Corporation: It is no longer acceptable for them to simply say that they are reducing climate emissions. They should take quantitative action, says Mark Johnson of FileGreen Coin at Protocol Labs.
Verifiable climate credentials and standards for environmental and social governance (ESG) reporting are becoming a focal point for investors, consumers and policy makers. However, the system to evaluate ESG-based stability metrics is in disarray.
The core competencies of blockchain technology, transparency, efficiency and data-driven fairness can be leveraged to improve ESG reporting, as well as ESG supply chain tracking.
A variety of financial and social pressures are forcing corporations to prove their environmental performance with accurate metrics. International climate initiatives such as the Paris Agreement are playing an important role in setting climate impact targets.
Policy makers in the European Union and the US are also moving rapidly to enact stricter laws. In March, the SEC proposed rules to enhance and standardize climate disclosures for investors. The rules would require publicly listed companies to include certain climate-related disclosures, such as greenhouse gas emissions, in their registration statements and periodic reports.
Similarly, the European Union has adopted the Carbon Limit Adjustment Mechanism (CBAM) and the Corporate Sustainability Reporting Directive. This is to pressure companies to adopt a more sustainable curriculum.
Corporations: Blockchain to the Rescue
In response to these proposals, corporations that want to appear sustainable as well as economically viable are responding rapidly. More than half of the S&P 500 companies incorporate science-based goals to reduce greenhouse gas emissions into their framework.
Even more shocking, more than 2,600 companies have signed up to join the Task Force on Climate-Related Financial Disclosure. They all mean one thing: Climate revelations are driving decisions and strategies. They are increasingly important in determining how a business maximizes its market value.
To implement climate disclosure, it is necessary to innovate our current ESG practices. They are currently plagued by data quality issues, measurement and reporting discrepancies, silent platforms and infrastructure challenges.
Because ESG systems attempt to solve a global problem that requires global coordination, they are challenging to design. Furthermore, they are not managed by a single company or country. Blockchains offer a potential solution to bridge this issue, as they are able to handle coordination globally without the effort of a single company or team.
Blockchain can be used to build a robust ESG strategy with a robust data reporting mechanism. Companies need reliable measurement and reporting of environmental data. This ranges all the way from the extraction of raw materials to the production and consumption of everyday products.
The infrastructure used in the blockchain provides a platform that can support data transparency, as well as enable data standardization.
Undoubtedly, the technology has environmental impacts. But much of this work is specific to the proof-of-work consensus mechanism. Commitment to alternative consensus mechanisms is contributing to the improvement. Instead of dismissing it outright, we should consider important use cases for that technology that go beyond economic benefits.
Due to its tamper-resistant nature, blockchain is a reliable and transparent way to ensure data integrity. The tools used in the blockchain network are specifically designed to enable companies to collect verifiable data and generate trustworthy reports. This proves his ESG credentials. Because of this, it has the potential to improve ESG and supply chain reporting.
Supply chains are currently responsible for 90% of companies’ emissions and environmental impact. The decentralized digital infrastructure of blockchain will enable supply chain partners to comprehensively account for the goods moving along connected supply chains and their associated emissions.
By investing in blockchain-based monitoring and reporting tools, corporations will be able to increase transparency and verifiable efficiencies in the ESG reporting process. They can gain a better understanding of their supply-chain emissions. As a result, corporate entities no longer have to rely on inaccurate data from error-prone suppliers to determine their environmental impact.
Humans are only beginning to understand the full extent and interrelationship of the climate crisis. The reality is that we have a common planet, and we cannot deal with climate change in national silos. Reaching net-zero by 2050 will require innovative solutions globally.
By using blockchain networks as an alternative tool, ESG reporting methods could be replaced with something that is far more open and verifiable.
Blockchain networks are particularly well suited to provide this increased transparency and verability, helping enterprises monitor supply chain operations and their associated emissions.
About the Author
Mark Johnson works at Protocol Labs at FileGreen Coin. Protocol Labs is an open source research, development and deployment laboratory. Projects include IPFS, libp2p, and more. Its aim is to improve human existence through technology.
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