How Blockchain Technology Can Support Corporate ESG Credentials

 Blockchain, due to its tamper-resistant nature, fits as an assurance of accuracy and transparency of data. This decentralized database of records is designed to facilitate raw data authentication problems. The technology acts as a light node to transfer the data of smart infrastructure or devices to the blockchain network, which satisfies both transparency and privacy.

Environmental, Social, and Governance (ESG) is an approach to evaluating a company’s corporate social and environmental credit score compiled from data collected and related to the intangible assets of a company. The social credit scores provided rank companies’ negative effects on the world, for instance, pollution and modern slavery.

The significance of ESG in determining the value of a company is increasingly becoming evident. Recently, the value of global ESG assets was estimated to exceed $53 trillion by the middle of this decade.

As mandatory corporate and sustainability reporting becomes common, accurate and verified documentation to support transparency becomes essential. Therefore, to comply with ESG standards, blockchain technology is essential.

Data Reporting: Access to accurate, standardized information is key. Blockchain-enabled reporting tools allow companies to collect verifiable data and produce trustworthy reports that demonstrate their ESG credentials. Blockchain enables data standardization, while also providing the platform needed to support data transparency. The automation of data collection can be braced with other digital technologies, which allows various devices to communicate with each other and share data and information without the need for human intervention. Utilizing blockchain for this device-to-device communication guarantees that all the data transferred between devices is authentic and properly encrypted to prevent unauthorized alteration.

To reduce the carbon footprint globally, companies can report all their emissions through a single blockchain platform, thereby making a standardized space for data to be collected and tracked reliably, consequently allowing for meaningful measurements.

Supply Chain Transparency: An essential part of achieving the EU's sustainable goals is by improving supply chain sustainability. Blockchain shows the potential to transform supply chain management. Using distributed ledger technology, it provides a digital system and database to record the transactions along the supply chain, thereby bringing transparency, efficiency, traceability, and reliability to supply chain management. Blockchain, using (Internet of Things) IoT, can automate data collection across different points of a company’s supply chain. The relevant data doesn't have to be secured from potentially error-prone suppliers, and companies can therefore have greater control over their environmental impact. This automation and real-time availability of information also help companies detect issues faster and reliably trace the problem back to the source.

Blockchain plays a role in terms of responsible and ethical sourcing. The transparency it provides is crucial in tracking the materials and goods from source to end-use and helps ensure security for all participants by allowing them to access the records of transactions at any time.

Examples of Companies That Are Taking Advantage of Blockchain To Support Their ESG Credentials

SABIC

In November 2021, Saudi Basic Industries Corp. (SABIC), aiming to investigate the possibilities of blockchain technology in supporting end-to-end digital traceability of circular feedstock in customer products, launched a pilot project with technology firm Finboot, packaging specialist, Intraplás, and advanced recycling firm, Plastic Energy.

According to SABIC, Finboot will act as a middleware layer, tracking TACOIL produced by Plastic Energy from its recycling process and delivering this oil to SABIC for conversion into its Trucircle polymers, and finally conveying the polymers to Intraplás for conversion into its packaging solutions. Finboot’s MARCO software solution, using the blockchain technology, will reduce costs, and time, and improve data integration for value chain partners while ensuring that all data gathered remains immutable as it's being shared across suppliers, customers, and regulators, providing transparency, auditability and accountability in a complex industrial ecosystem.

The collaboration seeks to demonstrate the feasibility of using a blockchain-based value-chain IT application to improve the process of tracing the journey of feedstock through the petrochemical value chain and assist the delivery of that product to customers.

Shell

Shell, one of the leading energy companies in the world, recently embarked on an ambitious energy transition agenda in a bid to move away from the use of fossil fuels toward green and sustainable energy. It aims to reach net-zero carbon emissions by 2050 or sooner, as well as reduce scope one and two emissions by 50% by 2030. To do this, it is leveraging game-changing technologies, such as artificial intelligence (AI), the internet of things (IoT), Web3, and – as highlighted in this article – Blockchain.

Blockchain's decentralized and tamper-proof nature makes it an attractive technology for global organizations like Shell, which need hyper-secure, scalable technology solutions to pilot a new generation of applications involving gathering and sharing valuable data. Shell has created a blockchain-based system that can demystify the complex web of sources.

Also, to ensure all-day consumption of green energy, Shell is creating highly granular certificates in real-time at the source where the energy is generated to represent the green energy produced every half hour, in sync with fixed energy attribute certificate systems. Every point of that electron’s journey, from production to consumption, is tracked and recorded on a blockchain.

Shell, aiming at increasing the availability and use of sustainable aviation fuel (SAF), is collaborating with Accenture, and American Express Global Business Travel (Amex GBT) to work on a new project, Avelia, which already has reached the pilot phase. Avelia is one of the first public blockchain solutions that creates a credible and transparent way to help decarbonize the aviation sector.

The Beauty Sector

For the beauty industry, which has a long-time dependence on agricultural ingredients – production practices for which have often not prioritised sustainability – hazardous chemicals, eye-catching packaging, and constant replenishment, the adoption of sustainable values is particularly challenging.

Recently, the industry has been under pressure from both consumers and regulatory authorities: Regulators are vowing to tighten up regulations following reports of mislabelling of ESG investment products, while consumers are also becoming more educated about greenwashing. As the demand for transparency increases, the sector is therefore being compelled 'to do more' – and to provide the evidence.

Some beauty brands are considering the potential of blockchain as a tool to improve transparency while some have already adopted the technology. For example, in 2019, Provenance joined forces with British e-tailer Cult Beauty to provide “proof points'' on the product pages of participating brands. With these, customers can examine and compare claims made by brands, such as easily recyclable packaging or cruelty-free status, with the confidence that the information is unedited and has been independently evaluated — because it is in the blockchain.

Positive Luxury is also using blockchain to improve transparency and make it easier for brands to track their progress. The London-based firm accredits ESG efforts through its Butterfly Mark.

Drawbacks to Using Blockchain to Enhance ESG Credentials

There has been a lot of negative press regarding the enormous amount of energy used to power the Bitcoin Blockchain. When Elon Musk stopped accepting Bitcoin as payment for its Tesla Range, he stated that “Tesla would stop accepting the cryptocurrency as payment because the so-called mining of the coins used too much fossil fuel-generated electricity.” Even with the current dip in the cryptocurrency market, a single Bitcoin is worth around $23,500. There has, however, been awareness of the impact that investments in these can have on the environment. Given these environmental concerns surrounding cryptocurrency and the increasing importance of ESG, an appropriate question to ask is if these two developments are compatible.

According to the University of Cambridge Centre for Alternative Finance, Bitcoin mining consumes more energy than the UAE or the Netherlands. It consumes about 0.4% of global energy and up to 150 TWh of electricity per year. This immense energy usage has generated a lot of concerns, especially as the focus on climatic change increases.

Another consideration is the social plan; blockchain and ESG clash in their social plans. The social part of ESG includes human rights, diversity, financial inclusion, and consumer protection. Although blockchain protects the vulnerable from oppressive governments and permits the purchase of cryptocurrencies by intrested individuals, thereby promoting financial inclusion, it may also promote illegal conduct, such as evasion of exchange regulations and tax fraud. Also, the exchanges on which cryptocurrencies transactions are made are poorly regulated, leverage is provided by a shadow bank that isn’t regulated as a bank, and this may violate consumer protection.

Cryptocurrency, due to its loose regulatory and enforcement structure, is appealing to people who want to boycott the network of regulations and fines that control traditional currencies and financial markets. Its decentralized nature and pseudo-anonymous structure make it a useful tool to avoid financial sanctions.

Conclusion

The increasing interest and popularity of blockchain has brought light to the various impacts it has. It is a technology with far-reaching possibilities. Although there are certain incompatibilities and challenges, there is however the potential for digital assets and blockchain to assist a green transition and address ESG concerns.