There is an increasing focus on the Environmental Social Governance (ESG) credentials for organisations as governments, shareholders, staff and consumers are challenging companies to be able to authenticate and prove that the business practices they employ are sustainable for the wider economy and society. The EU has announced that it is looking to issue €250billion of Green Bonds (debt instruments to fund projects that have positive environmental and/or climate benefits) and this helps to explain why the Green Bond
market, which only started in 2007, has grown by 95% p.a. The chart below indicates that the demand from investors seemingly continues to grow as they allocate an ever-rising proportion of their capital to sustainable investing.
% of High Net Worth’s portfolio allocated to sustainable investing
According to EY: “Blockchain technology provides distribution and trust to serve ESG needs and should be provided as a utility, to focus on value instead of technology.” Indeed, in analysis carried out by EY, it also found that: “98% of institutional investors now evaluate non-financial metrics for investment decisions”,
adding further, “Financial metrics will be combined with ESG data type, providing insights and forward looking information for the decision-makers. As a consequence, blockchain will play an important role in the intelligent value chain”. The reason EY can make such a bold claim about blockchain-powered platforms is because this technology has the ability to bring transparency to the very complex supply chains which transport the plethora of raw commodities and manufactured goods around the world. The ability to track and trace commodities dug from the ground or grown in fields and then shipped thousands of miles to another country is now made possible using blockchains, together with other technology such as Internet of Things (IoT) QR codes, Radio-frequency identification, barcodes etc.
Companies such as Minehub and Covantis are good examples of how Blockchain technology is being used to solve the challenge of tracking goods, whereby enabling organisations to assure their customers of the provenance of the goods they are buying and their ESG credentials. Minehub, established in 2019, allows the buyers and sellers of minerals and metals to see, in real time, where their commodities physically are as opposed to relying on analogue-based procedures that historically required couriering or having
documents emailed. Meanwhile, Covantis is a trade organisation that is run on the Ethereum Blockchain and has worked closely with ConsenSys. It is designed to help the agriculture industry be more efficient and be able to track and trace goods that are being moved across the world. To learn more about how Covantis functions, ConsenSys has complied a useful case study about which you can see more information by clicking here.
With its website stating, “Guaranteeing Authenticity and Quality”, AgriLedger is another firm that has actually implemented a blockchain-powered solution resulting in farmers across Haiti receiving up to 7.5 times the amount they would have been paid to grow mangos, avocados etc. AgriLedger’s blockchain powered platform enables farmers to track and trace the whereabouts of their produce is as it is shipped from Haiti to the USA. Recently, when talking to Genevieve Leveille, CEO of AgriLedger, she said:
“Traditionally, when designing equitable systems, we often focus on the consumer. If we were to start with the smallest or the most removed members of the supply chain, we find they often don’t see much transparency in the value chain that they are a part of. This can be acerbated by the lack of record management, and this creates great opacity that limits their ability to participate in the financial ecosystem and creates a great disadvantage. With AgriLedger we aim to promote the aspect of ‘Clear Trade’ – this is not about what is fair as fair can be something that is relative to an individual’s sense of entitlement. However, if we can achieve a mechanism where data is trusted and immutable, then we can look to rebalance the stakes and create a system where rewards are based on effort not just risk taking. Blockchain Technology allows for a record of what has happened and removes the doubts allowing for better collaborations among parties that normally would not be willing to have faith and trust in one another”.
Everledger was one of the first companies to use Blockchain technology to track and trace supply chains, so shining a light on the sustainability practices of the firms that use its platform. Recently, the Everledger platform has been harnessed by Cygnet Bay Pearl farmers so its clients will be able to have a digital certificate that records the history and provenance of the pearls they have bought.
Source: Cygnet Bay Pearl farmer
Meanwhile, a company that is using Blockchain technology to help monitor and assist organisations in meeting their ESG targets is Watr. This is worth keeping an eye since one of its co-founders, Maryam Ayati, has huge experience in the commodities business (having been ex-chairperson of the highly successful Vakt) and has led Shell’s LNG and Marine businesses. Furthermore, Watr’s co-founder, Clint Nelsen, also established Startup Weekend, which has a following of over 2 million developers and people looking to set up their own businesses.
However, it is not merely a question of being more efficient and therefore waste less food or minerals etc but being able to monitor the sustainability of farming and mining methods and enabling the end consumers to be more aware of the original source of the goods they are consuming. Simply by using QR codes on a product the end consumer can see who has grown the produce/made the item etc and, in time, it could show the carbon footprint or other ESG information. The question actually is, how long will it be before we see governments insisting that such information is made available as they tackle the challenges around climate change and monitor companies’ ESG credentials?