How NFT sustainability is crucial to brands' strategies

As brands look to capitalize on non-fungible tokens, they also must be prepared for potential backlash from critics who point to the environmental implications of the digital assets. Salesforce drew the ire of more than 400 employees after it announced last month that it was developing an NFT cloud service. The announcement came just a few weeks after the company aired a sustainability-focused Super Bowl commercial, prompting employees to sign an open letter denouncing the cloud service over environmental and economic concerns. The fallout has raised the question of whether it’s possible to balance sustainability efforts with the production of an NFT, which can use enough computing energy to emit as much carbon as a car that drives 500 miles. “[Sustainability] is not just important, it’s a requirement, and if you were to ask the biggest brands in the world why they haven't done NFTs, it’s because of their hesitation [around] energy efficiency,” said Mark Soares, chief marketing officer of Blokhaus, a marketing agency that works with the blockchain Tezos. Although Salesforce hasn’t said whether it will move forward with plans for the cloud service, other organizations, including the U.K. arm of the World Wildlife Fund (WWF) and gaming brands Team17 and GSC Game World, canceled their respective NFT projects after similar criticisms. What these responses show is that when executed without sustainability in mind, NFT collections can backfire on brands, regressing their presence in the metaverse. When considering how to make NFTs eco-friendly, brands must do so alongside their pre-existing stance on sustainability—especially as an energy-intensive drop could appear hypocritical. Eco-friendlier alternatives Tezos is one of the eco-friendlier blockchains being used to create NFTs, as opposed to Ethereum, which is currently the most popular chain for the market with around 80% of total share. While Ethereum currently uses an energy-intensive protocol called proof-of-work (PoW), other chains like Tezos, Solana and Cardano use a less intensive protocol called proof-of-stake (PoS). But PoS networks don't have as much experience as PoW networks, and are therefore not yet as trusted.(Ethereum plans to transition to PoS this summer, but until then will still be using PoW.) Moreover, heavyweight NFT marketplaces like OpenSea, Rarible and SuperRare do not currently support many of these PoS chains; and while OpenSea does support a network called Polygon that claims to be less energy-intensive, Polygon's inherent dependence on Ethereum has cast doubts on the extent of this lesser intensity. Brands that wish to use eco-friendlier blockchains therefore have had to turn to different NFT marketplaces. For example, Kia, which created its “Robo Dog” NFT collection on Tezos, used the Sweet platform, which supports the Tezos blockchain Carbon offset credits, which are certificates representing emissions reductions, are another alternative to enhance sustainability. The credits essentially work as donations to carbon-offsetting organizations and allow brands to ensure their overall footprint is at least carbon-negative. Some companies, like Moss, have tokenized their credits— or turned them into digital tokens—so that they can be baked into the actual NFT purchase. But implementing these sustainability strategies opens up more questions that brands have to consider. Is it wiser to choose an eco-friendly marketplace despite the user base being significantly smaller? Could NFTs still detract from a brand that depends on its ecological image? And even if sustainability is properly organized, how can a brand ensure that consumers, who are already skeptical of such technology, understand the difference between their drop and others? “The core NFT community doesn’t seem to care that much about the environment, but the brands do and the consumers are in the middle,” said Rupert Runewitsch, chief growth officer for Web3 venture studio Kollectiff. Don’t miss the latest news. Sign up for Ad Age newsletters here. Reconciling two strategies Honda, which has been working on an NFT drop with Kollectiff for one of its brands, didn’t want to use Ethereum, the most popular blockchain for NFTs, but also notoriously detrimental to the environment, according to Runewitsch. The car manufacturer has been vocal about its sustainability initiative, which includes annual reports, goals and plans for electrification; any unnecessary emissions through NFTs are therefore essential to avoid. Devising NFTs using extra environmental caution may be the right call for brands in industries, such as automotive, that depend on purpose-driven sustainability in their marketing. “With anyone who has a big agenda when it comes to ecology—it's difficult,” said Runewitsch. Circumventing so-called “FUD,” a term in the crypto community that stands for “fear, uncertainty, doubt,” should be top-of-mind for companies that don’t want to conflict with pre-existing initiatives, he added. Kia’s “Robo Dog” collection illustrates how a brand can not only avoid FUD through sustainable NFTs, but also use drops to further their efforts of corporate social responsibility. The Robo Dog character originates from Kia’s Super Bowl 2022 commercial for its new electric vehicle. By partnering with Sweet, Kia was able to extend the reach of the emblem while maintaining its environmental message. “I think using Sweet did make it compatible [with our sustainability efforts],” said Marisstella Marinkovic, director of marketing operations for Kia. “We activated in a way that we're able to connect with our CSR platform and in a way that we can continue to connect with our consumers on an emotional level.” For other brands, using a less eco-friendly chain may still be suitable alongside their sustainability strategies, as long as they are mitigating their impact elsewhere. Canned-water company Liquid Death will launch its Murder Head Death Club NFTs later this month using the Ethereum blockchain, but it says it will offset the collection’s emissions using carbon credits, as well as donate 10% of the royalties to charities that remove plastic waste. This could work because, in terms of environmentalism, consumer packaged goods brands like Liquid Death are most concerned about their use of harmful materials like plastic and other non-recyclables. By partnering with any one of the companies that deliver offsetting services—from Moss to Aerial to Pachama—Liquid Death can still eliminate its carbon footprint, but also bake in a charitable aspect that is more relevant to its sustainability focus. Another reason why using offsets may make more sense than eco-friendly blockchains is if a brand wants to activate where the most people are transacting. For Liquid Death, which has traditionally leaned on marketing tactics that stir up chatter, success in part meant maximizing its collection’s popularity. “At the time of development, we didn’t know if there’d be enough of a user base on one of the alternative chains for it to be an effective project. Ethereum was far and away the winner for NFTs,” Mike Cessario, CEO of Liquid Death, said in an email. Kia, on the other hand, felt that dropping the NFTs on the most popular platform was not a top priority for the project, according to Marinkovic. Education front and center Given that consumer backlash can be one of the quickest ways for an NFT drop to fail, brands cannot afford to assume consumers understand what makes their collections green. “The way that we look at it with our brands is you want to make sure that when you’re talking about [NFTs] in your press release, in your Instagram post, in your influencer content, you bring [sustainability] up,” said Evan Horowitz, chief executive of creative agency Movers+Shakers, which has previously worked with cosmetics brand e.l.f. on a collection that featured carbon offsets. “You want to make sure that your fans don't have a confused reaction based on all the information.” Education is needed in every facet of NFTs, but sustainability in particular is especially challenging to navigate. Most consumers are six to 12 months behind the education cycle, said Horowitz, which could help to explain why the relatively recent emergence of eco-friendlier platforms and carbon offsetting services has not done much to sway public opinion about NFTs in general. To expedite the catch-up process, brands should seek to educate consumers with additional assets as they would with any other product launch, said Blokhaus’ Soares. For example, soccer club Manchester United announced a sponsorship deal last month with the Tezos blockchain, and released a series of videos developed with Blokhaus to explain the network to consumers. In one of the clips, on-screen text explains that one NFT minted on Tezos consumes just the same amount of energy needed to send a tweet. For her collection launched last fall, which was also built on the Tezos chain, Doja Cat released a statement with the following excerpt: “I don’t know that much about NFTs. But what I do know is that they can be bad for the environment and cost a fortune. Mine won’t.” Gap released an NFT collection earlier this year and explained the environmental reasons behind choosing Tezos in all communications surrounding the drop, according to a Gap spokesperson. “As part of the company’s commitment to do the right thing for the planet, it has chosen to leverage Tezos, an open source blockchain, to create the customer experience,” per a statement in the original press release. “Tezos uses a more energy efficient approach to secure its network, allowing it to operate with minimal energy consumption and a low carbon footprint.” The brand also included several explanations for using Tezos on the collection's microsite. Kia, in contrast, made no mention in its press release that its Robo Dog NFTs were relatively green, illustrating what may have been a missed opportunity to separate its collection from the pack. Ultimately, brands need to circumvent the complexity of many of the concepts underlying blockchain technology, which may prove to be especially important in the coming months as Ethereum transitions to a PoS network, requiring yet more education. “There is an onus on the brand to [educate], because they know their user base better than anybody else, and they need to tailor their materials to actually resonate with them,” said Soares. Get your ticket for the April 5 Ad Age Next: Retail event at AdAge.com/NextRetail.

How NFT sustainability is crucial to brands' strategies

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