Our societies are becoming increasingly conscious of the way they operate, and the growing importance of ESG standards – i.e. related to the environmental, societal, and governance aspects – reflects that concern.

According to a 2022 study by Capital Group, 89% of investors consider ESG issues in some form as part of their investment approach. A stunning $2.5 trillion of ESG fund assets were reported at the close of 2022 by Morningstar (source: Bankrate).

However, behind this laudable trend lies an array of problems. Many companies stick the ESG acronym to their business merely as part of their PR strategy, which sometimes translates into blatant deceit.

Even some of the most reputable organizations aren’t immune to these problems. Take Deutsche Bank, for example. In 2021, its asset management arm DWS was accused of greenwashing by a whistleblower, and later – by the prosecutor’s office. In response, its CEO stepped down, and the new one pledged the need to “re-establish trust in DWS as a platform.”

Despite this intention, last March, NGO Finanzwende found that DWS had invested about 850 million dollars from its “green” funds into fossil fuel companies in 2022. This made DWS a “top tier” fossil fuel investor while marketing its funds as environmentally friendly.

Enter ReFi

Deutsche Bank is not an isolated case. After all, it is extremely difficult to control the credibility of ESG commitment in an opaque centralized environment.

The crypto space hopes to bring more accountability to the civic-minded incentives through a concept called ReFi, or regenerative finance. This notion combines the idea of sustainable (and often profitable) practices that use blockchain to secure transparency of value flows and collective decision-making. Furthermore, blockchain’s borderless nature can make impact investing accessible to any person on the planet with a phone and internet connection.

ReFi is aiming to be a publicly provable practice. This is why most ReFi incentives are managed by their DAOs (decentralized autonomous organizations). The DAOs themselves are composed of blockchain-based smart contracts and guarantee that decisions are taken collectively, and a common treasury can be audited by anyone.

Most of the existing ReFi projects are focused either on building digital carbon markets, or creating impact investment vehicles.

Digital Carbon Markets

The practice of carbon offset trading allows companies to compensate for their carbon footprint by buying carbon credits – proof of their contribution to the environmental protection incentives.

The traditional carbon offset market lacks transparency and accessibility, and web3 solves these issues by tokenizing carbon credits. Platforms like regen.network, klimadao.finance, toucan.earth, or provide easy access to a number of climate initiatives, vetted either by internationally recognized organizations like Veera, or by their own efforts.

Regen.network also ambitions to build a network of DAOs that would manage a multitude of various ReFi projects.

Impact DAOs

Impact investing aims at generating both a measurable social or environmental impact, and a financial return. A variety of DAOs – which have been dubbed “Impact DAOs” – have made it their goal:

  • Gitcoin incentivizes developers to participate in open-source public good projects and helps fund many of them.
  • Bio.xyz helps fund independent biotechnology research via different DAOs and a digital marketplace Molecule.xyz.
  • Kolektivo is developing a community currency toolkit and mobile app focused on earning and spending community currencies. Its pilot project has been successfully accomplished in Curaçao.
  • Human DAO manages the platform outsourcing simple web-based tasks to people in developing countries.
  • Impact Market provides basic income and microcredits to some of the poorest communities in the world, financed by donations and a system of DeFi farming using the Celo stablecoin cUSD.
  • Traditional Dream Factory is an eco-village in Portugal managed by a DAO. Together with community membership, the DAO’s tokens give the right to use the village's facilities, such as housing or water, along with the right to co-decide on its development.
  • Commons Stack builds open-source web3 toolkits facilitating the regenerative approach towards public goods. It aims to help communities apply web3 methods to regenerate their economies.

The ReFi sector is still in its early stages, and most of the projects mentioned above were launched no earlier than 2021. It will most certainly undergo an extensive trial-and-error phase to define the processes that work.

However, as blockchain tools evolve and become increasingly user-friendly, more and more people, companies, and communities will be able to adopt them and try the ReFi principles in action.

Written by D.Center