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This Earth Day, Accredify’s Chief Executive Officer and Co-founder, Quah Zheng Wei, reflects on the considerable challenge of environmental governance the world currently faces. Even as we attempt to move towards greener practices at the governmental, organisational, and individual levels, we often find that the inability to ensure water-tight accountability renders these efforts less meaningful and effective than intended. With that in mind, Zheng Wei shares more about how he envisions TrustTech to move the needle by enabling the systemic change needed for us to step into a more sustainable future, together.

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This 22 April, the world observes Earth Day – a day where governments, businesses, and individuals across the globe come together to demonstrate support for environmental protection. As we celebrate, validate, and affirm the inroads we have made towards becoming better stewards of our environment, it is also timely to begin thinking about the future of environmental protection.

Where will we be, on this very same day, next year?

The reality is that while sustainability has moved up on everyone’s priority lists – be it national agendas, business goals, or even individual lifestyles – often, the chasm of information asymmetry sends our best efforts hurling through the void.

Specifically, governments and businesses face challenges in ensuring accountability and executing enforcement when it comes to sustainability projects. Visibility along the supply chain is obscured by a variety of reasons stemming from information asymmetry, and these can be broadly classified as technical, data, and organisational barriers:^[1]

• Technical barriers exist due to siloed systems working with non-portable data, resulting in the extremely manual task of supply chain information exchange.
• Data barriers are brought about by unreliable reporting along the supply chain and a lack of common reporting standards.
• Organisational barriers exist due to unclear governance on best practices, and a lack of trusted data sharing mechanisms; for example, companies may find it difficult to share information to external parties because there is no trusted entity coordinating the exchange of information that is equivalent in value and transparency.

These barriers, along with other more specific issues, make it excessively difficult to identify instances of unethical and illegal behaviour along the supply chain – whether these involve environmental protection or human rights violations, or even fraud.^[2]

Visibility along the supply chain is obscured by a variety of reasons stemming from information asymmetry, but the most cited barriers are technical, data, and organisational barriers.

Yet, the solution for information asymmetry may already be in our hands. DLT solutions have advanced exponentially in recent years, and we find ourselves in a better position than ever before to harness the incredible potential of DLT to bring the world forward into the future of sustainable practice.

Here’s how: DLT allows us to create digital, verifiable, tamper-evident “proofs”, in the form of documents or credentials, which can be used to address the aforementioned technical, data, and organisational barriers.

By powering operational processes with these verifiable, tamper-evident “proofs” of actions or transactions, which help prevent data fraud while creating an audit trail, DLT can significantly enhance supply chain transparency. These “proofs” can also be built with a fixed set of reporting standards, thus ensuring consistency in sustainability accounting throughout the entire supply chain. This way, data and organisational barriers are effectively reduced.

Visualisation of how verifiable documents would improve visibility and accountability in value chains

Such technologies also eliminate the need for verification intermediaries, creating greater supply chain efficiency across borders. By enabling processes automation and secure data sharing with portable data, organisations and governments can reduce the time and cost of transactions along the supply chain while exchanging information freely. And just like that, technical barriers are also made less daunting with DLT.

Potential DLT use cases in the sustainability space abound, spanning across product origin assurance, providing stakeholders with tools to enforce behavioural incentives, to protecting resource rights.

As an example of DLT verification in action – at Accredify, we issue verifiable, tamper-evident documents (called Accredified documents) that allow our partners to protect and keep their stakeholders accountable. An example of how our technology has benefitted the world is our issuance of instantly verifiable and tamper-evident COVID-19 pre-departure test results (PDTs). With the issuance of instantly verifiable and tamper-evident PDTs in international standards that are trusted by authorities around the world, Singaporeans could easily resume international travel even amidst the onset of the pandemic.

By powering operational processes with these verifiable, tamper-evident “proofs” of actions or transactions, which help prevent data fraud while creating an audit trail, DLT can significantly enhance supply chain transparency.

With DLT verification, governments can automate the monitoring of business operations in their countries. A potential use case of DLT verification is the enablement of governments to determine whether firms are truly compliant with sustainability policies. Those that fail to produce “proofs” where needed can be easily identified and investigated, while those that are compliant can be duly rewarded.

An example would be the GLI-TEA project in Kenya, where blockchain technology is used to support the traceability and transparency of production and emissions of the Kenyan tea value chain. Growers that achieve compliance are potentially rewarded with access to carbon markets, which creates economic incentives for good business behaviour.^[3]

Another potential application is the carbon credit market. DLT can guarantee transparency and reliability on the carbon credit market through “proofs” of carbon emissions saved by participating firms. Regulatory, compliance, and administrative functions can be powered by these “proofs”, thus streamlining the entire trading process for national carbon credit markets by utilising a uniform data standard as the basis for these transactions.^[4]

With a clear audit trail, and a singular trusted format of data reporting using inputs that cannot be falsified, DLT enables businesses to monitor their value chains more accurately. Organisations can then manage their supply chain stakeholders more effectively in pursuit of sustainability, by enforcing criterion such as emissions or energy usage policies, and to reward compliant suppliers accordingly, such as offering favourable purchase rates in return.

Moving towards more sustainable business practices also makes economic sense. Forbes has observed that nearly 60% of consumers prefer products that are made sustainably.^[5] By evolving current supply chains into more sustainable versions, businesses can win the hearts of modern consumers, and in turn, build brand loyalty and enhance overall lifetime value of each customer.

By addressing the point-of-sale provenance information asymmetry that buyers face, DLT grants every individual in the world with the power of supply chain visibility. By providing consumers with access to information such as where the materials in a specific product were sourced from, to how the product was processed, individuals can make accurate, conscious purchase decisions in support of environmentally-responsible organisations.

The supply chain visibility afforded by DLT also benefits society at scale. Comparisons of the environmental impact associated with different products in the same category can be made easily with clear provenance audit trails. This means governments, businesses, and consumers, can clearly identify specific product categories or verticals – beyond the usual suspects – that may need more help reviewing production processes. Hopefully, these efforts would then culminate in a revolution of how less environmentally-friendly categories perform at scale.

Of course, a perfect solution rarely exists, and the same goes for DLT applications in the sustainability space.

The primary issue is that the complex validation processes of DLT can be highly energy guzzling. Let’s take blockchain, a type of DLT, as an example. In a report by Digiconomist, the Ethereum blockchain consumes over 50 TWh per year, with an estimated carbon footprint above 25 Mt CO₂ per year.^[6] Wouldn’t it be ironic then, to address environmental issues rooted in accountability and enforcement, only to worsen issues on the other side of this multi-faceted global challenge?

A cost-benefit point of view is most certainly needed with blockchain application in its current state. It would be a worthwhile exercise to weigh the costs of energy consumption associated with blockchain technology, against the far-reaching advances in sustainability it would allow us to make. Environmental challenges often stem from the difficulty of verifying and implementing policies, and blockchain effectively addresses this. In fact, could blockchain technology also be used to govern and regulate the energy consumption of its own applications in sustainability as well?

Which end of this double-edged sword is sharper?

It is also important to note that the Ethereum blockchain is currently using the proof-of-work consensus mechanism, which demands a high level of energy consumption. The great news is that it is currently transitioning to a proof-of-stake mechanism which can reduce its energy consumption by over 99.95%.^[7] When that happens, the cost-benefit analysis above would become a significantly easier exercise to complete.

A cost-benefit point of view is most certainly needed with blockchain application in its current state. It would be a worthwhile exercise to weigh the costs of energy consumption associated with blockchain technology, against the far-reaching advances in sustainability it would allow us to make.

First, governments need to prime their economies for the adoption of DLT technology. DLT applications in supply chain and provenance will have far-reaching impacts on an entire economy’s value chain, and it must be ready to accept the technology.

Governments can begin by laying down the necessary regulatory groundwork. Participating in international conversations about cross-border governance frameworks and building national regulations on DLT are good ways to start. Ministries will also need to work closely with the private sector to facilitate sector understanding of DLT – from encouraging innovation and adoption, to building a national ecosystem of DLT stakeholders – governments must operate with a whole-of-government objective in mind, where the entire nation adopts DLT as the future of our world.

Businesses can also begin reviewing their existing supply chain processes and identifying critical points of information asymmetry. At which point of the value chain are issues of accountability and enforcement a major issue? Are there specific points of transfer where logistical costs undergo an unexplained increase, or are there specific changes in ownership that may carry risks of unethical environmental stewardship? Firms can apply DLT in meaningful ways at identified critical points first, and with the learnings gleaned over the initial trial period, then transform the rest of their value chain with DLT.

DLT has immense potential. It can change social interactions, governance, and even business operations for good, by empowering us with our newfound ability to reach unexplored frontiers of environmental accountability and enforcement.

It has given us a vision of our sustainable future. Now, it’s up to us to take action.

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References

[1] https://www3.weforum.org/docs/WEF_Visibility_Traceability_Twin_Engines_Sustainable_2020.pdf

[2] Clarke, T., and Boersma, M. (2017). The Governance of Global Value Chains: Unresolved Human Rights, Environmental and Ethical Dilemmas in the Apple Supply Chain. J. Bus. Ethics 143, 111–131. doi:10.1007/s10551-015-2781-3

[3] https://unctad.org/system/files/official-document/dtlstict2021d3_en.pdf

[4] https://www.sustainability-times.com/sustainable-business/blockchain-can-be-a-vital-tool-to-boost-sustainability/

[5] https://digiconomist.net/ethereum-energy-consumption

[6] https://blog.ethereum.org/2021/05/18/country-power-no-more/