Blockchain is an important component for inclusion within a company’s ESG implementation framework.
Efficiency is no longer the only focus of a company’s supply chain. Operations that ran with little margin for error were completely disrupted by the global pandemic leading to shortages and rising prices. Now these systems are being rebuilt and, in response to consumer and investors‘ requests, their impact on ESG considerations are being addressed.
Precise and timely information is required to allow for periodic adjustments to assure the company’s ESG goals are being met. Environmental pollution, shortages of raw material and natural resources, workforce health and safety incidents, labor disputes, corruption/bribery and geopolitical considerations are just some of the ESG factors that must be closely monitored. The verification of the accuracy of this information is crucial. And it is exceedingly complex when the supply chains cross multiple geopolitical boundaries. Blockchain, a relatively new technology known best for cryptocurrency, can play a key role.
As recently noted, “Transparency and trust are the founding principles of blockchain…By using blockchain to verify transparency in a way that no other digital technology can, businesses will dramatically improve their sustainability credentials and reporting procedures.”
Some companies, such as BMW, have pioneered the use of blockchain, “…in purchasing to ensure the traceability of components and raw materials in multi-stage international supply chains.”
Launched in 2018, Topl, provides blockchain sustainability verification to companies that may not have the internal resources to implement this relatively complex technology. The CEO of Finboot, another company providing blockchain based supply chain verification said, “Using blockchain technology, companies are able to record the journeys of their products more accurately and more cheaply…every time a product changes hands within the supply chain, its precise location and time-stamp is documented…from its manufacture through to its sale.”
Blockchain has its own ESG issues to resolve. The process requires high energy consumption, especially “proof-of-work” cryptocurrencies like bitcoin, although other, less energy demanding alternatives (proof-of-stake) are becoming more popular. Blockchain can also play a role in promoting greater use of renewable energy and to enable carbon offset.
The momentum for blockchain and ESG is growing. Forbes notes, “…the potential for this technology far eclipses the cryptoasset space. Alongside the growing expectation for more varied and continuous information, blockchain has the opportunity to assist ESG reporting become more consistent, standardized, and effective. Technology and sustainability do not always go hand-in-hand, but the simultaneous rise of blockchain and demand for ESG has the opportunity to change that for the better.”
Besides giving companies better control of their supply chains, blockchain based information allows stakeholders and rating services to identify potential greenwashing. Integrating blockchain technology into a company’s decision-making processes will greatly increase economic efficiency and promote a sustainable future.