ESG DAO is out of stealth: we’re on a mission to re-think ESG ratings and accelerate ReFi
By David Aikman with Tee Ganbold and Daniel Ellison,
Today, the core contributors of ESG DAO are thrilled to share that our project is now officially out of “stealth mode”.
We’re excited to tell you how we intend to shape a more sustainable and equitable world by building a global, decentralized and real-time Environmental, Social and Governance (ESG) and Impact rating protocol that is transparent and will drive the values-based intention economy.
We believe businesses can be a driving force in shaping a better world for everyone and the planet — they just need the right incentives system. We are here to create it.
You may have heard this before, but we need to repeat it: Our current economic system is no longer fit for purpose.
It is designed with an extractive imperative, optimized to exploit our planet and people for short-term profit. It incentivizes the consolidation and centralization of assets and power while disregarding the negative impacts that are created along the way.
We are facing a multi-faceted planetary crisis. Climate change, extreme weather events, rising sea levels, accelerating species loss, overfishing, over-farming, and water scarcity are ravaging the planet. Rising income inequality and social divisions are tearing our communities apart, with many of our systems (such as healthcare and justice) on the verge of being overwhelmed. This is a complex humanitarian challenge the likes of which have never been seen before.
We need a better kind of capitalism. We have the resources, the talent and the technologies to create a better system, but we need to unite, and act decisively.
What’s the problem with ESG today?
In 2006, the United Nations released its Principles for Responsible Investment (PRI), introducing the world to an Environmental, Social and Governance (ESG) rating system to guide investment analysis and decision-making processes.
While ESG measures a company’s risk-mitigation capabilities to environmental, social and governance factors — it completely fails consumers’ expectations. They want to know how companies positively or negatively impact the planet and they expect companies to do better. We believe these consumers can encourage companies to behave better, but they are currently unequipped.
On the other hand, companies lack the incentives to improve their ESG scores through positive action, making many ESG efforts a “tick box” compliance exercise at best, and a “Greenwashing” Public Relations exercise at worst, which in return creates further consumer cynicism about ESG standards.
How can a DAO help shape the world?
Our goal is to build a radically transparent ESG system that serves the planet and people, not just companies. These are our tenets:
- First, we need to restore trust in the system: We are developing a new lens through which to look at ESG and Impact metrics. The “OpenESG Score” is developed and curated by a multi-stakeholder council of diverse experts from all walks of life: scientists, NGO leaders and business leaders, as well as government representatives. Run as a DAO (a “Decentralized Autonomous Organization”) the council’s decisions and scoring rationale will be public for the world to see and challenge. In this way we can ensure that diverse points of view are taken into consideration, and no special interests can dominate. A better, more understandable and transparent ESG scoring system — one that measures the impacts that companies have on people and planet — instead of the risks to company profits from ESG risk factors — is key to restoring public trust in businesses as a force for good.
- We need to incentivize engagement around ESG between companies and people in a credibly-neutral manner: 76% of consumers claim they will discontinue relations with companies that treat employees, communities and the environment poorly. Yet, 70% of American consumers are still unaware of ESG scores and ESG investing, so companies are not incentivized to behave better. We want to close the loop between people and companies, so that people can align their purchasing and investing decisions with their values, and companies are encouraged to raise their ambition levels for ESG and their engagement with consumers’ values accordingly. Deeper engagement between consumers and brands around ESG issues, shared values and impact means that everyone can win.
- We need to reinvigorate the ESG movement. We’ve had long debates with colleagues and experts on whether the “ESG” nomenclature is even worth saving: maybe we need a better term altogether. But the reality is that ESG is starting to become mainstream and it’s a short-hand term which brands, investors and government regulators can easily connect. We believe that ESG is an idea worth saving, and that Web3 technologies can help transform it into a powerful movement that neutralizes Greenwashing and rewards positive action towards Planet and People, nudging companies to produce positive outcomes, not promises and empty public relations stunts. By providing a clearer understanding to consumers, investors, and regulators about the true impact of businesses on the environment and society, we can ensure this outcome.
- To do this, it’s imperative that we “democratize” ESG, by widening the spectrum of companies scored while making ESG scores ubiquitous and understandable. Today, only 46% of publicly-listed companies have an ESG score. Globally, only 0.009% of all companies embrace ESG. Considering the complexity and cost necessary to collect and manage the data necessary for existing ESG metrics, it’s no wonder. An OpenESG system enables public, private and state-owned companies, Web3 projects, startups and SMEs of all sizes, from all industries and all regions of the world to embed ESG metrics into their business models, permissionlessly.
What does a better ESG rating system look like?
ESG DAO is pioneering better cryptoeconomic designs that foster positive business behavior and stakeholder engagement while baking positive externalities into the protocol.
We believe that a transparent, democratic, and credibly-neutral ESG scoring system that is accessible to consumers, academics and builders becomes the foundation for the emergence of a stack of Web3 dApps (“decentralized Applications”). These dApps are capable of nudging customer awareness, engagement, purchasing behavior and investment decisions towards high scoring companies. This is the basis of a flywheel that privileges good behavior and translates good corporate karma into better outcomes.
We want to help accelerate the emergence of ReFi (“Regenerative Finance”), by connecting good companies to good people and incentivizing businesses to act in the Planet’s best interests.
Web3 has the enabling technologies and organizational principles to create a better ESG rating system, which we will deploy in the following ways:
- We will source diverse public and non-public data sets to get the most comprehensive landscape of relevant ESG metrics for the largest possible pool of companies. We will partner with organizations and ratings agencies to get better, more frequently updated data which will be stored in a decentralized knowledge graph database. We’re also developing better tools for self-reporting, to allow smaller companies to begin their ESG journey. And, we want to tackle the big, dirty secret of the ESG ratings world — namely that most voluntary disclosures have not been independently verified — through a Validator DAO that offers bounties for third-party verification. Verified data will, in turn, positively impact a company’s OpenESG Score.
- The Expert Council DAO, comprised of a diverse group of stakeholders from science, academia, non-governmental organizations (NGOs), governments and companies from various industries, will determine and govern the ESG rating system, with members of the DAO being able to propose new metrics to consider, different weightings for metrics within the rating, etc. Based on a one-member, one-vote principle we can ensure that the score remains free of influence by disingenuous actors.
- A better scoring system becomes the foundation for a wide spectrum of applications, enabling builders to educate, incentivize, engage, and nudge customer behavior and investment decisions towards high scoring companies.
This is what our OpenESG system looks like:
What value do we think the OpenESG System will bring for Companies and Consumers?
The recent interest in ESG ratings by investors, regulators and companies holds tremendous potential to incentivize companies toward better behavior and for consumers to look for companies that generate more positive impact.
We believe that an OpenESG System can decrease the cost of reporting for companies, give them a better understanding of the competitive landscape (with more consistent reporting and benchmarking within and across industries), enable higher engagement with consumers and potentially, generate new revenue streams.
On the consumer side, people are excited by the prospect of greater transparency, more accountability around companies’ commitments and ESG metrics that reflect a company’s true impact in the world.
From a Consumer perspective, we’re also very excited about the ecosystem of dApps that can be built on top of OpenESG. Our first dApp, Planet Loyalty, will reward people for engaging with high-scoring companies that want to work with people to improve their ESG and Impact initiatives. We believe that closing the loop between good people and good companies is a winning proposition.
Why are we doing this? What is our motivation?
We believe that:
- Business can be a positive force in shaping a more open, inclusive, fair, and sustainable world.
- A better ESG rating system could incentivize businesses to focus on the key performance indicators (KPIs) that truly make a positive impact on our planet, people, and societies.
- There are purpose-driven business leaders who are seeking this impact but lack the incentives to raise their ambition levels.
- There are conscious consumers who want to buy products and engage with brands that share their values but lack the trusted information they need to make informed decisions.
- Society will prosper and benefit from a better ESG ratings system.
We believe that the timing is right for a new approach to ESG. Emerging technologies are converging to make a new ESG standard possible: innovative Web-3 incentive models (play-to-earn, learn-to-earn) have proven use cases, zero-knowledge proof cryptography can enable private and secure business information sharing while still allowing consolidated benchmarking and global views, and DAO governance models provide a democratic and inclusive solution for humans to interact and have impact in the digital age.
Additionally, we’re just at the tipping point of ESG going mainstream in the public consciousness, and from a regulatory perspective — around the world — governments are ramping up legislation to prevent Greenwashing and working up more robust and comprehensive ESG disclosure standards. By widening the spectrum of companies scored while making ESG scores ubiquitous and understandable, we can help companies leverage ESG as a strategic element in their core business models. By then connecting these scores to consumer behavior, we hope to create new sources of incremental, shared value for companies and consumers alike.
We bring together an unparalleled and diverse intergenerational network of experts, conscious companies, foundations, philanthropists, celebrity activists and global leaders from all walks of life and many cultures, woven together by a common desire to shape a more equitable and sustainable world.
Our experienced team brings together a unique set of technical skills and global networks to deliver on our vision, supported by leading founders and innovators from Web3, ReFi, DeFi, sustainability, agriculture, retail, media and sustainability.
We’re excited by the possibilities this new system can generate. Over the last few months, as we have been building this system, we have been amazed at the support from people, companies and investors. We are excited to partner with people and organizations who want to shape a better future and who share our core values and beliefs.
We hope that you will join us on this journey.
Learn more about ESG DAO at www.esgdao.earth.
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Join our Telegram discussions here.
Lastly, if you’re a decentralization enthusiast, please follow us here, on Medium. We will post frequently about our journey and would love to hear your comments!