Blockchain, ESG and the CFO: bridging the gap

What is a Blockchain?

It is an ecosystem (group of systems) that exists to store data. The benefits from how these systems interact include data inviolability, redundancy, traceability, immutability and concealability. It promises to reduce fraud and give a hard time to hackers. The intensity that these benefits are provided depends on the quality of the blockchain.

Building a blockchain infrastructure only depends on building and connecting its systems. Today, many companies hold this knowledge – therefore, many blockchains are up and running as you read this article. If one company offers BaaS (Blockchain as a Service), they have built their way to store data and offers it to other companies. But not all blockchains are equal – each system's quality and integration determine the intensity of the benefits. Therefore, it is likely that a less robust infrastructure enables cheaper BaaS contracts with limited benefits. Additionally, beyond the application in the private sector, many governments have also been building their blockchain infrastructure – which raises questions on Public Governance.

The first functional blockchain with massive adoption was the one that hosted a payment application named Bitcoin. One word – Bitcoin – identifies both the application and the cryptocurrency used in this application (which makes things seem confusing).

To learn more on Blockchain mechanisms, go to the blog digitalsupplychain.academy/adm and use the search tool.

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With our Knowledge Economy-paced society, it is not hard to bridge the gap between blockchain and ESG (Environment, Social & Governance). To prove the point, follow one example that illustrates this connection:

Environment: operating the group of systems that forms blockchain infrastructure is energy-consuming. A study from UK financial site MoneySuperMarket (2021) suggests that bitcoin mining process consumes 1,2 kw/h of electricity. According to the authors, this volume of energy powers the typical American home for six weeks. The rise of the NFT (Non-Fungible Tokens) market intensified this concern. On the other hand, eco-friendly blockchains such as Polygon, Tezos, Cardano, Polkadot and Ethereum 2.0 promise to reduce energy consumption by changing one of its systems known as the "consensus mechanism". Additionally, the infrastructure can be power-supplied by renewable energy. This context must be monitored in the following years.

Social: Several applications uses blockchain ecosystems to benefit people and their communities. The diamond industry certifies each diamond since origin through the value chain to the retailer, impeding the commercialization of gems extracted from mines operated by enslaved people in some areas of Africa. In the private, public and third sectors, transparency on food and supplies distribution to vulnerable populations is a frequent concern as they are vulnerable to all types of fraud. In these cases, traceability, data immutability and inviolability mean better service to those in need.

Governance: when the benefits of blockchain reach the compliance dimension in organizations of all types, it impacts positively the four principles of Corporate Governance: accountability, fairness, transparency and responsibility. For instance, have you thought about the CFO's job description changes? I have read a study from Cognizant that suggests the following scenario for the CFO:

“Our global organization is looking for a full-time experienced financial trust officer. The person in this role will work alongside our internal finance and Public Relations teams, managing and enhancing our public and private presence across the financial sphere as we juggle cryptocurrencies and the need for greater transparency. The individual will also advise on traditional and cryptocurrency trading practices that maintain our integrity and brand reputation. The successful candidate will have experience in cryptocurrency trading and speculation, blockchain, traditional currency trading and Public Relations and marketing.

The rise of the instantly connected and morally aware investor and consumer has fueled the requirement for hyper-transparent organizations. This is, however, undermined by the rise of the widespread use of secret currency transactions enabled through cryptocurrencies like Bitcoin. The days of Swiss bank accounts are now gone, and in their place we find blockchain-enabled currencies. More than ever, organizations need to explicitly prove their financial integrity when dealing with currencies that have been developed to avoid scrutiny.

Therefore, an alloyed role is emerging in our organization that requires the combined financial and regulatory acumen needed to deal in traditional and cryptocurrencies, with the PR expertise to maintain positive public image that upholds our organization’s financial and public integrity."

Well, food for thoughts ....

Alex.