Investors all over the world have increasingly applied non-financial factors known as Environmental, Social, and Governance (ESG) Investing into their buying processes. They use these factors as part of their analysis process to identify material risks and growth opportunities prior to purchasing—evaluating a firm’s conscientiousness for social and environmental factors. Unfortunately, though, it’s difficult to definitively prove an organization’s claims concerning said conscientiousness. That’s where blockchain and the immutable ledger technology come into play. So, can blockchain help us address issues like climate change, global poverty, and management structure? Let’s look at how blockchain can answer these ESG questions.
Crypto Countering Climate Efforts? Not Quite.
First, we must dispel a myth. Recently, environmental organizations have made statements pushing the belief that blockchain cannot address climate change because of the presumed high energy consumption. However, such a claim is an oversimplification of the facts; blockchain and its use cases are highly complex and rapidly evolving. While some crypto transactions have been found to use an unflattering amount of energy, the shift from the “proof-of-work" to the “proof-of-stake" model from Cardano and Ethereum allows transactions with these cryptocurrencies to use less energy.
UN’s World Food Programme’s Position
In fact, Experts at the United Nations believe that both crypto and blockchain can actually play an important role in sustaining development—actually improving climate conditions. The key to this is the transparency and immutability the decentralized ledger brings. As far as the UN is concerned, since the technology is resistant to tampering, the records of transactions can be trusted—which is particularly important in countries with weak institutions and high corruption.
But blockchain is so much more than cryptocurrency.
A World Food Programme (WFP) pilot program in Pakistan showed it was possible for WFP to quickly and securely get money to beneficiaries without the need to go through a local bank. Meanwhile, a project called Building Blocks was trialed at refugee camps in Jordan ensured that WFP could create a reliable online record of every transaction.
Blockchain can also work for refugees and other vulnerable groups. Authors at the UN Environment Program (UNEP) suggest that it can improve the livelihoods of waste pickers, who scrape by while living in informal economies. Their report indicates that the transparent monitoring system can accurately track where and how recovered waste is being used, who picked it, and ensure that the right people are being rewarded for their work.
Blockchain for Climate Change
The UN and other organizations have also been testing other ways blockchain can be used to protect the environment:
Illegal, unreported, and unregulated fishing has been a persistent problem in the Pacific region, so the World Wide Fund for Nature (WWF) developed a tool to eliminate illegal fishing in the tuna industry. As part of their ESG buying processes, consumers and retailers can use this tool more transparently understand the conditions under which the fish was caught. The tool allows a smartphone app to tell the story of a can of tuna: where and when the fish was caught, by which vessel, and the method used to catch it. This allows consumers to have certainty that the fish they’re buying was legally caught, sustainable tuna, and with no slave labor involved.
Illegal fishing is a problem in the Pacific region. Blockchain can be used to track where the fish is coming from.
In 2017, blockchain firm ConsenSys launched CarbonX, the first peer-to-peer carbon trading company which turns reductions in greenhouse gas emissions into a cryptocurrency to be bought and sold; this provides manufacturers and consumers with a financial incentive to make more sustainable choices. And since the data is immutable on the blockchain, there is minimal risk of fraud.
The Paris Agreement
Thirdly, UNEP formed a partnership with the Technical University of Denmark and the Danish Ministry of Foreign Affairs; this partnership is known as the UNEP DTU Partnership. They’ve identified three main areas blockchain can be applied: transparency, climate finance, and clean energy with one eye on fulfilling the goals of the Paris Agreement.
Additionally, blockchain can be an important part of accelerating the adaptation of renewable energy sources such as wind and solar. Since these are intermittent and decentralized, they are a good fit for implementing blockchain. This can help create markets for renewable energy and end our dependence on fossil fuels.
SIMBA for ESG
For businesses and environmental agencies alike, environmental, social, and governance standards should seriously consider using blockchain for transparent and secure data storage and accessibility. The standards that come with ESG are high ones, indeed, but they are the standards more and more buyers are using during their decision-making processes. As blockchain innovators, we’re excited to be a part of the imaginative ways the technology can and will be applied to solve the problems that we face today.