Blockchain holds the key to solving ESG’s crisis of confidence
It is difficult to exaggerate the importance of trust in society. For businesses, trust is the key to true success of any kind. Without it, transactions cannot happen, influence is undermined, managers lose teams and salespeople lose sales. The trust we have in colleagues, partners and customers to deliver correctly and on time is a core pillar of how organizations function and thrive.
In other words, trust allows us to do things that would be nearly impossible if we had to verify everything ourselves. If we can trust, we don’t need to verify, and that is precisely what has been crucial to the success of so many businesses.
But when it comes to tackling climate change – undoubtedly one of the biggest threats facing our future – this confidence is fundamentally misplaced. We are constantly looking for new ways to do our part to help reduce carbon emissions, but when we dig a little deeper, we quickly realize that our efforts are far more futile than previously thought. What emerges is a worrying picture in which the system we put our trust in is far less effective in tackling the climate crisis than we are led to believe.
The advent of distributed ledger technology (DLT) has emerged as one of the most effective ways to bridge this “trust gap”. As the need for a more rigorous climate change strategy grows, now is the time to examine how we should use DLT to truly shift the ground on which environmental, social and governance (ESG) claims are anchored.
There is little confidence in the climate crisis
Let’s take the simple act of recycling a plastic water bottle, for example. Most of us will try to recycle an empty plastic water bottle. When faced with a generic garbage versus recycling, we choose the latter where possible. We do our part, or so we are told, to help reduce plastic waste and greenhouse gas emissions.
Shockingly, less than 10% of everyday plastic in the UK is actually recycled. In the US, this figure is as low as 5%. This is not because we do not recycle; the average recycling rate for UK households is estimated at 44%. However, due to a whole series of problems related to logistics, resources and infrastructure, most of the plastic waste still ends up in landfill.
The same trust gap exists at the company level. Increasing pressure to meet ESG criteria, increased media scrutiny and increasingly complex and fragmented regulatory requirements – while remaining competitive – have led to some perverse results from the world’s leading companies. Today, the temptation to “greenwash” a problem rather than confronting it has never been greater.
We cannot deal with the climate crisis unless we trust the very tools, frameworks and system we have at our disposal. To do so would be trying to navigate a maze blindfolded. We must rebuild this trust to protect the environment.
Bridging the trust gap with blockchain
A complex system requires a complex response, but the first step we must take is to gain full visibility of these complexities.
It may therefore be surprising to learn that blockchain – the same technology that underpins bitcoin and all its energy-intensive baggage – can help provide this visibility. DLT exists at its most basic level to build trust in complex systems. Blockchain maintains a complete history of past transactions in the network, meaning the user can track the data with full transparency.
This technology opens up a new area of accountability. Remember that plastic bottle you threw in the recycling? The traceability of data that blockchain offers makes it possible to verify whether that plastic bottle ended up being recycled.
The same verification process can be applied to other resources and materials. DLT means that if a unique QR code was used on a laptop, for example, it would be possible to track what the laptop was made of, whether it was made up of recycled materials and how it was built. And when that device is no longer useful, the same QR code can determine the value of raw materials such as earth materials and lithium, all of which are in short supply.
The use of blockchain can therefore transform how we use resources, so that we can distribute them where they are needed most. Whether used in a supply or waste chain, the tracking and traceability of raw materials and manufactured products can provide the much-needed visibility to make real progress against the climate crisis.
Goes from theory to practice
The road to net zero is still open. But it is impossible to navigate this path unless we have a clear view of the challenges ahead and the resources available to us, and ultimately trust the solutions we implement.
This means overcoming the short-term administrative burdens associated with integrating new technology into our business and using these tools at scale. DLT is a really exciting prospect in this transition and has huge potential to restore trust and radically improve the way we manage natural resources. As we move into 2023, we must prioritize utilizing this technology before the scale of today’s environmental challenges becomes out of reach.
