Sustainability and ESG credentials are under the spotlight now more than ever. While many companies are making commitments and claims around how green they are, there is a disparity in proving it.
Companies need to measure progress efficiently, accurately and securely, as this will help them in the pursuit of their achievements while holding them accountable in meeting their sustainability goals.
From the corporate perspective, we have seen a shift in how ESG is viewed and measured: some see it as a legitimate business strategy, others as a self-regulatory initiative, and some believe it to be the latest marketing spin. Irrespective of their motivations, most companies are taking action and it’s evident that positive ESG outcomes will have a huge impact on our society, resources and the planet.
Transparency, immutability, and auditability are three of the main characteristics of blockchain technology. So, it is no surprise that this technology has a key role to play as an enabler of sustainability.
There are countless areas where blockchain will help measure the environmental and social impact of value chains. However, there are a few misconceptions about whether blockchain is a true enabler of sustainability. In this article, we will try to shine a light on a few of these misconceptions and reiterate the importance of blockchain and digital solutions in creating sustainable value chains.
At its core, blockchain is a secure database of transactions that enforces rules and processes. One of the biggest misconceptions is that it has been linked to cryptocurrencies, which is one of its earliest applications.
When it comes to understanding blockchain, one of the main things to understand is that there are many types of blockchain implementations, depending on their build, configuration, and the desired business purpose. These can be categorised in three main types: private, public and consortium Blockchains.
From a technical perspective, there are many differences between them: privacy, ease of adoption, barriers of entry, etc. Without getting into the technical detail, let’s take a look at how sustainable they are.
Public implementations, usually linked to cryptocurrencies, such as Ethereum and Bitcoin, have an extensive energy consumption. The reason for this is also what has made them so popular. They are completely decentralised; they are run and maintained by the people who use them. The term for this is “mining” meaning that users are incentivised to maintain the network with an economic reward.
As you can imagine, this did not pose such an issue when they were not so popular, as the network of computers that were maintaining the system were not as big as they are today. Take a look below at the energy consumption of bitcoin: as the technology gained adoption, energy consumption grew.
On the other side, private and consortium implementations consume less energy. They usually run on cloud environments provided by Google and Amazon among others, meaning they consume the same as other cloud applications used by businesses.
The reason for the difference in energy consumption is a result of how each blockchain implementation verifies and validates information and transactions.
- On many public blockchains such as Bitcoin or Ethereum, in order to verify, validate and authorise transactions, dedicated and specialised computing equipment is used to solve highly complex mathematical equations, or “mine”, which results in another block of information being added and linked to the chain. This mining process is already highly energy intensive, as it requires hardware with considerable calculating power to run the necessary algorithms and resolve those equations.But as the number of transactions increases, this energy consumption becomes more of a critical issue.
- For private and consortium implementations however, the processing power and, subsequently, the energy required are much lower, as it no longer relies on those highly dedicated mining computers; instead, permissioned members, with their own devices or cloud services, validate and verify data. When a transaction needs to be verified and/or authorised, information is sent and cross-checked among all the other peers in the network, without the need to perform complex calculations, making it more energy efficient.
Over the past few years, Finboot has been helping companies like Repsol, Stahl and Iberia implement blockchain into their operations to help them achieve their ESG objectives, and many of our customers are actively using the technology to drive their sustainability and ESG agendas.
One element that is key in understanding how we can benefit from the technology is how connectivity and availability of trusted and reliable data can minimise the environmental footprint of your industrial process. For example, a blockchain-powered solution will reduce the need for on-site inspections or audits, which provides both economic and environmental benefits.
In addition, by using blockchain technology to verify transparency in a way that no other digital technology can, businesses can dramatically improve the way they measure and report their sustainability credentials.
The bottom line is that when it comes to blockchain there is increasing value and evidence of its applications around sustainability; and the technology is versatile enough to find ways to configure it appropriately, according to requirements.
There are numerous other opportunities when it comes to blockchain and ESG; in areas like sustainable fashion, renewable energy, and food provenance, to name just a few. Blockchain is becoming the standout technology to introduce traceability within industrial processes.
We are seeing an increase in the number of blockchain use cases and applications relating to environmental sustainability reporting and commitments. Brands such as Louis Vuitton, Mercedes Benz and Porsche, among others, are using the technology to track assets within their supply chain, validate sustainable information and record reliable data.
We expect a growing trend of companies to join and create consortiums in many sectors during the following years, as demand and pressure intensifies from customers, regulators and government when it comes to ESG requirements.
We believe that with public organisations becoming more preeminent in the blockchain sphere, we will see many more opportunities and use cases being explored in this area, and a greater adoption of the technology to serve ESG goals.
At Finboot, we are excited to pioneer the technology and improve ESG performance for world-class enterprise customers around the globe.
Contact us if you want to know more about digitally-enabled sustainability initiatives or more about the work we do to accelerate digital transformation, realise value, and build trust through blockchain technology.