Op-ed: Is blockchain quickly becoming the solution for ESG?


The following is a guest post by Fly Air Inc CEO Stuart Bullard.

ESG is in the spotlight, and executives at major corporations are starting to take sustainability seriously. Corporations understand that they must measure, report, and manage their emissions efficiently. Some have even set their net-zero commitments, creating many challenges to overcome.

Carbon offsets or carbon credits are permits. Owners can emit a certain amount of carbon dioxide or other greenhouse gases. Bank of America estimates that carbon offsets to ensure companies meet these sustainability commitments must grow 30 to 50 times. Some posit the true number is closer to 300 times.

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It won’t be inexpensive. Microsoft has annual emissions of about 16 million tonnes. Based on what a carbon offset costs now, which is between $2-$20, it could cost Microsoft tens or hundreds of millions to comply.

Capital Allocation And Regulation

Needless to say, corporations face significant challenges in meeting both these disclosure requirements and managing their exposure to these issues. Blockchain could aid in two general categories: capital allocation and regulation.

Many who direct capital to the energy industry want to shift away from fossil fuel to cleantech. The fossil fuel sector has a legacy of detailed and well-known parameters that come into play–credit exposure, types of risk, capital allocations, etc. Banks, financial institutions, and investors are familiar with that process, in which spreadsheets can calculate the exposure risk many decades ahead.

The clean tech industry doesn’t have that history nor the same degree of models. On the one hand, it’s an advantage for those companies without a real revenue stream because they receive capital from governments that don’t look at credit exposure. They are most concerned with allocated capital into preferred industries, products, and services. On the other hand, private enterprises wouldn’t touch these companies due to their lack of profit.

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Blockchain can help private capital to enter into sustainability markets, particularly when it comes to pricing. Europe is currently working to create pricing standards, allowing private capital to examine models to determine how to allocate capital. Blockchain’s ability to govern the provenance of a carbon emission–where it took place, if it can be resold, who are the governing bodies, etc.–assists with associated risks around legal ownership and more. There will be a variety of pricing for carbon emissions, and the market will be constantly changing. Blockchain can keep track.

Many companies worldwide are now faced with requirements stipulating they must report emissions. They are being asked to take measurements along the entire hydrocarbon value chain to get the numbers required by disclosures. (UNICEF, for instance, has proposed track and trace capabilities alongside the entire value chain for specific industries)

Blockchain is a good candidate because it can track pieces of data as they change provenance, and is also immutable, which energy companies prefer. ESG can apply the same methodology to unleash the potential of increased transparency alongside the value chain to better report on ESG. This makes the jobs of regulators easier, too.

A Logical Application For Blockchain

The energy industry players have been around for a long time. And their systems and processes have been around for 30-40 years. As companies adopt new carbon offsets and credit permits in the trading world, they’ll work in a technological environment dating back to the seventies.

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Let’s consider how one gets a price for commodities such as co2 emissions. It behaves similarly to the traditional commodity markets, creating a bearer document that can be exchanged for a commodity. Blockchain can improve the industry with smart contracts, smart invoicing, pricing clarity, validation, etc.

It can also increase efficiency, making business processes quicker and smarter, leading to adoption and enabling and improving sustainability. By automating smart contracts on a secure and immutable blockchain, entities along a supply chain can be incentivized to contribute to sustainability goals.

There’s no time for delay. One can already buy credits today from a farmer’s field in Saskatchewan or the rainforest in Brazil, and blockchain will promote the overall stability of the system while providing a protocol that is accessible and testable. Blockchain can standardize global markets and create a transparent and immutable system of carbon credits.

Posted In: Adoption, Opinion

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Author: Stuart Bullard

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