The majority of consumers are willing to pay more for responsibly-made products.But how trustworthy are independent labels? Here's a primer on how web3 can improve sustainability certifications. 🧵 👇
1/ First off, what are sustainability auditors? They're independent organizations that investigate a company's or product's commitment to "sustainable" guidelines.A couple of notable certifications: the Fairtrade, B Lab, and LEED certifications. Let's dive into each one.
2/ Fairtrade promotes more equitable trading conditions for farmers and workers in developing countries.The audit requires fair prices, working conditions, and community development.If a product has the Fairtrade mark, it supports small-scale farmers and marginalized workers.
3/ B Lab assesses company policies, building on the idea of balancing people, planet and profit.Certified “B Corps” are companies that passed the evaluation based on their impact on workers, customers, community, and the environment.
4/ LEED (Leadership in Energy and Environmental Design) certifies green buildings and infrastructure.
It provides guidelines for sustainable design for projects that meet criteria for factors like energy efficiency and indoor air quality.
5/ But with the increasing financial value of sustainable business practices, these labels have become increasingly commoditized.Companies have an incentive to act greener than they are.
6/ This is known as "greenwashing." In an attempt to appeal to sustainably-minded consumers, more and more companies are using marketing to skew sustainability metrics and receive certifications.
7/ For example, investigations in Nespresso's supply chain uncovered wage theft and children as young as 8 working in their suppliers' farms.
The catch? Nespresso was both a B Corp and Fairtrade certified at the time.
8/ In fact, many of these independent auditors have been critiqued for their vague criteria and poor track record.This is where web3 comes in.
9/ Blockchain can be used as a tool for verifying sustainability, providing greater transparency and trust in the data.Transactions on the blockchain are immutable, timestamped, and provide an accessible audit trail.
10/ Energy-consuming, unscalable blockchains acting as an auditors for sustainability seems ironic. But post-merge, this doesn’t seem too far-fetched. Using energy-efficient consensus mechanisms, it might be the best option. Let’s see some examples.
11/ To start, we can look toward blockchain-based carbon markets.These are organizations that verify the legitimacy of emission reduction projects while also making the transaction tamper-proof and transparent.
12/ Blockchain has been shown to lower transaction costs, improve transparency, and increase liquidity in the carbon markets.
Projects like Flowcarbon and KlimaDAO are gaining popularity, and protocols like
are steadily growing. Read about their technology here:
13/ This brand of regenerative finance (ReFi) is currently experiencing a surge in popularity.Here's a graphic on all the major players:
14/ In addition, the blockchain is also being used as an supply chain tool. @IBM's Food Trust aims to use blockchain to increase efficiency and transparency in food production.
15/ It enables growers, processors, shippers, retailers, and regulators to visualize the supply chain in it's entirety.Thus, buyers can find eco-friendly, sustainable products and be sure of their integrity. Here's the flow of information:
16/ With these tools in place, the next step is to have a fully-functioning decentralized authentication system.How would this look? I have two ideas.
17/ First, we will probably have gradual blockchain-enabled systems.Imagine if B Lab or Fairtrade published all their criteria, scoring, etc. on-chain.This way, any company can see the criteria beforehand and can work toward being certified.
18/ Then, organizations would have their sustainability verified by an on-chain audit.The criteria would be made available publicly, along with the scoring system. This would mitigate the chances of fraudulent certifications and greenwashing.
19/ Of course, this system would still be somewhat centralized. There would still be flaws in verification since the criteria and auditing would subjectively stay the same.However, this would open the doors to transparency.
20/ Ultimately, I envision a successful sustainability authenticator to emulate the guidelines of political economist Elinor Ostrom.Here are the eight principles:
21/ Ostrom's theories are based on a decentralized, self-governed system that encourages collaboration and provides a balanced economic incentive structure.Especially in sustainable resource use, these principles serve as baseline governing systems.
22/ This method would enable stakeholders to independently authenticate and verify sustainability compliance, making the process more "by the people."
Decision-making over things like land use and supply chain would become more visible.
23/ Rather than a governing entity to decide sustainability practices, regulations could be set by a member consensus.Likewise, we could see more independent auditors and consistent certification updates, ensuring that companies follow guidelines indefinitely.
24/ Nonetheless, this system invites vulnerabilities in decision-making.The very nature of opening sustainability certifications to more people means that we are inviting more potential bad actors.
25/ Processes must be set to ensure the quality of audits stay consistent.For example, redundancy of audits would be essential to maintaining accurate data for certification.
26/ Or, make the community more informed.
Encouraging informed participation in decentralized governance: the problem with slashing or majority rewards - a16z crypto
A formal analysis of the question of whether it is possible to incentivize informed participation: even in its optimal, most cost-effective form, doing so is prohibitively expensive.
27/ Either way, I'm excited for the progression of web3-enabled sustainability certifications.Whether in the form of data transparency or decentralized decision-making, this could be web's chance to have a use case for the everyday consumer.
29/ I also regularly write about tech and behavioral economics on Substack.
30/ Interested in reading more content by Chapter One Researchers? Check out the @chapterone research list!