Increasingly, we are hearing more and more about ESG, a term that is also beginning to be juxtaposed with the world of sports. But exactly what does ESG mean? What impact will Blockchain technology have on sports and how will it affect this sector?
As defined by Wikipedia, being ESG compliant means implementing the concept of sustainable development to financial activity by making it sustainable finance. As the acronym ESG (Environmental, Social, Governance) suggests, sustainability is not understood to be limited to the environment, although it has been the pivotal principle behind the movement. To date, companies that most respect ESG parameters have an advantage in raising public and private investment. The world of sports, mainly in the event and sports facility sectors, is also beginning to monitor ESG factors, aligning itself with the European vision contained in Agenda 2030. During Cop26 in Glasgow, the major players in the sports scene set themselves very ambitious goals: halving emissions by 2030 and zero by 2040, a more challenging target than the EU target of zero by 2050. The very sport you don’t expect, Formula 1, has launched its Net-Zero Carbon program to zero emissions by 2030.
ESG, sport e infrastructures in Italy
The issue of environmental sustainability turns out to be intertwined with the issue of infrastructure, and this also happens in sports. It is no coincidence that the 700 million euros available through the PNRR are dedicated to the modernization and construction of sports infrastructure with a view to sustainability. For Italy, the topic of infrastructure turns out to be a sore point, just think that according to a census by the Istituto per il Credito Sportivo, 60 percent of the sports infrastructure in Italy was built before 1980. This leads to a squandering of more than 800 million euros annually as well as significant climate-changing emissions.
The main critical issues: disclosure and measurement of offsets
To date, the main critical issues we find in the sports world with respect to the ESG movement relate to the disclosure and measurement of CO2e offsets. The majority of European soccer clubs do not make their emissions data public, and furthermore, since there is no gold standard for making measurements, the few data available are not entirely reliable. We can take as a reference soccer, the most played sport with the greatest impact on GDP in Europe, and research conducted by Standard Ethics, which established a European Football Index on sustainability based on a nine-grade rating.
The research was conducted on the 15 top listed European clubs and from this it emerged that:
- 13% of the companies adopt sustainability-oriented policies and an adequate reporting system;
- 67% of the companies still have a low level of disclosure, although 20% of them have started a path to improve ESG reporting;
- 20% of companies still have unsatisfactory sustainability management.
If we then go to analyze unlisted companies, we see that almost none have an adequate level of disclosure and provide ESG data.
For sports companies, being ESG will also have an important impact on the new generation of fans who are showing increasing awareness of environmental issues.
The relation between Blockchain and ESG
The main features that have made Blockchain the most revolutionary technology of the current decade are now well known: immutability, transparency and speed. While at first Blockchain was considered to be the clear antithesis to environmental sustainability, it is now being recognized as one of the main tools that will be able to revolutionize such an innovative and growing field as ESG. In fact, with the emergence of the new green blockchains and consensus algorithms that are no longer as energy-intensive as those of Bitcoin, projects created to facilitate the buying and selling of Carbon Credits are beginning to flourish. The Carbon Credit market, previously the preserve exclusively of large, publicly traded multinational corporations, with the use of tokenization turns out to be accessible to SMEs and, consequently, to for-profit sports clubs as well. Both Microsoft and the Emirate of Dubai have relied on the purchase of carbon credits using blockchain to achieve carbon-free status.
But how does the process of tokenizing carbon credits work?
- A company implements soil carbon sequestration initiatives i.e., ground storage of CO2e present in the atmosphere;
- For every ton of CO2e stored on the ground it emits a carbon credit which can be tokenized;
- The buyer interested in achieving carbon-free status purchases the equivalent of the tons of CO2e released into the atmosphere in carbon credits.
Transparency and traceability
The role of Blockchain can also be instrumental in the proper measurement of emissions and accessibility of data consultation. The purchase and sale of carbon credits that took place on Blockchain turns out to be easily searchable and from there one could trace the emissions of the respective company by knowing the address (or public key) of the respective wallet.
In addition, the trustworthiness of the data being notarized on Blockchain will be increasingly enhanced by its combined use with Internet of Things technology: interconnected objects that can process and transmit data. Through oracles, these objects could perform a data collection activity and notarize it on Blockchain, making measurements standardized and reliable.
That of the reliability of measurements is a key issue for the virtuous development of the ESG movement. In the world of sporting events, the case of the World Cup in Qatar is emblematic. According to the NGO Carbon Market Watch, the emissions generated by the top national competition will be 3.6 million tons, almost doubling the last edition held in Russia, which reached 2 million tons. Emissions reported by the Gulf Research and Development Organization are only 1.8 million, half of those highlighted in the report. Offsetting is supposed to take place through two projects (developed in Turkey, among others), but these take just over 133 thousand tons, 7.6 percent of emissions, out of the atmosphere. This shows that even the world of sports, which is supposed to promote correct values, is not immune to propaganda and the now widespread phenomenon of greenwashing.