Blockchain in ESG investing
- What is blockchain?
- How it applies to ESG investing
- The risks of blockchain
Blockchain, The Future of Finance
The rise of cryptocurrency and its bullish prices has brought the novel class of currency into the global spotlight. However, blockchain, the underlying technology, is still not well understood. Created in 2008 by Satoshi Nakamoto as a core component of his now widely popular digital currency, Bitcoin, blockchain is a decentralized database structure. In a blockchain, transactions are stored in packets of data called blocks. These blocks are then verified by all the participants on the network and added to the end of the distributed ledger (or chain). Since this ledger is shared and verified by all users, blockchain cuts out middlemen, reducing the cost of transactions between users.
The Application of Blockchain to ESG
The widespread adoption of blockchain could yield many benefits for ESG investing. One such benefit would be an increased transparency in companies’ supply chains. Since the ledger on blockchain is available to everyone, investors could view the entire transaction history of any company’s supply chain and analyze whether materials are sustainably and ethically sourced. This would mark a significant improvement over current accessibility to supply chain data which is severely limited. Blockchain also has applications to the responsible governance of companies. Shareholder meetings can be transacted and recorded on a blockchain ledger, ensuring that voting is easily accessible to shareholders and tamper-proof.
The Risks of Blockchain
There are many potential risks associated with blockchain which could make the technology unappealing to ESG investors. For one, the calculations required for verification are energy intensive and make considerable contributions to GHG emissions. Furthermore, since blockchain is entirely digital, it allows for far greater anonymity, which can facilitate criminal activity. Despite these hurdles to adoption, blockchain is a relatively new technology and is rapidly growing and evolving. Some work has already been done to address the issues including the development of energy-efficient verification techniques. Ultimately, blockchain demonstrates the major role fintech will play in promoting sustainable and ESG investing. Here at Physis, our mission is to help investors understand the sustainable implications of their investments using fintech. Join Physis today!
Sources:
How Blockchain Will Transform Supply Side Sustainability
Blockchain Solutions to ESG Problems
Can investors embrace both cryptocurrency and ESG?
Cryptocurrency: A viable route to sustainability for financial technology