How blockchain can drive improvements to ESG reporting

post-title

Shadrack Kubyane: My ‘accidental’ involvement with blockchain led to ESG reporting improvements.

It is almost impossible to think that five years ago, I personally had no clue what blockchain was or its relevance to retooling and reshaping economies, beyond the much-hyped bitcoin craze.

With my Deloitte days behind me, just before the 2010 FIFA World Cup South Africa™, I embarked on a decade-long management consulting journey, where I placed my focus on ‘loading jet-fuel’ into scale-ups (entities making between R30 million to R150 million) seeking Africa-facing expansion. Punctuated by involvement with advisory inputs to listed companies, my trajectory to 2030 was mapped.

Until two things happened: in 2017 one of our non-scale-up experiments, the first time we worked on a business within the township economy, saw our ‘jet-fuel’ inputs shoot out the lights, growing that entity, from a meagre R5,000 to R30 million within 36 months. This grabbed a significant level of attention, on Maude Street particularly.

Listed C-Suite leaders in those sectoral categories extended invitations to us. Before we knew it, a multinational nudged us into founding a blockchain start-up, granting us a decent amount of two funding tranches.

Looking into my rearview mirror: my accomplished work includes cases that delivered significant balance sheet results such as a R5 billion health insurance project delivery, achieved in record time, and a R29 billion London-listed mining venture requiring redemption, when its social licence to operate was under significant threat. However, the informal sector win remains closest to my heart, as my pride and joy.

Perhaps it is the sheer scale of personal level impact for those 40 families involved, which demonstrates what conscious leadership can do when bottom-line results are delivered hand in hand with a measurable attainment of the entity’s social responsibility, not as an afterthought, but a prime objective.

Blockchain 101
First and foremost, here’s a brief working definition of blockchain, before unpacking some key considerations. Blockchain technology is a decentralised ledger system that improves distribution, data integrity, and transparency.

With that being said: those venturing in this direction to sample blockchain’s application, at whichever degree of implementation, would do well to consider these few moving parts in preparing for the road ahead.

The technology is being improved upon at a rapid pace, thanks to rising adoption, well beyond the financial sector. Leaders must, however, still apply due considerations to tailor the right solution to the terrain at hand.

Technology and change management: Technology, people and culture must go hand in hand from inception, when emerging tech considerations are made. Improving technologies and systems without an effective change management strategy can frustrate or derail the process.

User experience design: Blockchain can be a complex technology and it is all the more important that the user experience design team members on board are well acquainted with prior existing user behaviours. Naturally, change is not something that is welcome at first sight, let alone migrating to a seemingly complex technology. Lessening the friction is key.

Blockchain Protocol: Some blockchain protocols work best in an environment where there’s less data – they cannot handle large amounts of data and are not easy to scale when the network and data sets are growing. Ensure you choose a scalable glove-fit blockchain protocol.

There’s little to no room for a “cut and paste” approach: a terrain-specific alignment is beneficial. Thorough homework, all round, is not a luxury, but a necessity.

Blockchain improvements to ESG reporting and managing sustainability risks
Blockchain holds some improvements to ESG reporting and managing sustainability risks. These should never be managed through a responsive approach, but a proactive approach to drive performance, to help build or protect a company’s brand.

Forward-thinking C-Suite leaders constantly resist the temptation to approach ESG reporting, from a mandatory mindset: implementing and reporting as and when it is expected of them. Instead, forward-thinking leaders proactively leverage these challenges as an opportunity to showcase the entity’s commitment to innovation and continuous improvement.

Such pace-setting leaders are constantly on the lookout for incoming inputs on the horizon, geared to better their innovation toolkit, with tangible efficiencies across ESG reporting, expectations, standards, and stakeholder ecosystems.

Challenges to effective ESG reporting and compliance
Deloitte’s January 2020 article, titled: 'ESG Risks – The Reporting Challenge' covered the major and continuing evolution in environmental, social, and related factors and how corporates need to meet the changing reporting demands.

From my industry-facing observation deck, travels across Africa and eye-opening conversations with select C-Suite leaders on my path, here are some of the challenges posed to them as they navigate ESG reporting: there are multiple ESG frameworks, ESG regulations keep evolving, ESG data management is complex, quantifying ESG risks is a constant moving target – improving ESG plans can prove a challenging fit.

Blockchain misconceptions and potential to improving ESG reporting
The often overlooked but valuable core competencies of blockchain are: transparency, data auditability, privacy, value transfer, process efficiency and automation. It holds the answer to driving the systemic changes needed to deliver sustainable reporting, across reporting initiatives that often exist across various geographies and reporting standards.

These unparalleled properties of blockchain technology also encompass decentralised trust and immutable records, which enable shared data-ownership (and transfer), across company subsidiaries or regulatory bodies, without the need for intermediaries, via the trusted ledger.

Traditionally, when thinking about blockchain, carbon neutrality is seldom the first thing that comes to mind. That is partly due to bitcoin, blockchain’s first application, which is widely known as an environmental polluter, consuming massive amounts of energy and emitting vast amounts of CO₂ in order to validate transactions and sustain the network.

Concerns of this nature hold true only for specific applications of the underlying blockchain technology. Depending on the applied network architecture and choice of protocols, blockchain can be deployed in more energy-efficient ways. For example, private blockchains using algorithms like proof-of authority (PoA), when set up properly, do not consume more energy than traditional database solutions.

Alternative database solutions do exist on the market, but the degree of transparency and trust offered by blockchain, its immutability and ability to digitally represent data, makes it the standout technology to consolidate and simplify ESG reporting across diverse tiers of industrial processes and regulatory frameworks.

C-Suite leaders will dramatically improve their companies’ sustainability credentials and reporting procedures, thanks to blockchain’s accountability mechanisms, especially when such reporting measures are stress-tested across different territories and legislative standards. Implementation, however, requires intentionality and unwavering commitment via a holistic approach, to reap the rewards.

A solution focused mindset: reflecting on Christian Lindholm’s Insights
In August 2022 Christian Lindholm, VP of financial management, adaptive planning and analytics at Workday EMEA shared his insights in an article titled, ‘Innovative CFOs will succeed with ESG reporting’. Key takeaways from the article, include: when it comes to managing ESG, CFOs must adopt a readiness mindset. You and I need to retain that “finding a way to win” mindset, always, if we are to solve not just ESG challenges, but fully address the curveballs thrown at us in our respective roles, as we carry out our mandates daily.

In keeping with this “finding a way to win” let’s continue to keep our thumbs on the pulse of our industry’s ever-changing landscape, and know when to improve our innovation toolkit, in the best interests of diverse stakeholders in the room.

Even if such a move could see us experimenting with technological machineries that exist on the path less travelled, if they hold value towards improving efficiencies and the bottom line, then perhaps they are worth a consideration, at some point, in keeping with that innovative headspace.

My true north: navigating adoption and advocacy “all in a day’s work”
My true north and daily focus comprise an 80/20 attention split across first, consulting, to inform successful blockchain deployments across various tiers of company focus areas, and a specialist focus on AfCFTA, and second, deployments of blockchain across Africa’s respective supply chains, particularly the food security, beauty sector, and clothing and textile value chain nexus.

From my desk to yours: I trust that you found these ESG aligned insights relevant, as you continue your journey, leading through a proactive front-foot approach to sustainability.

by Shadrack Kubyane: Co-Founder of Coronet Blockchain (a supply chain innovation firm)

Related articles

Why social impact is a critical issue for CFOs

With South Africa among the bottom 20 percent of countries when it comes to social impact effectiveness, Kearney experts unpack how CFOs can align purpose with profit to improve the “S” in their ESG impact.

CFOs should be Road Runners, not a Wile E. Coyote, says Ray de Villiers

Future of work guru Ray de Villiers says that, as the role of finance teams changes due to generative AI taking over their number-crunching responsibilities, it’s up to CFOs to make sure their people understand what the new future will look like, and the power they have to impact it.

How to be an optimistic CFO in 2024

The CFO Centre’s Rowan de Klerk reveals how CFOs can remain optimistic in the new year despite the challenging business environment South Africa is in.

Top