ESG and blockchain: a world of possibilities
The complex issue of blockchain often arises when planning a state-of-the-art electronic data processing system. With regard to ESG and new regulatory requirements, companies now face numerous challenges, such as the Supply Chain Due Diligence act, in their efforts to address the myriad information obligations and the needs of their stakeholders. Creating a blockchain can make this easier.
A blockchain is a growing chain of record blocks that various stakeholders have consented to use. It uses tamper-proof cryptographic mechanisms to manage data stored decentrally in a distributed infrastructure in a way that leaves an audit trail. This makes it possible to verify data records, events, or transactions (for example, involving cryptocurrency) in a reliable and transparent manner. It thereby eliminates the need for middlemen and the need to collect data manually, for example through questionnaires.
The use of blockchain technology in a value-added chain or supply chain within the context of ESG is somewhat controversial though due to the Bitcoin network’s high level of energy consumption, among other things. However, it’s also good to highlight the potential of blockchain solutions. For one thing, the controlled use of private blockchains instead of public blockchains requires significantly less energy. In addition, it provides a sustainable opportunity to provide greater data security and transparency in terms of ESG criteria while at the same time minimising the cost and effort involved. The resulting synergies and resource optimisation provide additional added value.
What does this mean specifically for ESG?
The regulatory requirements, the effort required to collect data, and the costs associated with sustainability and data governance are increasing for companies. This creates a growing demand for effective data management which, in turn, requires a high degree of efficiency in the data collection, data validation, and transparent reporting to avoid any cause for complaints in the associated audits.
In addition to collecting corporate data – such as energy consumption (E), diversity and inclusion (S), and supervisory structures (G) – increasingly more partner, supplier, and customer-related data must be evaluated according to ESG criteria. Collecting and validating this data requires an enormous effort because within a global value-added chain or supply chain, the processors, dealers, and manufacturers increasingly demand a deeper and more comprehensible transparency in the supplier processes. This is required to avoid being seen as promoting or being associated with any wrongdoings such as forced labour, child labour, and environmental pollution.
However, it's not always just about the clear advantages of the value creation chain or supply chain of products, resources, and corporate data. The control and security of digital information in data-driven industries, where information is a part of the service itself, is a very important and exciting field of development. In financial services, for example, blockchain can be used efficiently for data collection and validation ("know-your-customer principle") to eliminate the risk of financing criminal or terrorist activities. In asset management, for example, ESG data from potential financing assets can serve as a reliable basis for rapid verification.
How can you benefit from blockchain?
A key advantage is the automation of data acquisition. This enables data to be stored transparently for all the participants within the network while simultaneously also fulfilling the regulatory requirements faster and more accurately. The automated, tamper-proof generation of the data also guarantees its integrity, which saves vast effort in the validation of this data.
A significant advantage results from the synergies created because distributing the computing power across multiple servers saves energy and provides virtually unlimited scalability. In addition, smart contracts (computer programs with predetermined conditions) can be used to handle value transactions automatically. This means that companies only have to pay for services that have actually been provided to them. This can significantly help optimise resource efficiency.
How Mazars can assist you
Our experts will be happy to offer you strategic advice. With our in-depth project experience, we will gladly assist you in planning and choosing the right solution to address the issue of blockchain by helping you introduce the right measures at the right time. It is important to deal with this matter early to benefit most effectively from the possible advantages for corporate development. We stand by you, ready to help.
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Stefan Weddemar Senior Manager Frankfurt on the Main
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