ESG stands for Environmental, Social, and Governance, and aims to establish an assessment of companies’ social and environmental responsibilities. The term ESG is used by investors to evaluate corporations and determine the future financial performance of companies. In so doing, it is very useful in helping “socially responsible investors” make their choice as to where to invest. In addition, environmental and social factors are becoming more and more important in determining the value of a company. Environment factors are related to the conservation of the natural world, a social factor related to consideration of people and relationships, and governance about the standard of running a company.
To appraise the sustainability level, ESG reporting is widely adopted especially to know more about the listed companies. However, due to the lack of data confirmation, consistency, and transparency, the ESG-based sustainability assessment is still insufficient. As the importance of ESG metrics increases, the demand for dependable data measuring also increases. With a lack of an industry- wide set of standards, however, they can be difficult to come by and the lack of verified and standardized ESG data can be a significant problem. To solve and overcome this problem, blockchain, and distributed ledger technology, in general, has the potential to provide a safe and transparent tool to overcome this obstacle.
Why Blockchain?
Blockchain provides sureness of accuracy and transparency of data due to its tamper-resistant quality. It is a decentralized database of records, or “blocks,” which can only be updated once all the other blocks confirm this change. This conforms to the accuracy of the stored data.
Notably, to facilitate raw data authentication issues a blockchain is intended. To transfer the data of smart infrastructure/devices to the blockchain network, it plays the role of a light node, which satisfies both transparency and privacy. Secondly, a smart contract mechanism is developed to verify the consistency between the raw data and the final ESG report. As compulsory corporate and sustainability reporting becomes more commonplace, correct and verified documentation to support transparency will be key. Therefore, there are two different areas where blockchain can help with compliance with ESG standards which first is supply chain transparency and second reporting of data.
ESG Reporting
Access to exact, standardized information is most important. Blockchain potentially viable reporting tools allow companies to collect correct examination data, and generate trustworthy reports that reveal their ESG credentials. A platform is needed to support data transparency Blockchain provides us that platform, while also enabling data standardization. The automation of data collection can be connected with other digital technologies such as the Internet of Things (IoT), which makes it possible for various devices to communicate with each other and share data and information without the need for human intervention. Using blockchain as an infrastructure for this device-to- device communication ensures that all the data transferred between devices is genuine and above all, properly encrypted so that it cannot be changed without authorization.
In terms of accountable and ethical sourcing Blockchain plays an important role. The clearness it provides can be necessary for tracing the materials and goods from source to end-use. Blockchain also helps to ensure security for all participants by allowing them to access the records of transactions at any time.
Conclusion
Blockchain is constantly expanding its area, and with time it finds more and more uses. It is a
modern technology with far-reaching possibilities and at present, one of the most fascinating ones is the opportunity to help ESG reporting. Blockchain ESG supply chain tracking, become more transparent, standardized, and trustworthy. New blockchain use cases bring new legal challenges like data privacy, IP rights, liability in case of system breakdown, competition issues, and many more.