How distributed ledger technology can provide the backbone for transparent ESG reporting.
The drumbeat of sustainability has become impossible for companies to ignore. Faced with pressure from their boards and their customers, leaders must confront the fact that they will not last long unless they prioritize sustainability in their business model.
Of course, this also extends to the manufacture of sustainable products. The continued habitability of our planet requires environmentally sound practices – but even at the pure profitability level, the days of extractive, carefree production are over.
Customers are willing to pay a premium for sustainably produced products, and they are just as willing to do business elsewhere if sustainability is ignored. But how can companies prove that their products are actually sustainable?
Distributed ledger technology (aka blockchain) could be the answer they’re looking for.
We trust in transparency
At every link in the supply chain, companies need to collect and maintain information about where materials come from, who produced them, and how and when those materials get from one place to another. That’s easier said than done.
Organizations have traditionally managed their extremely complex supply chains with siled, fragmented systems. This lack of end-to-end supply chain visibility makes it difficult to track basic supplier information — let alone monitor progress toward sustainability goals.
Without transparency, they cannot track progress, which means they cannot prove to their stakeholders that they are delivering on their sustainability promises.
This is where the blockchain comes into play.
Blockchain is a distributed ledger technology that has the potential to reshape supply chain management by creating transparent networks where businesses and vendors can interact and transact. Organizations can use blockchains to synchronize their systems of record, making it possible to publicly disclose ESG indicators and demonstrate their commitment to reducing environmental impact.
Blockchain for sustainability
Many of us think of cryptocurrency when we think of blockchain, but its use cases are far more varied.
As a digital, decentralized public ledger existing on a network, it has emerged as an unlikely but promising ESG solution. This is because data stored in a blockchain ledger cannot be edited. This unique property makes the blockchain a perfect candidate for maintaining accurate and trustworthy sustainability data.
Currently, many organizations manually collect data at every link in the supply chain. By using distributed ledger technology to capture information digitally in real-time – and very close to the source when IoT sensors are involved – companies can track carbon emissions from the factory floor to the shelves. This level of transparency gives companies insight into how and where they can reduce their carbon emissions.
Follow the environmental journey
According to McKinsey research, up to 90% of a typical consumer goods company’s carbon footprint comes from its supply chain. Therefore, it is equally important that blockchain technology can help partners, suppliers and providers – even competing organizations – to work together by promoting digital trust through the exchange of data. With distributed ledgers to manage a complete history of transactions, stakeholders can be confident that the information has not been tampered with and can accurately track a product’s digital footprint throughout its journey.
This idea is not science fiction.
A project team at Heineken used blockchain to track a batch of hops used in one of their regional Dutch beers. The team followed five hop varieties from farm to bottle. The blockchain recorded the ecological footprint and agricultural origin of the bottle and measures water and fuel consumption. When the beer hit shelves, consumers could scan a QR code on the bottle to see the environmental route their drink had taken to reach them.
Blockchain allows companies to tell a verifiable story about their products, both in the physical world and in the nascent metaverse.
Environmental sustainability is just one use case for blockchain technology.
Companies can use distributed ledgers for social sustainability and governance. For example, pharmaceutical companies can collect data on a blockchain that identifies and tracks prescription drugs. This data collection can prevent consumers from falling victim to counterfeit, stolen, or harmful products. Banks can use physical assets such as B. land titles, on a blockchain to keep an immutable record and protect consumers from fraud.
In supply chain finance, companies can use distributed ledger technology to reconcile the downstream flow of goods with the upstream flow of payments and information. This can help level the playing field for smaller financial institutions.
Sustainability must be seamless. ServiceNow recently partnered with Hedera to help organizations easily adopt digital ledger technology on the Now platform. This partnership provides a seamless connection between trusted workflows across organizations. Projects like SUKU in the Hedera ecosystem demonstrate how companies can connect their supply chains and tell an auditable story about their products, both in the physical world and in the evolving metaverse.
Consumers need to be confident that the products they need are ethically made. At the same time, companies should be able to track their progress against sustainability benchmarks without any additional effort. Adopting blockchain technology is a crucial step in building a seamlessly sustainable future for all of us.