How Blockchain Innovation is Democratizing ESG and Impact Data

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Emerging applications of blockchain (distributed ledger) technology in the ESG and impact finance space can play a key role in this evolution in data reporting, transforming the way the sector makes decisions and mobilizes investment. Blockchain technology is well-suited to tracking the origin, transparency, authenticity and credibility of ESG data. At its core, a distributed ledger is a system for recording the transaction of assets on nodes – i.e., multiple servers in a network that follow certain rules. Those servers are connected to each other, and continuously exchange the newest information across the chain. In contrast to traditional databases, blockchains do not require a single data storage or administration functionality: In the absence of a central authority, every node on the network is involved in agreeing that transactions are valid, in a process known as “achieving consensus.”

Tokens are one application of blockchain technology that can be leveraged for transparent impact reporting. Tokens are digital assets built on top of a specific, pre-existing blockchain, which can be designed to perform a wide range of functions, and traded between holders or on exchanges. Token utility features – essentially software that can be used to exchange value – can be designed to incentivize the collection of data related to ESG and impact projects. Plastic Bank, a for-profit social enterprise that incentivizes plastic collection to address ocean pollution in developing countries, provides a good example of how tokenization can work in the context of impact data reporting. The company created a tokenized system to establish secure digital identities, savings and wallet accounts for the local community members it engages in plastic collection efforts, while providing access to internet connections and allowing collectors to earn their way to mobile phones. This enables people to manage the two forms of tokens they are awarded for their plastic collection work: one tied to the U.S. dollar that can be exchanged for fiat currency, and one that can be exchanged, through the company’s mobile application, for goods and services such as food, water and tuition. This type of approach ensures that people can establish transparent and private digital identities, while cambodia whatsapp number data also demonstrating and benefiting from the positive impact they are creating on the ground.

A similar approach can be applied to ESG reporting. Individuals who contribute to (or are otherwise knowledgeable about) projects led by organizations, enterprises, investment firms or even independent groups of people can associate their data, performance and community reputations with “trust tokens” that can be leveraged to generate reliable impact data across the ESG landscape. In parallel, blockchain-based reputation mechanisms can also be implemented to prevent individuals from intentionally causing harm to a company or project by providing inaccurate impact data. For example, the Commons Stack, a Swiss nonprofit, is employing these technologies to support the development of Commons – i.e., groups of people who come together to accomplish public benefits, and who collectively own and manage the technological resources that are employed to achieve those goals. To that end, it has created the CSTK trust token, a non-transferable digital asset that is awarded to members in exchange for contributions of funds or labor to the organization’s mission of creating sustainable funding for public goods. Their community utilizes a graduated sanctions mechanism to manage any member behavior that’s contrary to their values, which provides a pathway to reducing someone’s CSTK score (i.e., the reputation they’ve earned over time), or revoking their CSTK if absolutely necessary. CSTK is a badge of honor that establishes which individuals the community can trust, and automates their access to future Commons and Field Tests.