Abstract
Growing attention to environmental, social, and governance (ESG) concerns has prompted companies to incorporate conditions and obligations related to ESG indicators into their contracts and other agreements. Those contracts, defined as ESG metric contracts, include, for example, managers’ remuneration plans, supply chain and merger and acquisition agreements. Such contracts, however, are incomplete, as they do not account for all possible contingencies that may arise during the contractual relationship. This paper argues that smart contracts can mitigate some of the challenges associated with contract incompleteness, specifically in the context of ESG metric contracts. When considered as contracts, smart contracts have specific characteristics such as immutability and automation, which distinguish them from other forms of contracting. However, it remains challenging to incorporate all possible variables external to the blockchain into their cryptographic language. Consequently, a residual degree of incompleteness persists. Among the technological solutions created to address these questions, this work suggests that oracles and upgradeable smart contracts can be valuable tools, adding a needed layer of flexibility to these contractual relationships. In this sense, this paper aims to address these issues, analysing the pros and cons of the link between ESG metric contracts and smart contracts.