How Blockchain Tech Can Power ESG Initiatives That Really Work

Consumer trust, greater transparency, and granular traceability—blockchain on Kaleido has the power to eliminate greenwashing from ESG reporting.

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Benefits of Blockchain for ESG

“Blockchain will save the planet.” It sounds like a bold statement considering all you’ve read about the energy it takes to mine coins. But the truth is that blockchain goes beyond crypto. It offers a solution for people who want to build, manage, and report on environmental, social, and governance (ESG) initiatives.

Organizations like the Task Force on Climate-related Financial Disclosures (TCFD) are calling for increased reporting of climate-related financial information. Consumers are demanding value-based companies and products. The distributed ledger is a path forward. Let’s talk about how.

Trust

The distributed ledger helps companies measure the impact of their business on the environment, down to the source of energy powering a plant, and know their records are immutable and true.

Transparency

Climate and social-related disclosures can be manipulated. The distributed ledger and the communal accountability offered by the blockchain makes real-time impact records available to consumers, investors, and regulators.

Traceability

The immutability of the distributed ledger in the financial space is a model for how ESG metrics can be maintained across borders, throughout a supply chain, and across sectors—ensuring the granular data needed to tackle climate change.

ESG Use Cases

ESG is a measure of environmental responsibility—how a company handles waste, water, and impacts the environment; social responsibility—which uses metrics to measure how a company treats its workers and clients; and governance—a measure of how well a company is run. This is a good framework for comparing companies, but it’s always been difficult to track.

Blockchain reports environmental impact in more detail, automates reporting, and preserves records. This gives consumers, managers, and investors more visibility into the practices of a company.

Let’s take a deeper look at specific use cases for blockchain in ESG management.

Increase Consumer Trust

Blockchain technology can track ingredients along a supply chain to ensure quality. This lets ESG managers report on the environmental impact of the production of goods throughout a supply chain and share accurate data with consumers.

Meet ESG Compliance Requirements

ESG metrics are self-reported, which is easier for large cap companies with the right personnel. Reporting is harder for smaller companies. A distributed ledger enables all parties to easily track standards and automate compliance reporting.

Add Traceability to Supply Chains

We’ve talked about how to make supply chains more efficient. We can also apply chain-of-custody records to the sourcing of ingredients. A recent Starbucks program is an example of how blockchain can follow a bean from field to cup.

Track Greenhouse Gas Emissions

Blockchain-backed emission reporting brings carbon footprint measurement into the modern age, as communal governance, granular data, and standardized metrics give ESG managers full visibility—down to the exhaust on a supply truck overseas.

Smart Grid Management

Big changes starts at the local level. Greater visibility into energy usage in our cities, neighborhoods, and homes will help utilities coordinate with more renewable sources—sustainable wins that are visible in ESG reports.

Create Carbon Markets

Voluntary carbon markets (VCMs) and trading on a peer-to-peer scale, all made accountable with blockchain technology, will drive our global push for net neutrality and help ESG managers meet consumer demand for more responsible products.

Streamline Carbon Finance

Green bonds, carbon trading, and innovative fintech solutions like peer-to-peer payments are possible on a distributed ledger where ESG managers are empowered to seek value-based investors and grow an audience of mission-buying consumers.

Blockchain for good.

Kaleido technology matched social and environmental impact projects with investors to help the World Wildlife Fund scale funding on the blockchain.
Read the Case Study

Challenges Facing ESG

The World Economic Forum has made strides to unite global companies around standard metrics. But record keeping, sharing of data, and tracking sustainable efforts throughout the supply chain remains a challenge for many companies who want to grow responsibly and attract value-based investments.

In addition to measuring impact, companies need to choose a blockchain platform that is less energy intensive. Where Bitcoin’s Proof of Work requires a lot of energy to operate, enterprise solutions like Fabric, Geth, and Cord do not.

There are a number of challenges facing ESGs, but it’s not holding the industry back. According to the National Law Review, ESG assets will exceed $53 trillion by 2025. This means if companies are going to meet consumer demand for values-based companies and products and investors desire for conscious brands to invest in, they need to act now.

Why Choose Kaleido for ESG

Kaleido's platform offers more than 40 plug-in-play services to help entrepreneurs, nonprofits, and regulators get to proof of concept faster. With a few clicks, you can create a network and build a consortium of like-minded institutions immediately and make real progress toward a greener future for your business.

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Support for Multiple Blockchain Protocols
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FAQs

What is ESG in blockchain?

ESG stands for Environmental, Social, and Governance. It is used by companies to measure their impact on the environment, workers, and clients. Blockchain technology is an immutable database that can help track supply chains, performance metrics, and make impact more consistently measurable across industries.

Do digital assets fit in an ESG portfolio?

Is blockchain environmentally friendly? Cryptocurrencies, NFTs and the public blockchains which support them have a legacy of requiring very large amounts of energy to securely achieve consensus. Through the use of environmentally-responsible consensus algorithms and fully carbon-offset side-chains, enterprises can sustainably mint both fungible and non-fungible tokens for ESG purposes. These digital assets can be used to provide provenance and proof-of-ownership for environmentally and socially responsible activities such as carbon reduction. The transparency provided by the underlying blockchain provides clear audit trails and permits both enterprises and consumers to make responsible choices regarding the goods and services they consume.

Is blockchain bad for the environment?

You may have heard about the negative effects of Bitcoin on the environment, but the truth is that not all blockchain protocols are created the same. There are many that have very little environmental impact at all.

The key comes down to how the blockchain achieves consensus for which blocks to add to the blockchain. Bitcoin uses a Proof of Work (or PoW) consensus algorithm that requires energy intensive computers solving difficult math problems to come to consensus. However, there are other consensus mechanisms like Proof of Stake (which Ethereum is migrating to) or Proof of History (used by Solana), that do not involve the same type of energy intensive mining used by PoW based chains.

Besides those examples from public chains, there are a number of popular enterprise blockchain protocols like G0-Etherum, Hyperledger Fabric, Quorum, and Hyperledger Besu that use less energy intensive consensus algorithms including Proof of Authority, IBFT and Raft. These protocols are popular choices for companies looking to create blockchain-based solutions with energy usage comparable to any other modern web applications.

How does blockchain improve privacy?

In the context of an ESG, blockchain facilitates the “need to know” sharing of information. The blockchain can automate customs and regulatory submissions, track goods and the transfer of products, and maintain the provinces of items, while encrypting proprietary data. For example, say a company wants to publicly share the organic origins of an ingredient, but wants to hide where the item was bought and how much it costs. Blockchain can facilitate this level of ESG reporting and protect business data along the way.