Blockchain can move ESG business relations to a new level and significantly benefit companies that adhere to the principles of social responsibility. There are several major improvements that distributed ledger technology (DLT) can bring to sustainability.
Non-financial reporting and ESG compliance have already become part of current business processes. There are approximately 2,000 individual ESG reporting indicators and 600 ESG ratings
. Many stock exchanges display ESG criteria, and some require ESG reporting for listing.
However, ESG accountability comes with challenges and requires provability, standardization, and automation to be trustworthy and useful for decision-making. Sustainability indicators should be measurable and verifiable, and data collection should be automated. Blockchain and several other new technologies could become the solution and the cornerstone of a solid ESG architecture. Fortunately, Big Data, the Internet of Things, and DLT can be combined to create the flow of digitized, verified, and tokenized data that the private sector desperately needs.
The Principles of Responsible Investment
, an investor initiative in partnership with the United Nations Environment Programme (UNEP), explores the benefits of blockchain for ESG investing
. The main use case is financial inclusion through microfinance, where blockchain technology gives companies and private investors in developing countries access to financial instruments. Solutions include payments and transfers, currency exchange, loans and investments, and decentralized decision-making tools.
Companies are exploring the opportunities of blockchain technology not only in the financial sector. Many organizations are experimenting with blockchain-based innovations to improve sustainability
and meet a range of existing needs.
One such need is to increase the transparency of supply chains
. Records on the blockchain cannot be hacked or forged, and stakeholders can view the entire transaction history in any company's supply chain
and analyze whether the materials come from ethical, environmentally friendly sources. Due to the availability of such data in the blockchain network, it’s possible to reduce losses and counterfeits, increase compliance of interactions with third-party contract manufacturers, and strengthen the organization's reputation. With deeper and more complete ESG data, companies will have a better understanding of their progress and strong points.
Blockchain could be the cornerstone of a solid ESG architecture
Blockchain can move ESG business relations to a new level
Companies must use DLT platforms to bridge their ESG data gaps
Blockchain also has applications for responsible corporate management
. Shareholder meetings, choices, and decisions can be recorded in the blockchain to reduce the risk of conflict and protect data that facilitate business decision-making.
Blockchain technology can enable more efficient human resources management and a more engaging employee experience through more efficient recruitment processes, more secure transfer of sensitive data, and more comprehensive learning and development ecosystems. Such blockchain applications can also help improve the well-being of employees, which is becoming an increasingly important indicator of the health and performance of an organization.
ESG reporting and ratings vary greatly. There are no global standards, which is one of the biggest challenges associated with ESG reporting. Blockchain architecture can increase the transparency and consistency of ESG reporting standards and make non-financial accounting more meaningful
for global decision-making. Some companies are already working on developing blockchain use cases for the ESG data exchange platform.
Given the ongoing disruptions in the social sphere, companies need to do much more to explore how DLT-enabled platforms and blockchain can help bridge their current ESG data gaps. Technologies that can build trust and stability in the growing ESG market already exist. The next step is to find suitable localizations and use cases, an energy-efficient blockchain architecture, and a suitable set of tools for data processing and sharing. Today, it’s short-sighted for companies to ignore the positive impact of blockchain on ESG in light of the narrow debate about energy consumption around Bitcoin.
MediaArticlesFour Blockchain Benefits for ESG Market