Blockchain and the importance of sustainability in modern technology

By Pratik Gauri

The fourth industrial revolution held the promise of increased productivity through the automation of manual tasks. It envisioned a world of unleashing human creativity and unleashing technological potential. While the jury is still out on whether it will keep its promise, what is alarmingly clear is the catastrophic impact it has had on climate change and sustainability. The “for-profit” paradigm of the fourth industrial revolution has caused excessive depletion of natural resources, climate change and loss of biodiversity. The need for a paradigm shift from profit to profit is relevant.

Sustainability is an integrative, holistic and long-term approach that advocates a balance between economic, social and ecological dimensions. Businesses today cannot simply look to profit maximization as the only metric for success. Building relevant businesses requires an inherent connection between sustainability and profitability. Sustainability in the technology of the new age can be driven through disruptive innovation supported by societal transformations towards a more sustainable and just world. Blockchain is a powerful way to do this.

Blockchain is a digitally distributed, decentralized ledger that helps verify and track multi-step transactions. A blockchain is basically a new form of data architecture that offers new transformational possibilities, much like the internet in the 90s or the smartphone in the late 2000s.

Most notable among the features that blockchain technology has brought is its distributed and immutable ledger and advanced cryptography, which brings trust to large computer networks.

Blockchain technology works as a distributed ledger system that uses data in communications or transactions stored in a publicly accessible decentralized network of digital blocks (Moll & Yigitbasioglu, 2019). Each of these blocks contains a digital signature and time stamp, which makes the individual blocks practically immutable (Kokina et al., 2017; Nakamoto, 2008). The digital blocks are arranged together according to a complex mathematical logic – a process called ‘hashing’ (Nakamoto, 2008) – to form a chain of blocks, hence the name blockchain.

The trust developed with the immutability and security of the blockchain can be used in two critical functions that currently require immediate attention. These two functions are monitoring and certifying a company’s environmental, social and governance score, or ESG score, and finding a solution for the unbanked and providing them with identification.

ESG score:

So far, the environmental, social and governance information about a company is primarily self-reported, individually assessed data.

What is unusual and challenging about sustainability-focused investment analysis is that companies’ sustainability disclosures do not need to conform to shared standards in the way that their financial disclosures must. Years of efforts by standard-setting groups have produced nearly a dozen major reporting frameworks and standards, which companies can use at their discretion (see sidebar, “A Brief Glossary of Sustainability Reporting Terms”). Investors must therefore reconcile corporate sustainability disclosures as best they can before attempting to make comparisons between companies.

Additionally, the problem with current ESG reporting is the fact that there is a significant disconnect between the use of different standards by different companies to report their ESG performance, which is largely self-reported, voluntary and often unreliable, and the financial reporting that investors rely on to make investment decisions. According to Kenneth Pucker, former COO of Timberland, a company committed to sustainability, “The link between accelerating ESG activity and confidence in its results should serve as a wake-up call for companies and investors alike.”

What we need are the ESG scores designed to transparently and objectively measure a company’s relative ESG performance based on publicly reported data consistent with the underlying ESG data framework and is a transparent, data-driven assessment of companies’ relative ESG performance and capacity , integration and accounting for industry materiality and firm size biases.

ESG performance should also be based on verifiable publicly reported data, including the most comparable company assessments and scoring processes.

Included in practice must be the data that is updated on products more regularly, such as every week, including recalculation of ESG scores, in contrast to the overwhelming practice of companies where ESG data is updated once a year in line with the companies’ own ESG communication.

Digital identity:

With the ever-evolving and innovative world of Blockchain, the newfangled concept of a SoulBound Token or SBT may finally be the answer we need to develop, a one-of-a-kind unique token, which, unlike an NFT, can only be owned by one entity and one unit alone.

Created in collaboration with the Proof of Attendance protocol, this new Ethereum token standard combines Self-Sovereign Identity elements with a new token standard and Decentralized ID (DID).

DIDs and SBTs are used together to provide a complete digital identity management system. Users who want to create a complete digital identity management system can choose between a DID provider and an SBT provider.

The DID provider enables users to create and verify their digital identity with a public key. The SBT provider allows the user to create a secure, private database linked to the public key used to create the digital identity.

This can further be used to verify the individual’s identity and proposals to put certificates (e.g. driving licence, university degrees, proof of age) in the chain to also provide personal identity shares in various institutions.

As an entrepreneur in the blockchain ecosystem and founder of one of the world’s fastest unicorns, I will always be an advocate for combining profitability with sustainability to actualize a better future. This article talks about two ways we can consider this, but I’m optimistic that with the increased use of blockchain, we’ll see use cases not only in ESG and identification, but across the ecosystem.

The author is the founder and CEO, 5ire

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