Sustainable supply-chains remain elusive for the world’s largest companies, which are struggling to address adverse environmental impacts embedded within their supply-chains. These impacts not only put the environment at risk, they put shareholder value at risk. Driven by pressure from institutional investors to mitigate the risk of “stranded assets” from exposure to climate change and other broader environmental impact related liabilities, companies are now scrambling for efficient, verifiable solutions to offset the negative social and environmental impacts buried within their complex supply-chains.
The aggregated supply-chains of the Fortune 500 companies have a value of approximately $10 trillion USD, providing a potential market for sustainable supply-chain solutions of at least $100 billion USD. Veridium’s focus are on Fortune 500 companies from some of the largest sectors in the economy including: Oil & Gas, Food & Agriculture and Fast-Moving Consumer Goods.
The challenge is how to link or synthesize two distinct, immiscible asset classes into a single environmentally neutral commodity that can be tracked through a complex supply-chain and then audited by investors and consumers. Also of importance is how to mitigate the cost of “greening their supply-chains” and ultimately to turn those efforts into improved brand awareness and loyalty and even into increased revenues, rather than a line item cost.
Transparency and Traceability
One of the more important aspects of blockchain technology is that is addresses TRUST, through transparency and traceability. Many companies have written robust “Sustainability Policies” but face inherent trust issues with their stakeholders. Additionally, there’s a disconnect between the adverse environmental impacts embedded upstream in their supply-chains and the CSR and ESG programs implemented at the corporate level. More often than not, there’s no real matrices for measuring these impact offsetting initiatives and certainly no way to match those counter-balancing investments in social and environmental mitigation to the adverse impacts in the supply-chain, let alone then provide a clear chain of custody that can be audited. At the end of the day, sustainable supply-chains solutions are expensive, time consuming and it’s very difficult to quantify their efficacy.
How VERDIUM solves the problem
Blockchain technology provides a basis for solving these complexities by addressing the four key components of: Measurability, Fungibility & Liquidity, Miscibility and Traceability. By tokenizing these distinct immiscible assets, we then reduce them to a common denominator, which can then be emulsified into a single compound asset class and then traced through the supply-chain and audited. Veridium will provide the platform for this integrated solution.
|Key Components||Conventional Supply-Chain Sustainability Solutions|
|Measurability||Individual CSR and ESG expenditures provide only general quantification indexes and no tangible standardized units of measure against the impact of various supply chain components. No ability to identify, quantify, value and list Natural Capital as an asset.||Environmental Mitigation Credits, such as the ones that may be on boarded to the blockchain within the Veridium Ecosystem, are considered assets and are defined as specific units of measure. The tokens to be created on the Veridium Ecosystem, will represent ownership interests in such Environmental Mitigation Credits and should be considered assets on a company’s books.|
|Fungibility & Liquidity||Expenditures in CSR and ESG initiatives are neither fungible nor liquid. They cannot be exchanged for other classes of mitigation solutions or liquidated.||Once tokenized, Environmental Mitigation Credits would have clear pricing mechanisms and would be liquid, potentially allowing them to be exchanged for other Natural Capital Asset tokens that could be on boarded to the blockchain through the Veridium Ecosystem.|
|Miscibility||There is no direct connection between expenditures in CSR and ESG initiatives and the cost of distinct commodity units or their underlying environmental impacts, creating balance sheet mismatch and inconsistent treatment as assets or liabilities.||Tokenization will allow categories of Natural Assets to be blended together in the form of new types of Environmental Mitigation Credits that can be represented by tokens created on the Veridium Ecosystem. This will create transparency and the ability to properly price Natural Capital Assets, allowing the actual costs of environmental impacts to be internalized by businesses on their balance sheets.|
|Auditable Traceability||With limited measurability, virtually no miscibility or ability to link the expenditures in positive impact CSR and ESG initiatives to specific components of the supply-chain exist. Auditing, tracing and verifying a “sustainable supply-chain” commitment is nearly impossible or at the least very time and cost prohibitive.||Because the value represented by tokenized Environmental Mitigation Credits would be visible and measurable, the cost of the related Natural Capital being used in a supply chain would also become measurable and quantifiable. The cost of such tokenized Environmental Mitigation Credits could be directly tied to the cost of any related Natural Capital Assets and could be traced, audited and verified.|
|Ask yourself, as an institutional shareholder, a customer, or regulatory body, which sustainable supply chain solution would you demand?|
The Veridium Ecosystem is based on the Ethereum Protocol and is an alternative trading and digital asset issuance network for natural capital assets and EcoSmart-CommoditiesTM (e.g. carbon neutral or environmentally neutral commodities). The native token layer of the network is comprised of membership rewards tokens (VRD), which will be use the ERC20 token standard, and multiple classes of natural capital asset tokens (REDD+ backed TGR tokens being the first).
Because the volume of TGRs will increase and decrease, the TGR token will not be able to directly utilize the ERC20 token standard. ConsenSys will author contracts providing VERIDIUM the ability to both increase supply and decrease supply, consistent with documentation found in EIP 621 – https://github.com/ethereum/EIPs/pull/621
The TGR Token
There will only be one issuance of VERIDIUM tokens (VRD) but multiple types of environmental asset tokens (e.g. REDD+ credits, water rights, biodiversity credits) that may be issued and traded on the network. Environmental credits can be issued on the network by any party, subject to approval by the Governing Body, the Veridium Foundation, a non-profit entity.
TGR is a cryptographic token, which is backed by Natural Capital. Every TGR is backed by 1 REDD+ credit from InfiniteEARTH’s Triple Gold Verified Rimba Raya project. New TGRs will be issued through the Ecosystem only after conservation credits are acquired to maintain a 100% reserve. Once acquired, TGRs can be traded for cash and cryptocurrencies in an online marketplace at various exchanges.
TGRs can be exchanged for the underlying REDD+ credit, which allows market makers or institutional users to claim the underlying REDD+ credits from the Veridium Foundation, which has its own registered account within the IHS Markit Registry, ACR Registry or the APX Registry, where the underlying REDD+ credits are registered.
*Note that tokens may only be exchanged for the underlying environmental asset by token holders that have an approved ACR Registry, IHS Markit Registry, or APX Registry account.
When TGR tokens are exchanged, VERIDIUM will destroy the token and match this redemption with the transfer of the corresponding amount of REDD+ credits into the IHS Markit Registry, ACR Registry, or the APX Registry account of the token holder. For those token holders that do not have an IHS Markit Registry, ACR Registry, or APX Registry account, the underlying REDD+ credits can be “retired” on the holder’s behalf, at which time the token will be destroyed.
VERIDIUM is a collaboration between EnVision Corporation, a sustainable technologies incubator, ConsenSys Ag, the largest blockchain design studio, Brian Kelly Capital Management. Brian Kelly contributor to CNBC’s “Fast Money” and author of the book “The Bitcoin Big Bang”, several co-founders of Ethereum and Lykke.