A Note on Climate Change and the Use of More Transparent Systems

The landscape of climate change, ESG and the path towards meeting the UN Sustainable Development Goals for 2030 had a bumpy 2024 start, particularly with respect to corporate green policy. Yesterday, at the anticipated end-of-month gathering of the European Union’s Committee of Permanent Representatives, the vote for the CSDDD (Corporate Sustainability Due Diligence Directive) proposal faced unexpected objections and lack of support from top member states including France, Belgium, Italy, and Germany. 

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In short, it is felt that the rising political forces of the Deutsche Bundestag are not as welcoming to major policy changes, with French representatives also proposing to move further up the number of required employees an EU company would need to have in order to comply with this directive. Among the changes requested for EU companies, the bar was  raised from 500 employees to 5,000 employees (with a turnover of 150 million Euro per annum), which would in turn downsize the 13,000 companies thought to be eligible for stricter penalties, accountability proceedings with stakeholders, and more qualified internal monitoring and evaluation procedures on supply chains. 

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Importantly, various improved human rights considerations on the use of forced labour and sale of associated products in the EU may not hold weight if this framework is not adopted in time when the EU Parliament elections are held. This is an additional cause for concern on top of the worsening climate anomalies (see below for recent data), coupled with various unsuccessful trajectories for the targeted objectives of SDGs (see UN Special Edition Report 2023), which are leading many to call for further judicial and regulatory action.

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Recent warmest recordings of global surface and atmospheric temperature (NCEI, 2024) 

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In his recent book “How to save our planet?” Mark Maslin (Professor of Earth System Science, University College London) pointed out that it is imperative for society to consider its past history when dealing with climate crises, but also to greet innovation head on. Widely applicable to the quite unfavourable reception of the current CSDDD deal, Maslin’s statement “We need to develop new modes of thinking for the 21st century to creatively and collectively tackle these challenges” poses a necessary reframing of social perspectives.

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Collective efforts to tackle environmental challenges take many forms. Political initiatives seek to encapture the support of the majority vote to influence business activity. However, many other socio-economic initiatives can also incarnate collective action for a greener planet. Sustainable finance ecosystems and attempts to increase transparency in value chains, for instance, are highly collective in nature. These are very complex systems, and often opaque, which underscores the importance of bringing about additional transparency and reliability therein. In this context, technological innovation needs to be encouraged, but also carefully harnessed, as it must be a tool to increase the transparency and effectiveness of these systems, and not a layer of inaccessibility that merely obfuscates their inner functioning.

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Carbon markets, for instance, rely on climate methodologies used by a myriad of actors: project developers, validators, verifiers, registries, standard-setters, and more. When these actors uphold different standards or display varying degrees of diligence, an adverse selection problem may emerge. “A ton of carbon is a ton of carbon” in theory, but not in practice. As sustainable finance markets are complex, but also obscure and highly analog, low-quality offsets may drive high-quality offsets out of the market. The average carbon offset buyer is unable to investigate the methodologies implemented and investigate the facts of the entire value chain.

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The solution to this problem is transparency and information-sharing. Technology may either be an ally or a problem in this path. It may introduce an obstacle, because as tokenizing low-quality offsets perpetuates and even aggravates the indistinguishability of good and bad instruments. However, it may provide the solution, if technology leverage to increase auditability and accountability in climate finance markets, to compare methodologies and to enable a healthy form of competition whereby the sellers of the best environmental assets can communicate their strengths to the buyers.

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In comes the Hedera Guardian, an open-source platform based on distributed ledger technology, which provides the ability to easily design a policy workflow with verifiable evidence for environmentally-friendly projects such as carbon offsetting. Guardian-based projects are transparent, efficient, and tamper-proof, and methodologies living on the Guardian are digitised in a comparable manner. This addresses the aforementioned obfuscation problems, for the benefit of individuals, SMEs, large corporations, accredited governing bodies for international climate standards, industry practitioners, and teams of technologists and creative engineers -- all to “bring the balance sheet of the plant to the public ledger”.

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The Guardian already boasts dozens of policies. However, many methodologies currently used are still not digitised (or where digitised, not open-sourced and made comparable). With the DLT Climate Hackathon and other initiatives, at DLT Earth we are working to bring digitised climate methodologies to the hundreds. The hackathon, led by the DLT Science Foundation with the support of The HBAR Foundation, Allcot IO and Envision Blockchain, is still open for new participants, and will continue until early April. Supported by an ecosystem of teams from environmental sciences and trusted entities leading emerging technologies, as well as other social impact disciplines, this endeavour seeks to seize the opportunity to redirect the attention away from blocked climate change agendas and underlying geo-political narratives towards, simply, a better organised planet.

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