Exploring the bindings
The drive for economic growth often sits in tension with the moral impulse to preserve environmental health. Economic value can be created by extracting and exploiting physical resources, and cost savings can be realized by degrading public goods. In the 21st century, however, emerging technologies are creating the opportunity to realign incentives so they point towards both economic and environmental goals.
Our protocol, here presented as an investment framework, focuses on two key technological domains which each represent profitable opportunities in their own right and, when combined, create an unprecedented opportunity to understand behavior and redesign individual and organizational incentive structures at a local, regional and global scale to promote decarbonization and sustainability.
The two spheres of focus are spatial data technologies including remote sensing, IoT and advanced analytics; and Web3 technologies including blockchains, oracles and smart contracts. Together, they form the constituent components to build sustainability-linked antifragile systems in areas as diverse as finance, mobility, machine governance, environmental impact assessment and others.
So far …
Our investment framework is derived from our early work to design a protocol for connecting empirical sensor measurements with smart contracts.
In many ways, these two spheres — spatial data technologies and consensus networks — do not fit together very easily. Spatial data volumes are not compatible with the high cost of storing data on chain. The computational cost of performing sophisticated spatial data analytics also means that public blockchains are not ideal computing platforms for these algorithms. With smart contracts, digital assets can be programmed — an immense opportunity, but also an immense security risk. Developing production-grade systems which include spatial data capture, analytics and sustainability-linked smart contracts will require substantial technological development. This said, the maturity of these technologies is also developing rapidly.
The investment opportunities we have identified rest on a blend of technological, economic, social and regulatory processes which are converging to create the conditions where we could make money and drive substantial, measurable environmental impact. Our aim would be to identify a diverse portfolio of investment opportunities in each of these two spheres, while developing the technologies and protocols required to connect them. Below we detail the opportunities that exist in each domain, along with key layers of the protocol stack we are designing.
Our framework aligns with many of the companies in the Social Capital portfolio, including Aclima, Airmap, DroneSeed, Groq, Relativity, SailDrone, Swam, UrbanFootprint, and others. Deployed through the lens of the Web3 Spatial protocol, these capabilities have a framework to advance humanity by solving the world’s hardest problems. By investing in a portfolio of companies serving each layer of the Web3 spatial protocol stack, we can accelerate our capability to monitor our ecological state and adapt our incentivization mechanisms to promote sustainability and decarbonization.
The Two Spheres
Spatial Data Technologies
Our approach is based on our understanding of the value of information, and its flow from point of capture to point of influence. Our collective capacity to observe what is happening on and around Earth is growing as the Information Age progresses.
Almost 63 years ago, humanity launched its first satellite into orbit; today there are thousands of satellites in orbit, including over a thousand remote sensing devices monitoring physical characteristics of the Earth and its atmosphere. What’s more, the cost of placing sensors into orbit is plummeting, as is the cost of the instruments — while the resolution of data capture capabilities is maintained or improved.
Satellite imagery is intensely useful to commercial, government, non-profit, academic and private consumers. Furthermore, technology is developing rapidly, including the ability to directly monitor environmental conditions such as greenhouse gas emissions, maritime shipping patterns, air quality. Customers range from governments, intelligence and law enforcement agencies to corporates to hedge funds to environmental auditors. The market for commercial satellite imagery is growing rapidly, especially as less and less technical expertise is required to derive insights from such imagery.
Advancements in remote sensing represent a small component of the overall development of our collective capability to monitor human activity. The Internet of Things — a global network of connected devices — is capturing information about every aspect of human activity. As IoT devices are increasingly embedded in our infrastructure and the assets we interact with every day, our situational awareness capacity develops.
How does remote sensing and IoT connect with our aim to decarbonize and mitigate climate change? Objective observations of physical characteristics of the Earth and its natural and human systems include signals which will enable us to:
- Identify major emitters of carbon, methane and other GHGs, even if they don’t submit ESG reports, or publish misleading reports. Coupled with a global public asset registry, this environmental surveillance capability allows us to intervene with carrots and sticks to ensure firms behave sustainably — and support capture and storage initiatives.
- Identify system-wide opportunities to improve efficiency — for example, enhancing operational efficiency of flight routing, shipping and logistics, or autonomous vehicle networks.
- Insure natural systems, letting us rapidly unlock capital and intervene to assess damage and preserve critical systems and natural assets in the event of a disaster.
In order for data captured by edge sensors to be most useful, we will aim to increase the use and capabilities of secure enclaves. Trusted IoT has multiple advantages over devices using traditional processors. Data can be hashed and digitally signed at the moment of capture, providing integrity guarantees. Furthermore, it can be encrypted at the edge, meaning the device owner can be self-sovereign: they can have full control over the information collected by their assets throughout its life cycle. This dovetails nicely with emerging Web3 technologies such as the Ocean Protocol data marketplace and NuCypher’s proxy re-encryption products, which will enable access to plaintext data to be granted in a sophisticated, trustless and automated way, while remaining encrypted from end to end.
Spatial Analytics and Visualization
The evolution in our capacity to capture data is only useful due to a concurrent capability we are developing: our ability to analyze this data, and derive meaning from it. This step forms a key layer of our protocol stack: reams of spatial data is not useful to smart contracts due to prohibitive costs of processing and storing it on chain. We will identify and invest in promising firms that are developing spatial data analytics and visualization products.
By extracting meaningful insights from spatial data, firms and governments can make more effective decisions. These have use cases ranging from planning and construction to transport, public health, emergency services, the ocean economy, retail, insurance and even finance. We will identify firms developing domain-specific products that will help support the transition to sustainability of each of these industries.
One that immediately comes to mind is Sylvera, a startup “using machine learning and satellite data to track the performance of carbon offsets”. By attaching meaningful metrics of offset performance, consumers — especially corporate consumers purchasing offsets to achieve net zero emissions — are able to more appropriately value offsets in the market. This incentivizes offset issuers — i.e. carbon offset projects — to ensure the efficacy of the projects. Sylvera is one of many companies working to improve situational awareness, thereby improving the efficiency of the global economy’s transition to sustainability.
We recognize that spatial analytics and visualization is a key link in the chain from data to impact, and would allocate an appropriate proportion of our fund to cultivate this ecosystem.
The final layer of the spatial data sphere of our investment framework is the data storage capability. For this, we would primarily rely on existing players in this growing market, but would assess the option of investing in distributed data storage projects such as Protocol Labs’ IPFS / Filecoin, Arweave, 3Box, or potentially any more IoT-data focused storage projects.
Given the importance of interoperability, we would emphasize projects that adhere to standards and specifications such as the SpatioTemporal Asset Catalog specification. Furthermore, we would build on prior work to develop the capability of self-sovereign users to own and control their data assets by using public and pairwise private decentralized identifiers to reference spatial datasets. This would enable individuals, firms and governments to have full control over their spatial assets — a key enabler of the oncoming autonomous vehicle revolution, and critical to its justness.
Web3: consensus networks, blockchains and smart contracts
Consensus networks, blockchains and smart contracts — together called Web3 technologies — are evolving to create a durable shared reality in the informational domain, controlled by no one, governed by a strict, transparent set of rules. We believe that this evolution will continue to complement — and eventually, in some ways outcompete — our legacy systems, and come to underpin the functioning of our global society.
Beyond the hype, blockchains and smart contracts are proving that — in appropriate cases — they can provide substantial cost savings over traditional processes, and sometimes enable applications that weren’t possible in legacy computing systems.
Our investment strategy will seek to accelerate the development of Web3 technologies contributing to sustainability and decarbonization. We see many avenues to achieve this, but three stand out as having particular opportunity to create impact and to drive economic growth.
Decentralized spatial finance
Spatial finance is “the integration of geospatial data and analysis into financial theory and financial practice”, according to Dr Ben Caldecott, the director of the Sustainable Finance Programme at the University of Oxford. Integrating geospatial data and analysis with decentralized finance applications, which run on smart contracts, holds extraordinary potential to design incentives that are closely tied to pro-environmental actions.
For example, we are developing a prototype sustainability-linked bond with a fluctuating interest rate based on whether a predefined ESG goal is actively being pursued or has been met. Despite the emergence of such tools, there’s a general criticism towards companies “greenwashing”, meaning that a company mostly announces pro-environmental actions for PR reasons without actively pursuing it.
A debt instrument linked to sustainability metrics derived from observations captured by connected sensors therefore creates a binding financial commitment to such goals. We can monitor a company or a community or an institution’s ecological footprint using IoT sensors and earth observation technologies like satellite imagery, and adjust their financial capabilities based on these measurements.
According to HSBC, bonds issued using blockchains realize almost 90% cost savings over traditional bond issuance processes. The potential to disrupt the global bond market — which is worth nearly $100T — while linking new issuances to sustainability metrics derived from the spatial data technologies described above holds the greatest promise to overcome institutional inertia and make a rapid shift to decarbonization. The global financial system is the central nervous system of the global economy — a sort of pressure point. Our aim is to exert pressure on corporate decision-making by affecting their bottom line, making it the economically rational course of action to preserve environmental health.
Sustainability-linked bonds are just one area of innovation in the emerging sustainable finance toolkit: we would aim to invest in a diverse portfolio of firms leveraging spatial data and analytics to develop products profiting off of the transition to sustainability. Changes in the regulatory environment are facilitating this, enhancing the potential profitability of sustainable behavior.
Another area stands out here: parametric insurance. Last year it was announced that a group of stakeholders in Quintana Roo, Mexico established the Coastal Zone Management Trust, which is dedicated to preserving the health of the coral reef that prevents coastal erosion and serves as a draw to tourists. The trust purchased an insurance policy for the Mesoamerican Reef that pays out should wind speeds in a pre-defined geography exceed 100mph, meaning reef damage is likely. This enables local stakeholders to rapidly assess reef damage and repair before irreversible erosion occurs.
This model could equally apply to other ecological systems — forests, glaciers, waterways, fish stocks, wildlife, etc — especially as reliable, privacy-preserving observation methods develop. These policies will be further enabled due to the efficiency distributed ledgers and smart contracts can offer to the insurance industry. Each of these parametric insurance plays rest on the accurate capture of the parameters which trigger a payout, explaining the emphasis on the first sphere of the investment framework.
Transport and Mobility
The autonomous vehicle revolution holds immense promise to improve the efficiency of our transport networks and reduce the contribution of one of the most substantial sources of greenhouse gas emissions. It also has many unanswered questions, perhaps the most important of which: how can we develop safe, efficient autonomous vehicle networks that function across jurisdictional boundaries while still allowing for market competition? The free market is critical to drive innovation and exert downward pressure on costs, but some sort of pre-competitive cooperation is necessary to make sure vehicles are able to understand the local rules of the road and interact without colliding.
Again, here smart contracts offer great promise to reduce coordination costs by providing a single, authoritative data store for governments to share information with vehicles, and vice versa. Building self-sovereign mobility networks based on trusted IoT and end-to-end encrypted data marketplaces, secure multiparty computation and other privacy-preserving information technologies, we can create a system that captures the benefits that our enhanced situational awareness can realize while still respecting the individual’s right to choose privacy, and potentially profit off of their personal information.
Our investment framework would allocate capital to firms working on this frontier, from software companies developing algorithms for autonomous vehicle operation to companies analyzing network dynamics and providing routing information. As we design these networks, we have the opportunity to build ethical and efficient systems. We have built an early prototype of such a privacy-preserving mobility network, and would seek to accelerate the growth of firms using blockchain and other peer-to-peer information technologies enabled by asymmetric key cryptography to create secure, resilient transport and logistics networks.
Each of the commercial opportunities described in this section on Web3 rely on the spatial data capabilities described in the prior. Together, these two spheres hold enormous potential to find unprecedented efficiencies in critical processes across our economy. Our investment framework would seek to evolve the ecosystem of firms that, when they are connected, can bend incentivization mechanisms so the profit motive sits in alignment with the aim to preserve environmental health. This is far and away the fastest path to decarbonization we have identified.