How blockchain can maximise the potential of ESG initiatives

Juan Miguel Pérez

The growing role of ESG in business

Over the past few years, Environmental, Social and Governance (ESG) responsibility has become a key business imperative and it’s clear that it’s here to stay. It is now being discussed at the highest levels, as we saw at this year’s World Economic Forum (WEF) in Davos, where sustainability sat at the heart of the agenda, with themes including “How to save the planet” and “Better business”.

Corporates view ESG in a number of different ways: some see it as a legitimate business strategy, others as a self-regulatory initiative, and then there are those who believe it to be a new type of marketing spin. Whatever the motivations, it’s evident that positive ESG outcomes at a business level will have a hugely beneficial impact on our society. Central to this is ensuring companies can measure progress efficiently, accurately and securely, as this will help them prove that they have achieved what they set out to do, while holding them accountable for meeting their sustainability goals.

Validating ESG progress

When communicating ESG achievements, companies need quantitative metrics that verify their progress and authenticate what they are saying. Against a backdrop where corporate ESG activity is increasingly scrutinised by both regulators and ever more socially and environmentally conscious consumers, simply setting goals isn’t enough.

This means identifying key performance indicators (KPIs), measuring their position today, defining targets, and then developing and applying a plan to deliver these. As that plan is implemented, organisations must regularly report on their KPIs so that there is an auditable record of how they have come to achieve their goals.

Harnessing the power of blockchain

However, introducing traceability into ESG policies is easier said than done, as they often involve complicated supply chains spanning different geographies. In the face of this significant challenge, embracing technology is crucial if businesses are to prove they’ve delivered on their initiatives.

And which of the many digital technologies available should we look to when it comes to measuring sustainability goals? Blockchain.

Transparency and trust are the founding principles of blockchain, which, along with its immutability and ability to digitally represent assets moving along value and supply chains, makes it the standout technology to introduce traceability into industrial processes. 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.

Blockchain in action

Global energy giant Repsol is leading the charge on this and is already using blockchain to digitise some of its downstream supply chain - which means any resource that starts at a refinery or industrial complex before being processed into a product in subsequent supply chains. Here, blockchain is used to create a digital asset that mirrors the physical resource that will move along a supply chain, with that asset registering all of the characteristics that define the quality and regulatory compliance of its physical counterpart.

For example, in the case of a product like polyethylene, we could potentially trace the asset all the way up to the plastic container that is ultimately manufactured. Having traced this, we could recover the container and, through mechanical recycling, use it to produce new raw materials for a new batch of plastics, which could then be traced as well. This would certify how much primary and secondary raw material was used in production.

There are numerous other opportunities when it comes to blockchain and sustainability in the broader petrochemicals sector, with sustainable fashion being one example. Chemical dyes and plastics (petrochemical products) play a large role in the fashion industry and, by deploying blockchain, we can track their carbon footprint or how much recycled material is used in the manufacturing process.

Looking ahead

There are countless other areas where traceability could help to measure the environmental and social impact of value chains as, ultimately, any asset that can be measured and traced can provide evidence of achieving ESG objectives. What we have covered here is only the beginning of how blockchain can support sustainability. The two are becoming ever more interlinked and, as ESG requirements mature, I expect we shall see many more Blockchain applications over the course of 2020 that further demonstrate the valuable relationship that can exist between the two.