How blockchain can help finance professionals solve the ESG reporting puzzle

Adding sustainability through a holistic ecosystem approach based on trusted ESG data and stakeholder engagement

ESG reporting is crucial to evolve towards a sustainable economy and a sustainable future for the planet we live in. There are three elements to ESG reporting. The first thing you need in order to produce reports is data. As data is worth nothing without trust you secondly need that data to be immutable, traceable and auditable. Finally, you want to make sustainable decisions and improvements – or even predictions – based on that trustable data. Therefore, you need hindsight, insight and foresight.

During the latest Digital Finance Conference – which looked at how emerging technologies and applications can create value for the CFO office – Koen Vingerhoets explained how CFOs can solve this ESG reporting puzzle. Koen is a Blockchain Evangelist & Business Architect at Fujitsu and Executive in Residence at Vlerick Business School. It’s Fujitsu’s purpose to make the world more sustainable by building trust in society through innovation.

Digital Finance Conference 2023

Why blockchain is the solution to validate ESG data

Digitalisation allows us to store, manage and order large amounts of data. But how do you make sure that nobody changes that valuable data along the way – either on purpose, by accident or unaware? Koen uses the example of accounting ledger books: “If you start every book with a summary that summarises the previous book in such a way that you can validate its content, you can build an order of books tied together. In the digital world, such a summary is called a ‘hash’.

How does it work? “Any digital object from a PDF file to an entire computer can be run through a hashing algorithm that generates a message digest, a hash. Hashing the same digital object multiple times will always result in the same hash, but as soon as you make the smallest change to that digital object the hash will be completely different. And there’s a trapdoor function too: starting from a hash, you cannot go back and re-create the original content. A hash is just a unique summary, but not the original content.

Blockchain technology takes pockets of data and transactions, seals them with a cryptographic hash and puts this hash in the next block so that you cannot change the past. In a blockchain, your data is chained together to make the past immutable, traceable and auditable. And hashing allows participating entities to foster business collaboration on top of an infrastructure layer with shared, permissioned data they can rely upon. According to Harvard Business School Professor Robert Kaplan blockchain is the most efficient way to store and transport data for ESG purposes across the supply chain.

The 3 challenges of ESG reporting

Now that you’ve found a solution to making data trustable, what do you do with it? When it comes to ESG reporting, there are three main challenges.

  1. Standards challenge
    Unfortunately, there’s no single standard for ESG reporting but a mix of frameworks and regulatory advances. There are global standards, regional and national legislation and sectoral regulation from (data) regulators. It’s not easy to determine which one to go by, but the good thing is that there’s ever-increasing regulatory pressure for more and more precise data.
  2. Technology challenge
    If you have to capture Scope 1 / 2 / 3 data within each company, you create a cartesian product because everybody will need everybody’s data across their supply or value chain to be stored on their site. A data lake – hoarding data into a central system – will not work for ESG reporting, because it’s impossible to aggregate such massive volumes of data in the centre.

    Koen adds: “According to the worldwide IDC Global Datasphere Forecast 2022-2026, the Global Datasphere is expected to more than double in size from 2022 to 2026. The Enterprise Datasphere will grow more than twice as fast as the Consumer Datasphere over the next five years, putting even more pressure on enterprise organisations to manage and protect the world's data while creating opportunities to activate data for business and societal benefits.”
  3. Evidence challenge
    The fundamental issue here is finding and getting the data you need and transforming them into insights at scale. There is a challenge with the quality and consistency of ESG data – and greenwashing is potentially still omnipresent. There’s a variety of taxonomies and methodologies across sectors, whilst investors are demanding more precise and transparent data. How do you combine firm data with vendor data to derive greater insight? There’s a great deal of complexity and a lack of consensus.

Beyond just reporting to making data actionable

To tackle these challenges and solve the ESG reporting puzzle, Fujitsu has created a referenceable SaaS platform that allows CFOs, Sustainability Officers, … to gather, access and manage trusted ESG data at scale across enterprises and ecosystems. Koen Vingerhoets: “As for the standards challenge, we picked three frameworks (ESRS, GRI and ISSB) to start with, but the platform allows for others to be implemented in the future. On a technological level, we created a data mesh which means source data is not hoarded in the centre but resides instead within each company’s premises or cloud. To that, we added a blockchain layer to immutably connect the reported data and the related source data.

But just reporting will not change the world – you need to make this data actionable. So the platform also foresees tools for AI, analytics, and dashboarding. The data needs to be a source for better decisions and can perhaps even be a good way to turn the CFO office into a driver for change in the organisation instead of a cost factor.

While we positioned blockchain from a technology perspective earlier, we also acknowledge the strategic impact and shifts it creates. On a business level, it fosters collaboration and trust at scale due to its role as a governance technology. Across an ecosystem, blockchain technologies add a layer of transparency and enforceability over data, relations, permissions, procedures and processes. It is a unique approach that enables all actors in the ESG ecosystem (reporting companies, regulators, consulting, legal advisors, …) to collaborate to embed sustainability in business strategies and models.

One company on its own cannot change the world so we have to rely on ecosystems where everyone adds their data and can connect the dots across supply and value chains in order to report Scope 1, 2 and 3 in a decent way. The end goal is not the reporting as such but to provide the right data to make the economy more sustainable,” concludes Koen.

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Kristof Stouthuysen

Kristof Stouthuysen

Full Professor of Management Accounting and AI-Driven Finance