Authors: nChain and Dr. Yishuang Xu
The 2022 FIFA Football World Cup in Qatar claimed to be the “first carbon-neutral World Cup” yet it was found to be generating more CO2 than any previous events.
While the authorities in Switzerland, where FIFA is headquartered, are investigating further, we explore why ‘greenwashing’ like this arises and how blockchain could play a role in making ESG credentials more creditable.
Tell me in 2 minutes:
- The emergence of the term ‘greenwashing’ in the 1980s and years of scandals have slowly eroded public trust claims about corporate sustainability practices.
- This latest investigation signals the fundamental flaws in current ESG reporting; 1) reporting frameworks give little guidance on how claims can be proved and verified, 2) a lack of and changing universal standards makes reliable reporting difficult.
- A blockchain-enabled ESG reporting tool could have avoided such errors in the first place.
- The transparency, data auditability, privacy, value transfer, and process efficiency of blockchain could provide transparent, immutable, and verifiable records of ESG performance and enhance ESG reporting infrastructure and processes in the future.
A short history of greenwashing
The term ‘greenwashing’ is not new. It was coined in the 1980s by the ecologist, Jay Westerveld in an essay examining the practices of the hotel industry. He found that while hotels were promoting the reuse of towels as an act of environmental conservation, they were actually trying to save money by not washing their linen. Today, it refers to a company that claims to be environmentally conscious without making adequate efforts on sustainability. Over the decades, the widespread reporting on companies involved in greenwashing has slowly eroded public trust in companies’ claims about their sustainability practices.
While companies don’t always set out to mislead, many can inadvertently participate in greenwashing due to insufficient regulatory frameworks or by choosing the wrong reporting metrics resulting in inaccurate and questionable claims.
Greenwashing, ESG and increasing scrutiny
Nowadays, concerns around ‘greenwashing’ have developed into wider concerns around ESG, as a company’s carbon footprint forms a part of corporate sustainability. ESG represents the Environmental, Social and Governance aspects of corporate operations and benchmarks how environmentally friendly, socially supportive, inclusive, and air a company is when it comes to nature, society, and the organisation’s management policies respectively. Regulatory authorities globally are placing increasing scrutiny and enforcement on ESG metrics reporting1. Today, more than 90% of S&P companies publish ESG reports in some form. Between 2018 and 2021 alone, inflows into global sustainability funds rose from $5 billion to nearly $70 billion2.
Different types of ESG reporting schemes
There is a huge variety of ESG reporting schemes available today. When it comes to picking a scheme, companies usually choose the one that best serves their ESG strategy objectives and the desired audience. A common disadvantage of ESG reporting frameworks is that they tend to focus on helping companies with the reporting process and leave very little room to guiding them on how to prove and verify the claims contained within.
In the case of FIFA specifically, the claims on the carbon-friendly performance were inaccurate and misleading, thus FIFA was called out by the Commission for Loyalty, which regulates advertising in Switzerland. Furthermore, many of the claims for offsetting and compensation on carbon neutrality turned to be hard or impossible to prove.
It is also important to consider what metrics, methodologies and tools are being used to benchmark ESG performance. An ESG scheme’s problematic methodology could lead to controversial results. The IFRS Sustainability Disclosure Standards (also known as ISSB Standards) are under consultation, highlighting another challenge in ESG reporting: due to the lack of and changing universal standardisation in ESG benchmarks and variables, it is very difficult for companies to stay on track with measuring their progress in a reliable way.
How could blockchain make ESG credentials more creditable?
For companies and regulators seeking transparent, immutable, and verifiable records of ESG performance, blockchain might hold the answer.
Blockchain technology is seen as a ‘trust machine’ and expected to play a considerable role in ESG reporting according to EY. The fundamental strengths of blockchain include transparency, data auditability, privacy, value transfer, and process efficiency which could combine to enhance the trust in ESG reporting infrastructure and processes.
So, what would combining ESG reporting and blockchain technology look like?
- Enhanced transparency: In the case of public blockchain, anyone can verify the record of events on chain. If ESG reporting required data be recorded on blockchain, it would provide greater transparency on the data, enhancing trust in ESG reporting.
- Better auditability: Blockchain data is immutable and available anywhere, anytime, for anyone to independently verify. The ability to independently audit and verify ESG data would contribute to enhancing trust in company ESG reporting. It would also help businesses in providing provide proof of their claims.
- Maintaining privacy with transparency: Blockchain’s cryptographic methods allow data to be verified without exposing the underlying data. For example, companies can prove they have accurate emissions data without revealing the actual emissions volumes, allowing businesses to balance transparency on their ESG data with the need for commercial data security and/ or privacy.
- Enabling value transfer: Through tokenisation, blockchain can be used to create digital representations of assets and data points. These can be exchanged between touchpoints without the need for intermediaries via the trusted blockchain ledger3. This would enable companies to gather ESG data on their operations, even when that data might be spread across multiple entities in a supply chain.
- Increased efficiency: Blockchain can automate processes using smart contracts (actions triggered by predetermined conditions embedded into the code). When it comes to monitoring, checking, and verifying ESG data, automation via smart contracts has the potential to increase the efficiency of these processes, and therefore the efficiency of ESG reporting itself.
The investigation into FIFA’s intentional or unconscious false claims on carbon performance signals the fundamental flaws in current ESG reporting. By leveraging the fundamental strengths of blockchain – transparency, data auditability, privacy, value transfer, and process efficiency – blockchain-powered ESG reporting tools could prevent such errors in the future.
As with any emerging technology, there are still certain challenges to overcome. However, blockchain constitutes a powerful tool, not only in revealing a company’s genuine ESG stance to regulators and the public but also as an ideal solution for businesses to remain compliant and committed to their sustainability goals.
 Steve McNew, Forbes, 2022 ‘How Blockchain Can Help Measure and Prove ESG Milestones’.
 Chris Ford, Sustainability Mag, 2023 ‘Focusing on the ‘G’ in ESG: How can blockchain help?’.
 OECD, 2019, ‘Financing Climate Futures, Rethinking Infrastructure’
nChain is a global blockchain technology company. The nChain ecosystem provides various solutions to support businesses in ESG and sustainability development.
Our supply chain verification solutions cater to the growing demand for information accuracy, speed, flexibility, and sustainability for global supply chains. Our blockchain-powered Digital Twin technology and Digital Product Passport (DPP) technology helps businesses prove the origin, provenance, quality, safety standards and environmental impact of their products to regulators, other supply chain entities and the end-consumers. Enhanced transparency and trust increase food sustainability standards and safety across the industry for the benefit of enterprise, individuals, and society.
About the authors
This article was written by nChain in collaboration with Dr. Yishuang Xu. Dr. Yishuang Xu is Lecturer at the University of Manchester. She is a member of the Manchester Urban Institute (MUI), and her research interest lies in the area of sustainable development, the application of blockchain, FinTech and PropTech.
Email: [email protected]