How blockchain can promote corporate accountability for sustainable practices
Picture yourself strolling through a shopping mall, browsing through various stores, pondering your next purchase. You have a crucial appointment at the end of the month, and need to look good. This situation leaves you torn between two dresses. Weighing the pros and cons of each option, the decision-making process could extend for quite some time. Suddenly, a placard beside one of the mannequins catches your eye: “THIS COMPANY POLLUTES RIVERS.” The choice is instantly clear: you chose the other one. But what does this example have to do with blockchain? You will understand it in this article.
Let’s be honest: beyond all the news, articles, websites, and advertisements, all companies have one clear purpose: profit. This is not a problem; it’s the foundation of our Western economic system, and sometimes it works! The issue is that many companies engage in irresponsible activities that harm the planet, overexploit its resources, and disrespect the rights of their workers, all to cut costs. This process is very profitable for them and has been used for years. That’s why most companies have their factories in underdeveloped countries, where there are fewer rights, taxes, and data tracking.
However, this approach is becoming a bigger problem each year as climate change worsens. According to this article published in The Washington Post, hundreds of companies have set climate targets, but 1 in 4 of them do not plan to publicize them. This is concerning because it suggests that some companies are not taking climate change seriously or are trying to greenwash their image, just to gain customers. We need to pressure these companies to be transparent and take real action to clean up their supply chains. This is where blockchain comes into play. It offers an effective way to hold industries accountable for combating climate change. In this article, I will show you how this technology works and how it can be specifically used to this cause.
What is blockchain?
Blockchain is a technology that store a data structure based on cryptography, decentralization, and consensus. It is most commonly used to store records of transactions because it is very efficient at tracking the ownership of assets and recording the transfer of assets from one party to another. In most blockchains, the data is structured into blocks, and each block contains a transaction or a bundle of transactions. Using a consensus mechanism to validate them, each new block connects to all the blocks before it in a cryptographic chain.
The consensus mechanism is based on agreement and validation of a member’s network to ensure that all information added to the chain is true and correct. With this decentralized format, all members have an important role, so there is no single point of failure and a single user cannot change the record of transactions. Therefore, blockchain can be used not only as a data tracking tool but also as a way of organizing and recording a company’s supply chain, in which consumers will have access to the origin of their products.
How it can be used? And what sustentability has to do with it?
So, the idea is that companies that want to guarantee to their customers that they have a sustainable supply chain would use blockchain technology to create a supply chain network that would be accessible to every consumer to view all their transactions with farmers, industries, transportation corporations, workers, etc. The user would know exactly where the product came from, and they would trust the company and prioritize buying from it rather than companies that do not have this transparency.
It is important to make it clear exactly with which technology the company is going to show consumers its chain, especially because it is not all the information that needs to be shared. The answer is a private blockchain network.
Private blockchain network
Public blockchain networks are open to anyone who wants to join, without the need for permission from a central authority. This decentralized nature allows anyone to contribute to the network. A private blockchain network is more centralized than a public one and has access to participate controlled by the company, and all participants need to be authorized to join the network. In this way, the network would be made by the company, all its suppliers, and distributers (such as stores and online retailers, for example). All their transactions would be tracked and recorded, so when the final product reaches the consumer’s hand, he or she can look into the company website (or QR code printed in the product), go to the supply chain of the store where he or she bought it, and verify all its chain of production.
But, technically speaking, how does the tracking of transactions work?
How is a transaction added to the chain in a way that the user can see that it’s sustainable? Well, this is made possible by the use of consensus mechanisms, which are processes for verifying the transparency, validation, and trueness of a block before it’s added to the chain.
Private blockchain networks may use a variety of consensus mechanisms, and each one of them works best in a different type of supply chain, for example:
- Proof of Authority (PoA): PoA is a consensus mechanism that relies on a predetermined set of validators to verify transactions and add new blocks to the blockchain. PoA is a good choice for supply chains that require high throughput and low latency, such as supply chains for food and pharmaceuticals.
- Delegated Proof of Stake (DPoS): DPoS is a consensus mechanism that allows token holders to elect a set of delegates to verify transactions and add new blocks to the blockchain. DPoS is a good choice for supply chains that need a high level of security and decentralization, such as supply chains for financial services and healthcare.
- Byzantine Fault Tolerance (BFT): BFT is a consensus mechanism that can funtion with two-thirds of participants in the network agree on the validity of a transaction before it can be added to the blockchain. BFT is a good choice for supply chains that require a very high level of security and fault tolerance, such as supply chains for critical infrastructure. Some examples of consensus procols that are BFTs are Proof-of-Work and Proof-of-Stake.
A great example of company that works in that fiel is IBM Food Trust, a network designed to improve safety, transparency and efficiency of food businesses. One of its customers is Walmart, that tracks all its supply chain on the IBM Blockchain Platform
“IBM Food Trust™ is a collaborative network of growers, processors, wholesalers, distributors, manufacturers, retailers, and others, enhancing visibility and accountability across the food supply chain. Built on IBM Blockchain, this solution connects participants through a permissioned, immutable and shared record of food provenance, transaction data, processing details and more.” — https://www.ibm.com/products/supply-chain-intelligence-suite/food-trust#footnotes
But why would companies use this technology if they profit from unsustainable activities?
Blockchain technology can positively impact how the company works; for example, it can give all participants visibility into the movement of goods and materials, which helps to identify and address potential problems early on and also helps to build trust between suppliers. It can also automate many of the manual processes involved in supply chain management, such as tracking inventory and processing payments. This can help reduce costs and improve efficiency.
On top of all that, it’s impressive how this transparency strengthens the relationship between the company and consumers, who are more likely to buy from companies they trust. Today, people are becoming more conscious of global warming and the importance of sustainability, but adapting our way of life is hard, especially because we do not know what to consume or what to change. If we had the information necessary to know which products are sustainable or not, such as the initial example in the beginning of the article, we could live our lives much more aware of our impact on the planet.
The greater the number of companies that adopt this attitude of transparency, the greater the social pressure will be for all of them to do so, because consumers and the media will start to question why a company isn’t doing this, what does it have to hide? In this way, we can build a world in which no activity that is harmful to the planet or criminal goes unseen.
I hope you enjoied reading this article! If you have any questions or feedback, please feel free to leave a comment below.
Main sources
CRYPTO.COM. What Is Consensus? A Beginner’s Guide. Available at: <https://crypto.com/university/consensus-mechanisms-explained>. Acess: 09 nov. 2023.
IBM. What Is Blockchain Technology. Available at: <https://www.ibm.com/topics/blockchain>.
IBM. Blockchain for Supply Chain — IBM Blockchain. Available at: <https://www.ibm.com/blockchain-supply-chain>.
IBM. Emerge Stronger At A Time Of Uncertainty: Blockchain For Supply Chain Get started FORRESTER OPPORTUNITY SNAPSHOT: A CUSTOM STUDY COMMISSIONED BY IBM | SEPTEMBER 2020. Available at: <https://www.ibm.com/downloads/cas/JX9KDGPJ>.
NJUALEM, L. A. Leveraging Blockchain Technology in Supply Chain Sustainability: A Provenance Perspective. Sustainability, Blockchain Technology Collection, v. 14, n. 17, p. 10533, 24 ago. 2022. Available at: https://www.mdpi.com/2071-1050/14/17/10533
WORLAND, J. Planet Earth’s Future Now Rests in the Hands of Big Business. Time, EARTH, Inc. Available at: <https://time.com/6166178/earths-future-big-business/>.
