Long perceived as a marketing tool, Environmental, Social, and Governance (ESG) investment is undergoing a significant transformation thanks to blockchain. Its decentralized architecture and ability to verify the authenticity of data allow companies to optimize their ESG impacts. In response to growing criticism of greenwashing and stricter regulatory requirements, blockchain is emerging as a major asset in strengthening the credibility and accountability of responsible investments.
ESG impact investments : Continuously evolving market
The ESG investment market has experienced rapid growth in recent years. A report from Broadridge Financial Solutions predicts that ESG assets will reach 30 trillion USD by 2030. Responsible financing flows to Africa have also seen a significant increase, amounting to nearly 4.4 billion USD in January and February 2024 alone. This figure is four times the value of ESG investments recorded in 2023, which totaled 1.4 billion USD. According to Moody’s estimates, these flows are expected to reach 950 billion USD in 2024.
Model in search of transparency
Investor expectations have also evolved. Beyond competitive returns, investors now demand tangible proof of companies’ commitment to environmental and social impact. However, challenges related to ESG data collection and verification remain significant.
Companies face the complexity of standardizing data across different stakeholders, often spread across international markets. This lack of harmonization hampers transparency and complicates the creation of reliable reports. A comprehensive ESG report can be resource-intensive and time-consuming, particularly due to the fragmentation of data across various links in the supply chain.
Challenges of ESG data collection in reporting
Collecting and validating ESG data presents a major challenge for companies. The management of extended supply chains across multiple countries and providers creates information silos, making impact assessment difficult. Companies must also navigate varying regulatory requirements across different markets, further complicating the process.
Blockchain could play a key role in addressing these issues. Its ability to store immutable data and create transparent, traceable records allows for the digitization and automation of information collection. By promoting data standardization, this technology makes it easier to compare different actors and improve the measurement of the real impact of investments.
Blockchain and ESG reporting : Winning duo
Blockchain’s key features decentralization, traceability, and security are particularly well-suited to the growing demands for transparency and accountability. The technology allows for the certification of data authenticity, ensuring its reliability for investors.
Transaction traceability and impact statement reliability
The ability to track transactions is a key advantage of using blockchain in ESG-related investments. Every operation, whether in supply chain management or the purchase of carbon credits, can be precisely tracked. Its use makes responsible investment more efficient and cost-effective. Specifically, the digital tool allows for :
- Improved management of digital financial assets
- Enhanced security of funds
- Faster transactions worldwide.
Distributed access and data federation
Blockchain technology can federate data from multiple sources while ensuring its integrity. Information sharing becomes more fluid and transparent. Distributed access allows stakeholders to access the same data in real time without compromising the security of sensitive information. This gives companies greater autonomy in controlling and analyzing their data, making it easier to justify their impact. Additionally, this decentralized approach reduces dependence on intermediaries while optimizing decision-making based on reliable data.
Blockchain applications : Democratizing ESG financing
The use of blockchain technology is already helping many startups enhance their ESG impact. During the COVID-19 pandemic, blockchain-enabled the efficient coordination of vaccine distribution in some remote regions of Africa. The platform ReportCovidCase.com is a prime example.
In carbon tracking, platforms like Carbon X and Poseidon use blockchain to monitor credits and ensure they are used appropriately. Carbon credits allow companies to offset their CO2 footprint by purchasing units equivalent to the emissions generated.
Blockchain also paves the way for new forms of crowdfunding and micro-financing. Individuals can contribute directly to ESG investment efforts by financing specific projects. With the tokenization of financial assets, investors can fund ESG projects through more accessible and cost-effective transactions. Blockchain-based fund transfers eliminate fees associated with traditional financial intermediaries, fostering broader financial inclusion, particularly for unbanked populations.
