Cryptocurrencies like Bitcoin and Ethereum are using a shared database technology called the blockchain. This technology is going to disrupt many businesses and industries in the coming decade. However, only a few people are aware of how blockchain can be used to support sustainable business practices. So, how can blockchain support sustainable business practices?
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how can blockchain be used to support sustainable business practices?
Here’s how blockchain can be used to support sustainable business practices:
- Track origins and movements of products
- Make businesses more transparent
- Support green finance initiatives
- Reduce bureaucracy and fraud
- Improve customer’s trust and engagement
This is made possible by leveraging the features of blockchain to support the sustainability efforts of businesses and organizations in general. In fact, blockchain is a decentralized, immutable, transparent, and inclusive technology.
This can be used to promote trust and transparency in the public. Removing some of the mental barriers and distrust in the consumer caused by greenwashing and other unethical business practices.
Thanks to blockchain technology it is finally possible for the consumer to reward authentic sustainable business practices that help the environment and promote social equity.
Now let’s review some practical examples of how blockchain can support sustainability in business!
1. Sustainable supply chain management
The first and most important thing to consider when looking at blockchain is its potential impact on sustainable business practices. This is because a blockchain, thanks to the power of distributed ledgers, can help to track products throughout their life cycles from the source to the consumer.
This means that companies will be able to make more informed decisions about which materials they source and how they are used in production, which could help them reduce waste while also reducing costs associated with transporting materials across borders or across continents.
While at the moment it is still very easy for companies to eventually hide or lie about how a product was sourced, this will not be possible in the future.
Blockchain technology can track a product from the raw materials to the store shelves and record it in an immutable and easily accessible ledger. Those records on the blockchain may include information such as:
- How the products were made
- The materials and chemicals used
- How fairly are the employees treated
- How much waste is generated to make the product
Advantages of tracking on a blockchain
A tracked sustainable supply chain can help prevent unethical practices, fraud, inefficiencies, and waste.
With this data in hand, consumers could then determine whether or not they want to purchase an item based on metrics such as:
- Carbon footprint
- Ethical issues in the supply chain
- Effectiveness of the recycling procedures after use
Thus the consumers will be able to easily avoid purchasing something that doesn’t align with their environmental, social, and moral values!
For example, if we consider an application of blockchain to track the supply chain of food. This can allow buyers to check if it was grown locally. Allowing to cut down on carbon emissions because the food will not have to travel long distances.
In the case of coffee, blockchain could enable the consumer to know exactly where the coffee is coming from, down to the specific farmer. This is not science fiction, in fact, it is already happening, for example, Farmer Connect is using the IBM blockchain platform to deliver this kind of service and information to the consumer right now!
Moreover, blockchain could power an automated system that determines the fair price paid to coffee producers based on the quality of their products.
The quality of coffee beans can be analyzed visually by a machine powered by artificial intelligence, ensuring that the farmer is given an updated and fair price based on the type and quality of the coffee that was delivered.
This shows how blockchain can be used to support sustainable business practices, respect the environmen, improve social equity, inclusivity, and transparency. Finally balancing the 3 pillars of sustainability (the 3 Ps) and achieving sustainable development.
2. Promote and incentivize recycling
The existing recycling programs (except for a few of them, for example, baled cardboard recycling), give little or no incentive to recycle.
Those recycling programs are usually managed by individual cities in the US and it can be difficult to check and verify their impact.
Blockchain can be used to promote and incentivize recycling and improve the benefits of recycling programs by giving a financial reward in the form of a digital token when businesses and people will be depositing materials to recycle.
This will also make it easier to know in real-time the amounts and type of materials recycled, including the costs and profits of each recycling facility.
It will also be possible to evaluate the individual contributions of each individual entity involved in the recycling program.
An interesting blockchain project to track and incentivize the recycling and reuse of plastic is being explored by Plastic Bank. This will allow the exchange of plastic items for money, other items, or services in third-world countries.
3. Improve energy distribution efficiency
Energy distribution is currently centralized and inefficient. The way we produce, distribute and use energy today is not sustainable, and it has to change.
Blockchain technology can help with this by providing a decentralized peer-to-peer infrastructure that connects small energy producers with local demand, allowing them to sell surplus energy locally and at a better rate than what they would receive from traditional utilities.
A peer-to-peer energy distribution system would avoid having energy traveling for long distances and the inevitable inefficiencies due to that.
SunContract is a blockchain project working on a peer-to-peer market for the solar energy market.
Additionally, blockchain technology allows for more efficient use of resources by removing middlemen in the process of buying or selling electricity from one source (i.e., utility company) to the consumer.
4. Support green finance
Blockchain technology can be used to support green finance initiatives by promoting transparency and democratic decision-making.
Blockchain is enabling startups and green technology companies to finance eco-friendly products and sustainable technologies by leveraging peer-to-peer donations or crowdfunding
An early precursors of those crowdfunding initiatives were the once popular “initial coin offerings”, also known as ICO. Unfortunately, due to a lack of regulations, those initial crowdfunding opportunities were often misused by their promoters.
Blockchain can also be used to support green finance.
Green bonds are bonds that finance environmental projects, such as renewable energy or sustainable agriculture. They have been around for several years but are still relatively rare.
Thanks to blockchain and IoT (internet of things) devices it will be possible to automatically collect verifiable data for the green bonds stakeholders. Thanks to the reduced compliance costs, this financing option may become more easy to access in the future.
5. Automated ESG Financing
This means that ESG financing could be set up with a set of pre-agreed sustainability conditions and data feeds that will automatically execute the contract when certain targets are met.
Thanks to the blockchain and pre-agreed data feed collected with IoT devices, it is possible to have a fully decentralized process free from any bias and without the need for any third party.
For example, if your business gets a loan and agrees that the company will pay a higher interest rate if by a certain date it will not meet a specified emissions target.
This and the source data feed containing the emissions from the factory can be pre-programmed in a smart contract and executed automatically at the desired date. The smart contract will automatically calculate the interest rate to apply for the loan based on the data it receives from the pre-agreed source.
6. Environmental responsibility compliance
If a company is able to prove with records on the blockchain that it has implemented its environmental responsibility pledges, then future systems may allow them to automatically comply with the relevant regulations. Reducing the hurdle or compliance and streamlining the entire process.
In addition, blockchain can be used for tracking and monitoring the environmental impact of products. This provides an easy way for companies to demonstrate how they are committed to protecting the planet and their customers’ health and well-being.
7. Improve transparency and efficiency of charities
When donating money to an environmental or social charity it can be difficult to know and track where the money will be spent. Unfortunately, corruption, bureaucracy, and inefficiencies are still very common.
Blockchain technology can be used to increase transparency and efficiency for charities.
Blockchain technology allows for a more efficient way of tracking donations, as well as making sure that funds are going where they need to go.
For example, if a business makes a donation for environmental conservation or to support a specific cause, it must be sure that the money doesn’t get diverted to something else or worse that the money doesn’t disappear into someone’s pocket.
With blockchain and smart contracts, it is possible to make donations making sure that the money will be released only when specific environmental or ethical targets are met at each step of a specific project.
Moreover, blockchain allows sending money also without a bank account. This means that it is possible to send financial support directly to the people that really need it, which may often be unbanked in third-world countries.
BitGive is an example of this type of project to promote philanthropy using blockchain technology: making sure that donations arrive where they should.
8. Incentivize sustainable business practices
Incentivizing sustainable business practices is a great way to reward companies that are doing a good job at protecting the environment and ensuring social equity.
Currently, it is difficult to track the environmental impact of each product. So generally, this is not factored into the price and there is no financial incentive for the companies to develop eco-friendly products and for the consumer to choose more sustainable options.
Blockchain can be used to track all the needed data for each product while also protecting the information from tampering. This may be required by government regulations in the future and then be used to charge a carbon tax on products that are not environmentally friendly.
The idea is that if a product that is harmful to the environment is more expensive to purchase, then the customers are more likely to choose a more eco-friendly product.
Also, blockchain allows customers to see the real impact of their actions because they can track everything that happened before their purchase and what happens after people dispose of the item.
This in turn would encourage companies to restructure their supply chain and pursue more sustainable business practices.
A blockchain-based reputation system may also score companies based on the average carbon footprint of the products they are selling.
Finally, a blockchain-based system could be created that allows businesses to trade carbon credits based on the amount of carbon they’ve saved or avoided.
The token would represent the amount of carbon saved or avoided and be traded on the blockchain avoiding fraud and double spending of the same carbon credits.
A blockchain-based system of incentives for sustainable business practices would make manufacturing more transparent, reduce waste, and inspire companies to be more environmentally friendly.
9. New forms of insurance for businesses
Some types of businesses may currently find it very difficult to get insurance. A typical example of this is farming.
Insurance is notoriously difficult and expensive to get for many farmers.
However, blockchain and smart contracts can change this reality, because a farmer could stipulate a smart contract that pays out an agreed amount of money when certain conditions are met within the validity of the policy.
The data necessary to trigger the smart contract will be agreed upon in advance and use independent oracles that monitor specific conditions.
For example, a farmer may stipulate a smart contract agreeing to pay a certain insurance premium to be protected in case of unfavorable weather conditions that cause the crops to fail. In the smart contract is also specified the data feed will be used to trigger the contract to immediately pay out the funds.
This reduces bureaucracy and the farmer can be sure to get the needed funds in a timely manner when needed.
More secure farmers mean having a more secure food chain and reducing the chances that food may be missing. A more secure food supply chain improves social sustainability.
Moreover, the general public could decide to provide insurance for farmers by crowdfunding capital inside a smart contract.
10. Decentralized Business ownership structures
Blockchain allows a decentralized ownership structure for businesses. This is a new way of organizing the ownership of a business. It can be used for many different purposes, including supporting sustainable business practices.
A decentralized ownership structure is an arrangement where each person has an equal share in the company and decides how it should be run. This allows for transparency, accountability, and direct control over decisions by everyone involved in the company, not just one person or group at its head.
Decentralized ownership structures can be powered by a DAO will incentivize more human and ethical behavior of large corporations. This is because decentralization, independence, and collaboration give people the confidence they need to try to change the future of our planet.
11. Enforcing international environmental treaties
International environmental treaties such as the Paris agreement proved to be quite difficult to track and ensure compliance with the pledges made by different governments around the world.
Unfortunately, there aren’t incentives for governments and corporations to keep their promises. Also, manipulation of data and fraud is not uncommon.
Blockchain can be used to transparently track environmental data and publicly share them among the participants in the treaty. Providing an incentive for governments and businesses to comply with the agreements.
Also, once the data is recorded in the blockchain, it stays there forever. So any loss of reputation for not respecting the treaty will not be easily forgiven.
How can blockchain be used to support sustainable business practices?
Blockchain is a powerful tool that can be used to support sustainable business practices in many ways, including:
- Sustainable supply chain management
- Promote and incentivize recycling
- Improve energy distribution efficiency
- Support green finance
- Automated ESG Financing
- Environmental responsibility compliance
- Improve transparency and efficiency of charities
- Incentivize sustainable business practices
- New forms of insurance for businesses
- Decentralized Business ownership structures
- Enforcing international environmental treaties
This digital transformation technology is still very young and I’m sure that more use cases will be developed in the future for blockchain to help sustainability in business.
This also means that there are opportunities for new startups to develop innovative services that would help improve sustainability in all of its forms!