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Commentary

Going Digital, Going Green

The right regulations and technology, such as digital product passports, can help ratchet down pollution, according to Nish Kotecha, Co-founder of Finboot.

‘Do as we say not as we do’, as the saying goes, can be applied to the Group of 20 countries which spent US$1.4 trillion in fossil fuel subsidies, according to the International Institute for Sustainable Development, a leading think tank.

In a recent report, it measured the government financial support to fossil fuel production and consumption between 2013-2022 including subsidies, capital investment by state-owned enterprises and international public finance.

While an element can be explained by the Russia’s illegal invasion of Ukraine and its energy security shocks, the overall direction questions the commitments at COP26 to reduce fossil fuel investments.

In parallel, a growing number of states in the US are passing laws to restrict the use of ESG factors in making investment and business decisions. Core to this is the environmental footprint of business and how we drive towards a model of putting back more than we take out.

Against this backdrop, the world sizzled in June and July with record land and sea temperatures. So why are our governments not putting their money where their mouth is?

It boils down to trust. Given the climate calamity on our doorstep, can we afford to take anyone’s word for their actions? Simply… no.

Stepping up

Not all government voices are the same. Consider India.

Nikki Haley, the US politician (incidentally of Indian origin) running for the Republican nomination for the US Presidency, recently tweeted, “If we want to be serious about saving the environment, we need to confront India and China. They are some of the biggest polluters.”

Despite the US watering down its regulations, others are stepping up. The Securities and Exchange Board of India (SEBI) has introduced the Business Responsibility and Sustainability Reporting (BRSR) framework to streamline ESG disclosure requirements for listed companies in India (now the largest country in the world by population) effective from the current fiscal year (FY23-24) for the top 150 listed firms, increasing to the top 1,000 by FY26-27.

To achieve this, supply chains need to be re-engineered with data at their heart. The transparent sharing of information is key to helping build trust while setting global standards. Compliance requirements are also being upgraded with the addition of ESG metrics. Digital product passports (DPPs), aka digital twins or digital assets, are designed to capture the entire life cycle of a product through its supply chain. This provides invaluable data for a regulator but only if the data has integrity and trust.

Transparency throughout the supply chain

While there is no standard for DPPs today, the European Commission has proposed the development of a European DPP to create a digital environment which would enable data-exchange mechanisms and transparency throughout supply chains to address political and environmental challenges. Ultimately, this could provide all the information a consumer (buyer or regulator) would want to know about the product in their hands.

The EU is targeting 2026 for its launch, initially targeting apparel, batteries and consumer electronics but it is expected that these will be closely followed by DPPs in the textiles, plastics, chemicals, construction and automobile manufacturing sectors.

While regulators do not lay out a specific technology, they do define the need for verification of compliance, compatibility with open standards and interoperability across product groups and systems. The scope of new regulation will be far reaching, as seen in India.

Digital transformation

As environmental awareness and action is increasing, so too is digital transformation, and the two could work hand in hand to enable companies to progress on both fronts. For example, it would make sense for DPPs to be built on blockchain technology. Blockchain’s unique attributes can be the single source of truth and allow collaboration between organisations without compromising data privacy.

Its immutability (you can only add to the dataset, not change it) can power the optimal audit record – with trust designed in – which is increasingly critical for all areas of business operations and transaction reporting. This can be used to revolutionise data-sharing within the organisation and externally amongst its wider community, stretching from the lowest tier of suppliers through to regulators and end users.

Governments’ leading role

Automated data collection remains a journey. Today, applications can collect data through a combination of sensors, devises and integrations with existing digital systems combined with manual entries where no digital system exists. Over time, manual systems are then replaced with automated data collections points.

Once the twin is up and running, it can bring enormous benefit. From ‘de-bottlenecking’, resource planning and allocation to the creation of new revenue opportunities such as certification of carbon capture and sequestration projects.

Governments need to promote, support and challenge industry to do the right thing and this new world doctrine requires a new approach: one that is based in technology and applies to governments, businesses and beyond: One methodology for all.

 

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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