How Blockchain Technology Can Empower Ethical and Sustainable Markets

October 29, 2019

ImpacTech in Practice

What do you think of when you hear the term “developing” markets? Perhaps the term evokes images of the Global South; of nations moving away from their traditional economies with sights set on productivity, new technologies, capitalist ventures. Maybe you think of countries like Brazil and Russia, India, China or South Africa. Certainly, these fit the traditional definition of a developing market. Developing markets are characterised by a dearth of regulatory frameworks and witness rapid economic growth, which can make them volatile and risky, yet lucrative for investors. Industry pioneers who find a way to capitalize on this open environment not only have the “first-in” advantage to profit but end up playing an incidental role in building the infrastructure and writing the rulebook for those who follow.

But what about those markets that do not develop within national borders?

In contrast to this traditional conceptualisation of a developing market as a developing country rising to the level of a competitor in the global market, an emergent market, as I will label it, is not a concept that has to be constrained by lines drawn on a map. Emergent markets overlap and coexist with those markets bounded by national borders, their infrastructures rising across and within them as they expand and mature. Over the past decade, a growing global trend toward ethics and sustainability has resulted in the popularity and growth of “ethically sourced” and “environmentally sustainable” markets. The global propagation and implementation of the United Nations Sustainable Development Goals (SDGs) have likely served as a strong catalyst for this shift.

These emergent markets, defined in detail below, have become increasingly competitive thanks to shifting consumer preferences.

Emergent Markets

Ethically sourced: You might recognize the categories of fair trade and organic goods as well as slow fashion, cruelty-free and ethical supply chain products. While some of these categories are not necessarily new, exponentially greater demand for ethically sourced products has, in recent years, generated a formidable market power. The 2018 UK Ethical Consumer Markets Report shows that in 2017, sales of ethical clothing increased by 19.9% and buying second-hand clothing for environmental reasons increased by 22.5%. The category of “ethical food and drink” was also up 16.3% that same year, the largest increase since 2012.

Environmentally sustainable: Climate change awareness is another global trend that frames the growth of the environmental sustainability market. Market research shows that the carbon capture and sequestering (CCS) and renewables industries are expected to grow annually at 7.9% over the next 7 years. Data on the global renewable energy market show a similar trend. The industry was valued at $928 billion in 2017 and is expected to reach $1,512.3 billion by 2025, registering an annual growth rate of 6.1% from 2018 to 2025.

Companies across the globe are responding to these numbers. Many businesses have begun to align their practices, using less plastic or swapping caged eggs for free-range, while many more have simply modified how they market themselves. The adaptation of existing market leaders to changing consumer values has created some negative impacts and much of the change undertaken has been superficial. The result, as I have mentioned in a previous post, is known as green-washing. Green-washing is a consequence of and reaction to the growing appeal of ethically sourced and environmentally sustainable products. Unfortunately, false or meaningless claims made by established market leaders seeking to appear as part of this disruptive revolution serve only to dilute the potential global impact of this emergent trend. Even more disheartening: the phoneys are hard to spot.

Disruptive Innovation & Institutional Voids

Nevertheless, the innovations and start-ups that have bubbled up to fill the gaps in the market have produced a genuinely disruptive effect. Rather than re-framing their work as ethical or sustainable, the new players have internalised the green-revolution, which has informed their business structure and pushed them to create new systems based on trust and transparency in order to generate meaningful impact. They have produced new markets in their wake that are slowly but surely taking a bigger and bigger slice of the market share away from the established players. As these emergent markets move from fringe to mainstream, they bring with them the business models, norms and infrastructures that underpin their unique development. Like innovators in developing markets, those working in emergent markets are not only creating a product and selling that product — they are developing the entire ecosystem around it.

In an interview for MIT Sloan Management, Professor Tarun Khanna of the Harvard Business School discusses what he calls “tech emerging markets”, a concept constructed from his experience co-founding a venture firm in India, a developing market in the traditional sense. Khanna argues that while we use the term “emerging markets” to talk about developing countries, we can have “tech emerging markets” too, “where the ground rules for how to conduct business haven’t yet been specified”. Khanna argues that while there may be little institutional incentive, it is well worth the effort and resources for innovators to act as conscientious stewards of the ecosystems they build — taking an active role in establishing systems that can be trusted “pays dividends” in the long run. Unfortunately, that is not how it plays out in the real world for the majority of emergent market entrants.

Think of the advent of social media, a relatively recent phenomenon ignited by companies like Facebook, who paved the way forward with little consideration for their role in the protection of the community’s data. Rather than taking an active role in establishing systems of trust, Facebook ended up in hot water for charting unknown waters carelessly, at best, and with strategic malice, at worst. Still, a systems-change that would shift the focus to accountability and transparency in emergent markets is unlikely to come from an institutional level. There is hope, however, that the process might be facilitated with the growing popularity and adoption of blockchain technology in emergent markets.

As this technology becomes more widely understood and applied across the business spectrum, its functionalities of traceability and transparency continue to shape the businesses that employ it. In this way, blockchains are beginning to demonstrate their power to play a foundational role in empowering some of today’s biggest emergent markets.

A Role for Blockchains

Topl’s blockchain technology enables the work of one of our clients, the Texas Coastal Exchange (TCX). This company began as an idea when the environmental sustainability market began gaining a foothold back in 2008. As an early entrant to this emergent market, TCX had no rulebook to play by. The team acted as conscientious stewards, understanding they were not only contributing to an emergent market but also that they were helping to build that market itself. The goal of the founding team at TCX was to: “create a system that utilized the remarkable ecological resources of the Texas coast to solve the region’s greatest environmental problems”. That system today functions on Topl’s blockchain, which is used to track donations and the amount of carbon storage capacity in the TCX program. As such, Topl’s blockchain serves as an infrastructure that empowers transparency and accountability in the system created by TCX.

Blockchain is an example of an empowering technology in the emergent ethically sourced and environmentally sustainable markets. These emergent markets map as a digital world, which endows them with freedom and power beyond borders and boundaries. Blockchain especially offers exactly those essential qualities named by Khanna in order to bridge the institutional voids, which can present as treacherous crevasses in market development. It provides a system with rules and guidelines, codified to enable everyone to participate fairly. It enables trust and transparency, accountability and reliability. Blockchain has a critical role to play as a disrupter itself in these emergent markets. It can enable new entrants to displace the current power dynamics by empowering their systems to combat the potentially lethal symptoms associated with these market’s development, such as green-washing and mistrust, in order to produce tangible change on a global scale.

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