Considering ESG Principles in Developing a Metaverse Strategy
The metaverse is adding a new layer to the traditional internet, rich with 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, assessing corporate performance according to ESG standards. Companies developing metaverse strategies would do well to consider the prospect of new technologies to help – or hinder – execution on ESG goals and how to provide evidence on each measure.
The Environmental Impact of Metaverse Adoption
The metaverse provides immersive experiences. Users can create their own worlds and even choose how the laws of nature apply in those worlds. But however otherworldly these applications may seem to the user, they rely on massive computing processes that have real-world impacts.
Investors increasingly insist on environmentally conscious companies. But data center processing burns energy, which can increase carbon footprints. For example, artificial intelligence and cryptocurrencies are core metaverse technologies. One recent study found that training a single AI model can emit as much as 626,000 pounds of carbon dioxide equivalent.1 That is nearly five times the lifetime emissions of the average American car. One 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 dramatically to reduce their carbon footprint, environmental concerns remain and should be accounted for.
On the other hand, virtual reality and augmented reality are ideal for remote work and collaboration. Properly used, they can dramatically reduce transportation-related carbon emissions from a nationwide or global workforce. In addition, many companies are creating "digital twins" of their warehouses or factory floors. Companies able to massively simulate industrial activity can streamline processes to produce more with fewer natural resources, reduce industrial waste and limit industrial accidents.
The Social Impact of Metaverse Adoption
Investors also insist on companies that are socially responsible, including with respect to workers. "Digital twins" can have substantial impacts on workplace safety, a key component of social stewardship. For example, one automaker that produces millions of cars with countless customizations created a digital twin of its factory floor in the metaverse. By so doing, the company was able to simulate virtually what it's like to have 300 cars running on a conveyor belt and identify which paths around the factory are safest for employees to use 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 enterprise values. As companies have learned from a flood of Americans with Disabilities Act lawsuits regarding websites and apps, virtual properties still have to take into account very real barriers some users will experience and support appropriate adaptive technology. Disparities in access to new technology among different communities will need to be addressed to avoid worsening the digital divide. The ability to customize avatars will present new diversity and inclusion concerns. Lastly, especially since some metaverse technology includes haptics (the sense of touch), reducing the risk of metaverse sexual harassment will be key.
The Governance Impact of Metaverse Adoption
All of these risks and opportunities require management. Investors insist that management from the board down be accountable, transparent, diverse and experienced. Many companies are adding a Chief Metaverse Officer, or its equivalent, as part of governance over metaverse risks.4 Others are spreading responsibility for metaverse adoption over multiple existing stakeholders. For most companies, either approach can be defensible as long as the pros and cons are addressed in a thoughtful way, appropriate to the circumstance.
Holland & Knight's Metaverse Strategy Team includes experienced attorneys who are recognized thought leaders in the field. The Metaverse Strategy Team represents dozens of clients, including Fortune 500 companies to technology startups, as these businesses navigate the metaverse landscape.