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Consideration of ESG principles in the development of a metaverse strategy – Corporate Governance – United States

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The metaverse adds a new layer to the traditional internet, rich in virtual and augmented realities. At the same time, the environmental, social and governance (ESG) movement is developing new criteria by which companies will be judged by investors, evaluating company performance against ESG standards. Companies developing metaverse strategies would do well to consider the prospect of new technologies to help – or hinder – the execution of ESG objectives and how to provide evidence on each metric.

The environmental impact of adopting the Metaverse

The metaverse offers immersive experiences. Users can create their own worlds and even choose how the laws of nature apply in those worlds. But as alien as these apps may seem to the user, they rely on massive computing processes that have real world impacts.

Investors are increasingly insisting on environmentally conscious companies. But data center processing consumes energy, which can increase the carbon footprint. For example, artificial intelligence and cryptocurrencies are core metaverse technologies. A recent study found that training a single AI model can emit up to 626,000 pounds of carbon dioxide equivalent.1 That’s nearly five times the lifetime emissions of an average American car. A researcher reports that “an average Ethereum transaction consumes 60% more energy than 100,000 credit card transactions, while an average Bitcoin transaction consumes 14 times more energy.”2 While data centers and cryptocurrencies are changing drastically to reduce their carbon footprint, environmental concerns remain and must be addressed.

On the other hand, virtual reality and augmented reality are ideal for remote work and collaboration. Properly used, they can significantly reduce the carbon emissions associated with transporting a national or global workforce. Additionally, many companies are creating “digital twins” of their warehouses or factories. Companies capable of massively simulating industrial activity can streamline processes to produce more with fewer natural resources, reduce industrial waste and limit industrial accidents.

The social impact of adopting the metaverse

Investors also insist on companies that are socially responsible, including towards workers. “Digital twins” can have a huge impact on workplace safety, a key element of social stewardship. For example, a car manufacturer that produces millions of cars with countless customizations has created a digital twin of its factory in the metaverse. In doing so, the company was able to virtually simulate what it is like to have 300 cars rolling on a treadmill and identify the safest paths around the factory for employees during a shift.3

At the same time, companies will need to take thoughtful steps to ensure that their metaverse properties are inclusive and safe and support company values. As companies have learned from a flood of lawsuits under the Americans with Disabilities Act over websites and apps, virtual properties still need to consider the very real barriers some users will encounter and support the technology. appropriate adaptive. Disparities in access to new technologies between different communities will have to be addressed to avoid aggravating the digital divide. The ability to customize avatars will introduce new diversity and inclusion concerns. Finally, especially since some metaverse technologies include haptics (the sense of touch), reducing the risk of metaverse sexual harassment will be essential.

The impact on governance of adopting the metaverse

All of these risks and opportunities require management. Investors insist that management, starting with the board, be accountable, transparent, diverse and experienced. Many companies add a Chief Metaverse Officer, or equivalent, as part of metaverse risk governance.4 Others spread the responsibility for metaverse adoption across multiple existing stakeholders. For most businesses, either approach can be defensible as long as the pros and cons are handled in a thoughtful way, appropriate to the circumstances.

Footnotes

1 https://www.verdict.co.uk/metaverse-environmental-impact/.

2 https://www.ey.com/en_uk/digital/metaverse-could-creating-a-virtual-world-build-a-more-sustainable-one.

3 https://www.cbsnews.com/news/metaverse-amazon-bmw-lockheed-martin-adobe-digital-twin/.

4 https://www.spencerstuart.com/research-and-insight/so-youre-looking-for-a-chief-metaverse-officer.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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