Environmental Social and Corporate Governance (ESG) is receiving more and more attention from investors and therefore boards of companies. However, as reported by Reuters, the fact that “PwC is planning to hire 100,000 over five years in major ESG push” serves to illustrate how important it believes ESG to be, and the work that needs to be carried out by PwC’s clients. PwC is looking to invest $12 billion in the next five years and recruit 100,000 new jobs. The focus for these new staff is to help clients deal with climate and diversity reporting, and also artificial intelligence, as part of PwC’s new global strategy. Unsurprisingly, behavioural science, such as nudge economics, has been used by businesses as well as governments. In 2008, the book Nudge, by Richard Thaler and Cass Sunstein, was published and certainly proceeded to influence governments. In the UK, the Behavioural Insights Team (BIT) was created to apply ‘nudge insights’ with the aim to improve government policy and services. There are three basic ideas that define a ‘nudge’:
i) Nudges never force people to make certain decisions - a core principle is that, while ‘nudges’ may lead people in a certain direction, they never limit or eliminate options. The ultimate choice still lies with the person and in this way a ‘nudge’ is different from a rule or a law.
ii) Nudges leverage behavioural science insights about how we make decisions - ‘nudges’ are effective because they draw on mental shortcuts and cognitive and emotional biases which impact our behaviour. For example, ‘Save More Tomorrow’ works because it asks people to make a savings commitment in the future, i.e., when they get a pay rise in the future.
iii) Nudges are meant to be used for good - ‘nudges’ are meant to help us move from intent to action, rather than convincing or persuading us to do something that we had no intention of doing.
Swiss Re’s Behavioural Research Unit, based on more than 500 client engagements, has identified five main areas for behavioural economics to create value along the insurance value chain. Swiss Re saw a 20% increase in sales, 3% rise in underwriting disclosure, up to 10% reduction in ‘claim padding’ and 3% reduction in cancellations.
Top 5 areas behavioural economics is creating value for insurance
Source: Daily Fintech
Earlier this year, an academic paper published by Cornell University in the US, “Tokenising behaviour change: optimising blockchain technology for sustainable transport interventions” looked at how Blockchain technology and tokens could be used to influence behaviour and be a tool to help firms and society to be more ESG-compliant. The research paper examined four projects which use Blockchain technology to try and increase individuals’ adoption of sustainable transport by encouraging people to cycle and walk more.
Projects designed to increase the number of walking journeys and or cycling
This research paper concluded: “Blockchain technology can provide a technical infrastructure capable of facilitating different designs and implementations of tokenised economies to support conversion of journeys to sustainable travel behaviour. However, blockchain technology is just a part of the technical solution, which is reliant on evidence from external sources such as smartphone apps and supporting services that are capable of making informed and accurate judgements on distances users have travelled, whilst balancing motives of data gathering and protection of user privacy. New possibilities brought about by blockchain technology, from autonomous, and individually tailored, programmatic actions of smart contracts and the potential of DeFi to bring liquidity to token economies, offer a tantalising future for delivering engaging programmes to aid travellers in make sustainable choices”.
The above illustrates how cities are beginning to introduce Blockchain-powered initiatives so as to improve the ESG credentials of urban dwelling. In Vienna, the City Council has brought in the Kultur Token which tracks users’ movements and types of transport in order to calculate CO2 savings compared to if the users were driving a car. The more carbon emissions its inhabitants spare, the more points they generate - i.e, the more Kultur Tokens they are able to buy. Who would have thought that DeFi exchanges could become a key component in unlocking the value in reward tokens earnt or given to citizens when trying to ‘nudge’ our behaviour for improving societies’ ESG credentials?