The potential of Blockchain for reaching SDGs and ESGs   - CVA Sustainability Series

CVA Sustainability Series

The potential of Blockchain for reaching SDGs and ESGs  

Authors: Dr Loic Leray; Guillermo Izaola; Maja Kehic

Blockchain technology is at an early stage and has been widely popularized over the past 5 years by one of its major applications, the creation of crypto-currencies (tokens) notably Bitcoin. While this has allowed the technology to become part of the common vocabulary, the media's focus on the specific application for crypto currencies has created a lot of controversy and divided public opinion on the merits of blockchain technology before its overall potential is truly understood. It is important to emphasize that crypto-currencies are just one of many applications of blockchain technology - a further application is sustainability.

The concept of sustainability is now widely accepted and used in all sectors of human activity. It describes an ideal equilibrium state between the various economic, social and environmental spheres on which the emergence and resilience of our societies are based. However, currently the environmental component, in particular the issues associated with climate change, has taken on greater importance in the collective unconsciousness when referring to this concept, to the detriment of the social, ethical and necessarily economic aspects that the concept underlines. 

Moreover, the word “sustainability” only expresses an ideal "state" to be reached, a goal, and shall be completed by the notion of "development" requiring the implementation of actions, modes of governance, which should allow human societies to reach this global objective. 

This article therefore aims to identify two main lines of thought regarding how:

• Blockchain technology can contribute to achieving this global objective through all its dimensions and; 

• How the technology itself can - should - be evaluated in order to be compatible with the concept of sustainability.

By enabling a network that fosters participation and transparency, blockchain has the potential to drive a positive social impact that goes beyond just the environmental aspect. Sustainability also means addressing the social, governance and economic aspects of any project or enterprise. We support the idea that blockchain has the ability to cover all of them and is likely to continue becoming a key element for reaching both SDGs (Sustainable Development Goals) and ESGs (Environmental, Social and Corporate Governance Criteria) in the near future. 

SDGs can be defined as a United Nations collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable future for all". They are a set of 17 goals adopted at the UN Sustainable Development Summit in 2015 with the objective of devising a roadmap for reaching solutions to various social emergencies like poverty, climate change and inequality by 2030.

ESGs on the other hand is an evaluation of a firm’s collective awareness for social and environmental factors and works as a sort of corporate social credit score. In sum, both SDGs and ESGs are frameworks that can help individuals and companies to work towards the improvement of society and blockchain is increasingly becoming an important element to consider in this process.

Unlike centralized systems, applications built on blockchain have the potential to incentivize people to collectively contribute to the network in a transparent way. Blockchain has already shown a great potential toward achieving the 17 SDGs with possible applications to all the segments (UNCTAD, 2021). One example of this is the UNICEF Project Connect that  aims to reduce inequalities by creating a real-time blockchain-based platform with the objective of mapping every school in the world and their connectivity to help people understand what regions are lacking basic connectivity. Another inspiring initiative is that of The Commonwealth Bank of Australia in partnership with BioDiversity Solutions Australia. By creating tradeable digital tokens named BioTokens that represent biodiversity credits, they foster rewards for protecting biodiversity in Australia. In sum, blockchain applications cover many other areas such as poverty reduction, financial inclusion or sustainable production/consumption and carbon offsetting.

However, when looking at the Blockchain technology through the sustainability lens, one can identify several drawbacks to blockchain applications when it comes to environmental impacts, especially related to climate change and energy transition. Indeed, some blockchains rely on POW (proof of work), which is known to be highly energy intensive and detrimental to the environment. Fortunately, there are greener ways to power public blockchains such as the solution known as ‘Proof of Stake’(POS). POS is a consensus mechanism which does away with the energy-intensive mining process required by POW, relying instead on network actors staking financial assets on their own future trustworthiness. Beside energy consumption, the POW protocol also induces an important pressure on hardware renewal (especially ASICS mining rigs) in order to maintain the profitability of certain mining activities. This highly specialised hardware quickly becomes obsolete and cannot be repurposed for other applications. Consequently, the material footprint of this infrastructure is also an important sustainability issue that can be overcomed by the ‘Proof of Stake' protocol.  

Another important issue to be tackled if blockchain technology is to become mainstream and part of the SDGs tool box is the high level of digital literacy most applications are still requiring. There is still misinformation and large access inequalities to the technology among the public, both in industrialised and emerging countries.The foundations are already built and everyday there are more projects investing in blockchain. However, the blockchain ecosystem and community should pay greater attention to the development of user-friendly interface solutions in order to leverage the full adoption potential of the technology and not only in the crypto money application realm. If these conditions are met, there is no doubt that the potential is there for blockchain technology to become a key element in reaching SDGs.

It is evident that the relationship between blockchain and sustainability is not just on the software layer and not just the concessions mechanism issue. Underlying hardware deserves attention as well, but not only  through the power consumption prism. An inspiring example comes from DeepSquare, a Swiss-based association developing an ecosystem for High Performance Computing. This pioneer in sustainable managed high performance computing as a service is dedicated to using only energy from renewable sources to power their decentralised network of HPC clusters. DeepSquare opted for immersion cooling which lowers the overall power consumption by up to 40% compared to the current industry standards. Additionally, this approach allows DeepSquare to transform the otherwise wasted heat generated by the electronics of their hardware into a valuable resource for  reuse. With the POC cluster, located in Sion, Switzerland, DeepSquare has successfully connected to the city’s district heating network and is reusing the heat generated by the cluster. In order to deliver high quality services hardware renewal is needed every 3 years.  DeepSquare already has in place policies and strategy for responsible hardware repurposing. Given the fact that DeepSquare is utilising blockchain, they’ve decided to find an option that can meet their needs for both technology and sustainability. DeepSquare began building on Ethereum, a blockchain utilising Proof of Work consensus mechanism;  simultaneously the team was  testing alternative blockchains. Recently they have announced that they are moving to Avalanche, a blockchain relying on proof of stake.

Blockchain is bound to become one of the main technological advancements of the future generation of the internet and the Web 3.0. Despite the fact that a large section of the general population is still unaware of the nature and potential benefits of blockchain technology, everyday more individuals and enterprises are willing to integrate it into their lives, creating and enhancing new projects that make full use of blockchain technology in many different ways. Initiatives such as those contemplated in the SDGs and ESGs are of great importance to the future of IT and society and being able to carry them out in a sustainable way is paramount.