Three ways to use blockchain for ESG reporting

When companies talk about their commitment to ESG goals, they need tangible and quantifiable metrics to demonstrate their progress and compliance with regulators and customer expectations. However, collecting and monitoring these metrics can be difficult because companies often operate complex supply chains across regions and countries.

To show tangible proof of ESG progress, companies should leverage blockchain. An immutable database and digital record-keeping systems will significantly improve sustainability reporting and provide greater transparency and trust.

Blockchain technology serves as an immutable database and foundation of a sustainable information ecosystem to which new tools and services can be connected. There are three main uses of blockchain-based tools to improve ESG reporting.

As a gateway for data collection. Digital identity tools and Internet-of-Things sensors can facilitate transparent and trustworthy data transfer to a blockchain network. One-way data encryption can also be used when information is sensitive.

Smart contracts for periodic audits. Each report must match the data in the blockchain, and this verification can be done automatically through a smart contract. In addition, smart contracts can be used to automate and secure inventory management, resource replenishment, billing, and data exchange.

Tokenization for supply-chain resilience. Each item is tracked to its source in the blockchain. In this way, bottlenecks and ESG mismatches across the supply chain can be detected in real time.

Companies don't need to develop their own services to incorporate blockchain into their ESG reporting. Some of these technologies are already available as "as-a-service" models via the cloud.

Companies are already tracking their supply chains via blockchain. Energy giant Repsol, for example, is using blockchain to tokenize its supply chains. This applies to petroleum refining and petrochemical products. Thus, the creation of polyethylene and then plastic containers can be traced, confirming that they can be safely used and recycled. If carbon footprint, water use, and waste counters are linked to such a system, much of the ESG reporting can be automated. Traceability can demonstrate to stakeholders the absence of slave and child labor, the fair value of raw materials, and the actual environmental impact of the company.

In addition, there will no longer be opportunities for greenwashing or circumvention of regulations. Today, some companies segregate their assets according to their ESG risk profile and move some of them outside the realm of a public company. In this way, companies distance themselves from the industries that have the greatest environmental impact. The ability of stakeholders to trace products back to their sources forces companies to meet ESG targets across the supply chain if they want to be truly sustainable.

Several blockchain companies are working to lead the world to a regenerative economy. This is evident in the development of tokenized carbon credits, the growth of the agricultural data market, and the growth of companies with traceable supply chains. Real transformation, however, requires that companies be willing to make that change. They must truly demonstrate the environmental and social impacts of their value chains and be open about the successes and failures of their ESG goals.