Blockchain for Sustainable Finance: Empowering Transparency and Impact

In the realm of finance, blockchain technology has emerged as a powerful tool for driving sustainable practices and advancing environmental and social goals.

By leveraging the immutable and decentralized nature of blockchain, organizations can revolutionize areas such as impact investing, carbon credit trading, supply chain sustainability, and more.

This article explores the transformative potential of blockchain in sustainable finance, where transparency, traceability, and trust are paramount. We delve into the myriad applications of blockchain for sustainable finance, uncovering the innovative solutions and promising opportunities it presents for creating a more environmentally conscious and socially responsible financial ecosystem.

Sustainable Financial System in 2023

A sustainable financial system is — one that creates, values, and transacts financial assets in ways that shape real wealth to serve the long-term needs of an inclusive, environmentally sustainable economy.

The related phenomenon is green finance. What is green finance? It is not a difficult business term. It means activities related to the bilateral engagement between the environment and finance and investment.

Can Blockchain Be Used For Sustainable Finance?

Yes, blockchain technology has become a valuable instrument in sustainable finance because it can track emissions and lay the foundation for better accountability and traceability of transactions in this industry. That’s why blockchain is now included in many green finance projects; for instance, the Recycle Chain project in Hyperledger’s portfolio was built to create an open market for sustainable waste management. The core of this project is a blockchain database that is stored in a decentralized way and synced between users in real-time, encouraging optimal waste disposal and waste management task dissemination among providers of these services. 

Besides, numerous blockchain-based projects emerged today to reduce carbon emissions and introduce innovative financial technology for emissions tracking and credit trading. Blockchain projects make the carbon balance tracking much more transparent, thus ensuring businesses’ accountability with NGOs and interest groups in terms of their carbon footprint and work on emission reduction and movement toward more sustainable operations.   

Practical part of the blockchain for sustainability:

The Plastic Bank

The Plastic Bank is a special social platform, whose main goal is to gather together all the people from the whole world. This “team” must alleviate global poverty and Ocean Plastic, side by side. In this concept, plastic waste is accepted as a currency and it encourages the idea of using Social Plastic as recycling material.

Working with Cognition Foundry, the Plastic Bank leverages the best technology, allowing them to grow exponentially while maintaining the security of transactions. Blockchain provides trust in an industry that has been fraught with corruption and danger; it provides trust to “recyclers” that their data is safe, they are safe, and their finances are safe.

The Dnepr Regional Council

In the Ukrainian city of Dnepr, a new strategy of using solid domestic waste was created. So, all the waste is used as a payment method for covering losses for the removal and disposal of waste.

There are special recycling centers where citizens can take their garbage. Also, they can receive a cash back on a special card that you can use to pay for the utility bills.

What is the global concept of green finance?

Green finance divides into banking, investment, and insurance products. Examples of these include green bonds, green-tagged loans, green investment funds, and climate risk insurance. Other products that are labeled as ‘green’ may not be universally accepted as such – for example:

• Financial products (e.g. credit cards) which offer a donation to environmental protection work in reward for a certain level of spend.
• Financial products, which respond to an environmental issue (such as flood insurance) but do not seek to address the causes of this issue (such as climate change).
• Financial products that minimize the environmental impacts of the provider’s operations (such as using recycled paper) or which offset the customer’s normal activities (such as the carbon emissions generated by air travel).

The main goal of the green finance market is to increase the importance of financial markets in solving environmental problems to ensure a sustainable future.

By clearly outlining environmentally sound projects that attract investment, “green” finance allows investors to evaluate and invest their capital exclusively in environmentally sustainable projects.

For example, according to the Climate Bonds Initiative, in the last three years, the volume of green bonds issued has grown by almost 106%, and in 2018, record bonds worth $ 167 billion were issued.

Blockchain in Green Finance

As I said earlier, blockchain development in green finance is a core of the system which represents a database that’s stored and synced between all users.

Who can use this technology? The answer is easy — everybody. Everyone who can be stakeholders — they are government, recycling facilities, environmental and social activists, citizens, and waste Management software vendors.

Why do I think they need blockchain technology in the green finance aspect? There are many reasons: for example, governments need to decrease the waste rates causing dump overload in their cities. Or another case — activists have a hard time sharing the culture & knowledge or they want to invest in the ecology or helping with recycling.

It also can help to solve some recycling problems as costly transportation or recycling facilities need to improve supply chain efficiency for a better price. And, of course, it can help with using crypto for the most efficient subsidizing.

Both private and public sector investors can use this investment mechanism. For example, financial corporations and enterprises accounted for 29% of all other issuers in 2018, and the number of sovereign green bonds is currently one of the largest. Thus, in 2018, in particular, Belgium made a record one-time issue of green finance worth $ 5.5 billion.

Read also:Blockchain and renewable energy

So, the theory is brightly and promising but what about the practical part?

Here are two successful use-cases.

The Plastic Bank

The Plastic Bank is a special social platform, whose main goal is to gather together all the people from the whole world. This “team” must alleviate global poverty and Ocean Plastic, side by side. In this concept, the plastic waste is accepted as a currency and it encourages the idea of using Social Plastic as recycling material.

Working with Cognition Foundry, the Plastic Bank leverages the best technology, allowing them to grow exponentially while maintaining the security of transactions. Blockchain provides trust in an industry that has been fraught with corruption and danger; it provides trust to “recyclers” that their data and finances are safe.

The Dnepr Regional Council

In the Ukrainian city of Dnepr, a new strategy of using solid domestic waste was created. So, all the waste is used as a payment method for covering losses for the removal and disposal of waste.

There are special recycling centers where citizens can take their garbage. Also, they can receive a cashback on a special card that you can use to pay for the utility bills.

Supply Chain Transparency

One of the greatest benefits of blockchain to sustainable finance is the total supply chain transparency. According to EUBlockchain experts, blockchain is a tool for ensuring supply chain activities’ transparency with publicly accessible ledgers containing data about every transaction. This leaves no space for unlawful, manipulative business practices and greater automation of supply chain control without centralized authority’s oversight. Deloitte analysts also added that a blockchain-powered supply chain can guarantee price, date, location, quality, and location data recording in real-time, thus enhancing the traceability of any merchandise throughout its transfer from the factory to the end user. These practices will address counterfeiting and limit the activities of gray markets, improving compliance checks and control of manufacturing standards.  

Carbon Footprint Tracking

Efficient and accurate carbon footprint tracking is another strategic advantage of using blockchain in sustainability efforts. In this vein, blockchain can serve the UN Sustainable Development Goals (SDGs), one of which relates to cutting energy costs and reducing the global carbon footprint. One of the tools for carbon footprint reduction is traceability – an effort that allows quantifying and controlling the emissions of every country and every business, forcing them to comply with the established caps. Blockchain makes traceability possible, as it collects accurate and complete records about carbon dioxide emissions and makes this information publicly accessible, thus improving the accountability of every entity. 

One of the latest developments in this sphere is EY’s OpsChain ESG. It is a brainchild of a global professional services agency EY, which launched this blockchain-based solution to enable companies to measure and track their carbon footprints. Companies can tokenize their emissions using this app to assume fuller control of the current emission rates and emissions targets. 

Renewable Energy Trading

As the global and regional players unite to make SDGs possible, the key task they need to address is the decentralization of renewable energy technology. This has been addressed via an energy trading platform’s setup and development of a trading mechanism that would respond to this market’s specifics. The modern solutions to this issue take the form of distributed energy resources (DERs) and p2p energy trading, which support an exchange of surplus electricity among parties connected to the grid. Blockchain is an optimal medium for renewable energy trading, as it can store data about multiple transactions, monitoring the asset exchange in real-time to optimize the grid’s capacity and minimize waste.

Circular Economy Solutions

The circular economy is another option for achieving sustainability with blockchain. This technology enables cleaner and more efficient economic transactions and helps the participants and project creators achieve balance and harmony between society, environment, and economy via optimal resource use and distribution. One of the examples of such projects is CircularChain, a circular economy ecosystem created by SUEZ Group. The solution specifically targets material reuse and recycling, so it deals with data collection, consolidation, and visualization for the secondary raw materials market.

The bottom line

To sum up, blockchain technology gives a list of prospects in the world of green finance. The incentive for creating and producing can help decrease waste rates. Also, we found out that there are a lot of stakeholders in our society who are ready to provide those incentives in real life and business. Blockchain can be efficiently tracked with a Recycling chain.

FAQ

What are the benefits of sustainable blockchains?

A combination of blockchain technology with sustainability efforts is a win-win situation, as it allows businesses to attain a greater level of transaction tracking accuracy and operational transparency while also attaining larger-scale social, environmental, and economic impact goals. Thus, using sustainable blockchains is an optimal choice for all forward-looking businesses concerned about their environmental impact and wishing to contribute to sustainability efforts.

Are sustainable blockchains compatible with mainstream blockchain networks?

Yes, most sustainable blockchains are built using popular blockchain development technology and tools. The earliest blockchains, like Bitcoin and Ethereum, are not eco-friendly (Ethereum improved its sustainability parameters after transitioning from PoW to PoS), while carbon-neutral blockchains like Cardano, Algorand, or Celo work with mainstream blockchains without friction. 

What role does regulation play in promoting sustainable blockchains?

Regulation is getting ever more stringent in the EU and worldwide, pushing all businesses toward greater compliance with sustainability targets and objectives. Therefore, sustainable blockchains emerge as a ready-made business solution to regulatory compliance demands. Such blockchain projects are compliant with the dominant sustainability regulation by default, thus promising business gains and zero risks of penalties for compliance breaches.