For the third installment of our Chief Challenges series, we’re exploring the subject of Expectations vs. Reality. How are technological advancements delivering what they promise? How are they surprising us? And where do they perhaps fall short? We’re living in a period of rapid change—an era spurred forward by what is now known as the Fourth Industrial Revolution—and in the coming years we expect to see continued upheaval in the social, cultural, economic and political spheres.
Blockchain and other distributed ledger technologies have been identified as disruptive solutions that are poised to address some of today’s most pressing issues—yet they are also criticized for their energy demands and resulting negative environmental impacts. Hyphen is a sustainability-focused startup that uses the blockchain to help bring transparency and reliability to carbon emissions and other critical sustainability data. They are in an ongoing collaboration with frog’s Venture Design practice in structuring their company and offering for scale. Hyphen improves emissions reporting and fights greenwashing through smart contracts—programs on the blockchain that execute specific actions when set conditions are met, enabling the automation of reliable transactions.
There are known challenges in self-reported data from industry, and related opportunities for the accuracy and availability of reporting from scientific and governmental institutions as well. Hyphen asks: what’s the alternative, and where are we headed? They envision a future where we move away from unreliable self-reporting towards data that is validated and tamper-proof, and increasingly generated machine-to-machine—automated and without human intervention. Their goal is to make all of these resources accessible and transactional in a comprehensive data environment. The result is that we have information with more meaning for better real-world impacts, providing greater insight and enabling immediate responses.
This Q&A is an edited extract of a conversation between frog’s Global Head of Ventures, Ethan Imboden, and Hyphen’s co-founder and COO, Greg Tutton.
Ethan Imboden (EI): For a long time, the prevailing view of natural resources was that they are so abundant as to be effectively limitless. Now that we’re all aware of the catastrophic effects that our overuse of natural resources is having on the planet, we’re in a time of massive paradigm shifts on how to move forward. Where do blockchain and distributed ledger technology fit into this?
Greg Tutton (GT): A blockchain, in the simplest terms, provides the ability to have a set of data that can no longer be manipulated, available for a large number to see. That dataset could describe a transaction, it could be a title to land, it could be a statement someone has made. It’s a permanent record of what has happened and is happening.
From an environmental perspective, here is a caveat: transparency in itself is good, but it does not seem to be sufficient to create behavioral change. The transparency made possible by blockchains and distributed ledger technology can, however, provide a basis for tamper-proof data sets around which all the relevant parties to behavioral change can agree. It is also administratively more efficient to create transactions that reflect behavioral change on a blockchain, once the systems are in place. For example, in a financial transaction, the parties can clearly identify the steps taken within the settlement and administration of a financial product with lower overall overhead costs for a transaction that also has a better outcome for the environment.
For example, in summer 2021, Goldman Sachs participated with the European Investment Bank (EIB), on the issuance of a blockchain-enabled digital bond, denominated in Euros. In a public statement, Goldman Sachs noted how much easier, more accurate and faster the accounting, paperwork and administration was when compared to a typical bond issuance. They also used smart contracts as part of this transaction. A smart contract is software that runs on a blockchain to automate behavior, such as reporting, issuance of payments, settlement enforcements and so on.
While this specific example does not yet reflect environmental outcomes, the cost effectiveness of using blockchains is now recognized by commercial parties in capital markets.
As these kinds of capital market innovation increase, we are going to see the role that smart contracts play in an economy increase, especially by making a number of things in the economy more efficient, accurate and timely. In the future, any sort of asset holder, whether it’s a brand asset, an advertising campaign, the title to land, etc., who wants more accurate and timely settlement and administration of their assets may rely upon smart contracts, including for environmental assets.
EI: Blockchain technologies have a reputation for having a massive carbon footprint. How do you square using this technology toward sustainability goals?
GT: The simple takeaway statement is yes, a blockchain can be sustainable, but it depends upon the blockchain and how its energy is sourced.
With Hyphen we are conscious of these issues and seek to collaborate with partners with whom we can move toward a more sustainable and energy efficient economy, especially as the entire economy begins to shift toward utilization of blockchains and smart contracts.
EI: You’ve provided a good picture of the landscape you’re operating in. Now, what is Hyphen’s mission?
GT: We define ourselves as information activators. We enable accurate emissions reporting through automation and streamlining machine-to-machine communication. Our smart contract system provides accurate data tracking and reporting from point of source through point of sale. We validate data in a safe, tamper-proof framework, leveraging world-class data sets to cross-reference and validate data, ensuring its accuracy along the way.
Hyphen’s mission, simply put, is to deliver high quality validated green data into the blockchain services economy. Our role within this digital transformation is to operate an oracle network that enables this kind of validated data to move efficiently from off-chain sources into blockchains, and to move between various blockchains—a process that allows smart contracts to automate actions based upon real-world data. Oracles provide a way for the decentralized Web 3.0 ecosystem to access existing data sources, legacy systems and advanced computations.
We’re focused upon providing the best available green data in the right formats with high levels of confidence. This means that financial institutions, banks, investors, consumers and regulators could be confident in their use of that data, and about their actual impact toward greening the economy.
Significant challenges are coming. Hyphen is positioning itself and its partners at the cutting edge of how new digital toolkits are going to be used in the economy, where automation becomes more and more part of our daily activities. What we’re building at Hyphen is a platform that enables a more advanced, accurate and timely way of seeing the planet and its environmental systems. Then using the insights we gained to create better outcomes for our partners, for people and for the planet.
EI: Generally, when you take the emissions reported by a company, and compare them with actual emissions, what do you tend to find? A) they line up perfectly, B) there are a lot more emissions than are being reported, or C) there are a lot fewer emissions than are being reported?
GT: B is the answer. But the gap is more complicated than the question might suggest. No one meant to cause climate change. We have not yet fully mapped all possible emissions source in the world, but this now becomes an important target in the light of the major financial commitments made at COP26 in Glasgow. It may be that there are gaps in our assumptions about how we build climate models and in the ways that we collect and analyze greenhouse gas data.
For instance, we may not have fully realized all the methane emissions occurring across the world, which may not only be from oil and gas companies. There are large emissions of methane from arctic regions, due to permafrost melting. And new research in the last few years is indicating that we need to revise the models around forestry. Forests are an outstanding investment. Yet, with shifts in ecosystems over the past 30-40 years within global forest regions, it may be that carbon is now cycling in diﬀerent ways than we have previously thought. So, one priority for Hyphen is to assist the science community to update and upgrade our climate models, while also assisting the existing commercial carbon markets to reflect these types of insights.
EI: It’d be great to hear your thoughts on the current issue of greenwashing. And specifically, data greenwashing. How and why is this happening? What’s the net effect?
GT: “Greenwashing” is making a claim about having a positive green impact, but then having no ability to accurately verify that claim. Greenwashing is happening in part because the veracity, validation, and verification of green data is not yet a mandatory regulatory requirement.
One of the reasons the issue of greenwashing may be important for our conversation is that there are regulatory frameworks coming in, such as the EU’s Green Deal (which is distinct from the U.S.’s Green New Deal) that will require companies to report upon their green impacts. For instance, Switzerland is beginning to take these steps toward corporate reporting of climate impacts. The UK is also moving in a similar direction. As a result, companies will need methods for providing accurate data that support the statements they make about their green impacts.
frog partnered with Hyphen, a startup using emerging tech to solve sustainability challenges.
EI: What role do the broader public, investors and regulatory bodies play when it comes to reporting on emissions, sustainability and data? How would you rank these three in order of pressure being applied right now to companies? What drives major corporations to take action in the U.S. versus the EU?
GT: The pressure from those three areas—the people, the investors, the government—does vary between the U.S. and the EU. I would say in Europe, change is led by government, then banks and financiers, and stock exchanges. And then it’s the people. Whereas the U.S. is led more from the bottom up: by people, followed by companies, followed by government. I would also suggest there is a feedback loop, with companies pushing people to want sustainability for their own marketing advantage. They’re making steps towards greening themselves with certifications, marketing messages, or other statements on their product packaging or service that has led unfortunately to some aspects of greenwashing.
The structure of pressure is something Hyphen is thinking about a great deal. In the U.S., we have to ask: how do we create something that’s compelling enough that people will want to use it, and as they begin to use it, it becomes adopted and just part of the economy? Whereas, on the EU side, which has historically been perhaps more authoritarian—meaning, operating from a centralized standpoint —and taking a top-down approach—they’ve recognized the risks and their governments are moving to align the economy around these risks.
In both the U.S. and the EU, there is public pressure for sustainability and there is public awareness driven by media channels and scientific reports. But it seems that Europe is in the lead with regard to creating regulatory frameworks for companies and investors to report upon their green impacts and their climate related impacts.
EI: What’s going to be the actual driver of change in each of these regions?
GT: The U.S. is a place where bottom-up pressure can typically push change through the legislative and judicial branches. If we go back to the 1970s and look at pressure that was applied by the environmental movement on the administrations, we saw the passing of the Clean Air Act, the Clean Water Act, and the establishment of the EPA. That was driven by what we could call ‘people power.’
This reflects one aspect of Hyphen’s mission: the provisioning of real-world data into public sector and private sector conversations and dialogues around how we make better real-world environmental impacts. So, from a bottom-up standpoint, Hyphen could provide consumers, as well as investors and companies, the data they need to make more informed decisions about what’s possible to create climate adaptation and resilience.
On the EU side, governing bodies have reviewed some of the essential technological steps—in terms of sensors, satellites and other data collection toolkits—and see these toolkits as not only possible, but in need of deployment at scale. In this regard, the EU appears to be moving into a leadership position around greening the European economy.
EI: What is your personal emotional relationship to the climate crisis? What’s the emotional journey for you in all of this in this work? Why are you doing this?
GT: In the simplest sense, I’ve always liked nature. I had a father who was in the Sierra Club, I had grandparents who worked on farms, I had cousins who were in forestry. So there was a lot of nature in my background from several different points of view.
As a baseline, it matters in a society if you have quality water, quality air, and quality food. When I was growing up in the 1970s and 1980s in California, there was much discussion about these topics, especially for air quality and for water use efficiency, as there were often droughts in California.
Specifically for forests, there were some changes in California over the last 40 years specifically around how forests were managed and, combined with the effects of climate change, we’re now feeling the repercussions. We now have what seem to be more forest fires—fires that are hotter and burn faster. And I have often reflected upon what role environmental data could play for building more resilient communities and companies.
From a personal perspective, in terms of my faith, I am Catholic. In the light of Pope Francis’ encyclical, Laudato Si, released in May 2015, I begin to see more clearly the need to care for the planet as an expression of faith. Essentially to care for the planet becomes part of my personal efforts to truly live an integral life in the light of my Catholic faith.
EI: Hyphen’s approach offers a panoply of potential benefits. What do you see standing in the way to realize these?
GT: Ideology, to the extent that ideology has driven political divides and partisan fights to the point where climate change has become a divisive issue rather that a mutual opportunity. It is often narrated in a way that pushes people apart. And we seem to be moving further apart in recent years, at a time when we should be more collaborative and working together toward common goals. This becomes a primary opportunity for industry to lead by example in making the right steps toward improving carbon markets and structuring better financial services around climate risks.
EI: Imagine I’m a leader of a corporation who is okay with the ideological challenge, who is willing to say that this must be addressed and who understands that I have a crucial role to play. What’s the next hurdle for me and the company I lead? What’s coming up when you have conversations with business leaders?
GT: I would say the fundamental part for any business leader is that it has to be profitable. The debate has been going for many decades around ‘is sustainability profitable, or not profitable?’—and it’s ongoing. Better utilization and management of essential resources is a solid asset management-oriented case to be made for industry to take action. And when it comes to insurance, for example, there’s the challenge of how we’re going to navigate living in a world with greater risks, while offering premiums that are manageable and coverage that is sufficient. So that goes to controlling costs and managing the balance sheet for a company from the standpoint of profitability.
Industry now needs to take the lead for the growth of the established carbon markets, and for the future development of nitrogen markets and of water markets. Carbon markets are the first instance of the broader category of environmental resources markets. Industry has a role to play in determining how they will account for them on the balance sheet and in the cash flow statements. And ultimately, it’s going to be courageous CEOs who forge this path in new kinds of digital partnerships. What we are building at Hyphen is the ability for these CEOs and the capital markets to really understand and embrace this required shift that needs to be established around validated and verified data from real-world sources.