Will Blockchain Be Used By Governments to Establish ESG Agendas?

What Are CBDCs?

CBDC stands for Central Bank Digital Currency. They are digital tokens issued by a country’s central bank and are pegged to the value of that country’s native fiat currency.

They effectively utilize the power of blockchain technology to issue programmable money. In addition, they enable central banks to have not only control over the amount of currency in circulation, but also the ability to apply conditions on the issued CBDC through the use of smart contracts.

The Challenges of Implementing ESG Agendas

There are currently no direct guidelines for implementing ESG criteria. This leaves corporations in a state of limbo as they try to meet multiple standards. In addition, it has led to companies like Tesla being removed from ESG indices, despite Tesla being ESG-friendly and one of the world’s largest producers of electric vehicles.

A more significant issue with ESG agendas can be seen in today’s energy markets. While the reduction in reliance on fossil fuels as means to curb green gas emissions to help fight climate change is admirable. The aggressiveness with meeting these ESG standards has left most nations in an energy crisis.

The energy crisis we are witnessing play out in the UK and Europe is exacerbated by the reliance on Russian oil during a period of cooled relations. UK energy bills are set to rise 80% in October. At the same time, Europe looks to cut back demand by 10% until March 31st, 2023, which may lead to reduced availability at peak times. Simply cutting off the supply to its citizens or financially compensating them for doing so voluntarily.

ESGs are not limited only to the direct supply of energy. Countries that pursue too aggressive ESG agendas can find themselves with growing levels of civil unrest and mass protest.

For example, in July 2022, the Dutch government started calling for an unavoidable transition to move toward circular agriculture by 2030. To achieve these goals, Dutch agriculture would need to reduce its emissions by 50 percent, with a 30 percent reduction in emissions from fertilizer by 2030. This move would immediately impact the industry and force many to sell off their livestock to meet these ESG targets.

How Could CBDCs Impact ESG Agendas?

CBDCs may have some beneficial impacts on ESG agendas. They could help solve the confusing guidelines for corporations by establishing clear guidelines in the smart contracts that a government issues. These smart contracts would be binary, so companies would either be compliant or non-compliant and receive benefits or penalties for doing so.

There is, however, a more dystopian view of how the combination of ESG and CBDCs could interact with the everyday citizen. While collecting taxes and distributing benefits from the central government could become vastly more efficient through CBDCs. Few people would be comfortable with the government having permanent access to their complete financial history. Additionally, using CBDCs would enable governments to create conditions for your money. This could include expiry dates on when or what you could spend your money on.

It is not a very big leap then to assume that a government pursuing an aggressive ESG mandate would not hesitate to restrict citizens’ ability to purchase energy. This could be in the form of limiting purchases of gas at the pump or oil to heat citizens’ homes. We are already witnessing the EU experimenting with limiting energy supply during peak times. Moreover, implementing CBDCs could give governments absolute control over the energy markets by preventing citizens from accessing secondary markets directly with their own money.

Final Thoughts: ESG at What Cost?

Fortunately, most Western economies that are pursuing ESG agendas are democratically elected. So if those countries’ citizens start to feel too much negative impact from an ESG agenda, they can elect a new government. In addition, if the negative effects like soaring inflation or an energy crisis become too acute, people can mass protest in response. This is what led to Dutch farmers protesting their capital earlier this summer.

It is not only Western democracies that are experiencing the ESG agenda tension. For example, Sri Lanka was considered a leader in ESG, receiving a 98/100 score from WorldEconomics.com, and was signaled to be a new standard for countries pursuing an ESG agenda. However, those same policies partly led to an energy shortage and poor crop production from a reduction in modern fertilizers. These led to a food and energy crisis and the eventual collapse of the Sri Lankan government.

Individuals also have the option to opt-out of CBDCs through the use of Bitcoin. A decentralized peer-to-peer money controlled by no one. By doing so, individuals could gain financial sovereignty. As long as someone is willing to accept Bitcoin as a form of energy payment, the government’s absolute control would be diminished. This could create more competition in secondary markets for energy production and distribution, leading to lower prices overall.