and the management of existing forest stocks.
Infinite Earth oversees the 64,000ha Rimba Raya Biodiversity Reserve in Borneo, which serves as the “natural capital” for the carbon credits. The trading of carbon credits is cumbersome and fraught with counterfeit and double spending and the Redd credit is not without its detractors, even being labelled as “a collection of conflicts, contradictions and lies” for failing to have any impact on the issues it aims to address. One of the main criticisms is that the trading of credits fails to offset any emissions at all.
IBM’s blockchain manager Jared Klee said the project chose the Stellar network to run the tokens on because it has built in decentralized exchange that can “mitigate against central points of failure” and credit hacks. It is touted to also increase the transparency of credit spending to avoid the double spend problem and track the performance of sustainable projects.
Another project that drills even deeper into carbon offsetting, down to the individual’s carbon footprint, is the Malta-based project Poseidon. Unlike corporations and countries that trade REDD carbon credits, Poseidon credits offset individual purchases, such as clothes, by breaking carbon credits that are issued per ton of C02 into grams to be used to offset microtransactions. So, when someone buys a pair of shoes with a carbon impact of 12kg, the price for the required carbon offset is added to her bill and the buys 12kg worth of carbon credits with Poseidon tokens, making the purchase “carbon neutral.”
Poseidon is also built on the Stellar blockchain which it touts as a low-energy alternative to the energy intensive protocols of bitcoin or ethereum and only uses a fraction of the energy per transaction as a Visa payment.
The contentious topic of energy consumption and the environmental impact of crypto mining, especially bitcoin, coupled with the demographics of more conscious young consumers will play an increasingly crucial role in the adoption of a prominent cryptocurrency. So it would be wise for investors to consider facets of ESG criteria when assessing investment opportunities in crypto as well as traditional markets.