Blockchain holds the key to solving ESG’s crisis of trust

It’s hard to overstate the importance of trust in society. For businesses, trust is key to genuine success of any kind. Without it, transactions cannot occur, influence is undermined, leaders lose teams and salespeople lose sales. The trust we have in colleagues, partners and clients to carry out deliverables correctly and on time forms a core pillar of how organisations function and prosper.

In other words, trust allows us to do things that would be almost impossible if we had to verify everything for ourselves. If we can trust, we do not have to verify, and that is exactly what has been crucial to so many businesses’ success.

However, when it comes to tackling climate change – undoubtedly one of the biggest threats facing our future – this trust is fundamentally misplaced. We are constantly looking for new ways to do our bit in helping to reduce carbon emissions, but when digging a little deeper, we quickly realise that our efforts are far more futile than previously thought. What emerges is a worrisome picture in which the system we placed our trust in is far less effective at tackling the climate crisis than we are led to believe.

The advent of distributed ledger technology (DLT) has emerged as one of the most effective means of bridging this ‘trust gap’. As the need for a more stringent climate change strategy grows, now is the time to examine how we should apply DLT to truly move the ground on which Environmental, Social and Governance (ESG) claims are rooted.

Little trust exists in the climate emergency

Let’s take the simple act of recycling a plastic water bottle, for example. Most of us will endeavour to recycle an empty plastic water bottle. When faced with a generic bin versus recycling, we choose the latter where possible. We are doing our bit, or so we are told, in helping to reduce plastic waste and greenhouse gas emissions.

Shockingly, however, less than 10% of everyday plastic in the UK actually gets recycled. In the US, this figure is as low as 5%. This isn’t because we aren’t recycling; the average recycling rate for UK households is estimated to be at 44%. But rather, due to a whole host of issues related to logistics, resources and infrastructure, the majority of plastic waste still ends up in landfill.

The same gulf of trust exists on the corporate level. Mounting pressure to meet ESG criteria, increased media scrutiny and ever complex and fragmented regulatory requirements – whilst also having to remain competitive – have led to some perverse outcomes from the world’s leading corporations. Today, the temptation to ‘greenwash’ away a problem rather than confront it has never been higher.

We cannot tackle the climate crisis unless we trust the very tools, framework and system at our disposable. Doing so would be to try and navigate a maze blindfolded. We must rebuild this trust to protect the environment.

Bridging the trust gap with blockchain

A complex system requires a complex answer, but the first step we must take is to gain full visibility of these complexities.

It therefore might be surprising to learn that blockchain – the same technology that underpins bitcoin and all its energy-consuming baggage – can contribute to providing this visibility. DLT exists at its most fundamental level to build trust in complex systems. Blockchain maintains a complete history of past transactions within the network, which means that the user can track the data with full transparency.

This technology opens a new realm of accountability. Remember that plastic bottle you threw in the recycling? The traceability of data that blockchain offers makes it possible to verify whether that plastic bottle ended up being recycled.

The same verification process can be applied to other resources and materials. DLT means that if a unique QR code was applied to a laptop, for example, it would be possible trace what that laptop was made of, whether it was comprised of recycled material and how it was built. And when that device is no longer useful, that same QR code could determine its value as raw materials such as earth materials and lithium, all of which are in short supply.

The application of blockchain can therefore transform how we use resources, enabling us to distribute them to where they are needed most. Whether applied in a supply or waste chain, the tracking and traceability of raw materials and manufactured products can provide that much needed visibility to make real progress against the climate crisis.

Moving from theory to practice

The road to net zero is still open. But, it is impossible to navigate this path unless we have a clear view of the challenges that lie ahead and the resources available to us, and ultimately trust in the solutions we are deploying.

This means overcoming the short-term administrative burdens associated with integrating new technologies into our operations and applying these tools at scale. DLT is a truly exciting prospect in this transition and has huge potential to restore trust and radically improve the way we manage natural resources. As we head into 2023, we must prioritise harnessing this technology before the extent of today’s environmental challenges become out of reach.