Warranted or not, there’s been widespread criticism of environmental, social and governance (ESG) applications in the world of investing. It’s also a hot-button political issue. But plenty of investors remain devoted to ESG principles.
Forecasts indicate that in the years ahead, ESG and sustainability ETFs will be on the receiving end of trillions of dollars in fresh assets. That confirms there’s long-term appetite for this investment style. There are ways to ensure adoption reaches or exceeds expectations. That includes enhancing ESG reporting and scoring.
Perhaps to the surprise of some advisors and investors, blockchain technology can play a pivotal role in accomplishing that objective. And that means the Amplify Transformational Data Sharing ETF (BLOK) might have more ESG credentials than meet the eye.
Blockchain Could Smooth ESG Controversies
Among the issues viewed as headwinds to broader ESG adoption are lack of clarity pertaining to ratings and scoring, and concerns about greenwashing. Blockchain technology could improve those scenarios. That indicates BLOK could be a backdoor play on long-term ESG improvements.
“Blockchains can improve data integrity by enabling transparency, real-time ESG metric tracking and by serving as a single source of truth. As ESG disclosure standards develop, providing consistent measures for tracking and reporting, smart contracts can improve accountability by automating the reporting of auditable information,” noted Moody’s Investors Service.
Should blockchain companies forge deeper into the ESG space, the subsequent impact could be expanding the usage case for a technology that’s frequently tied to the cryptocurrency space. Those crypto ties are worth merit. But blockchain is already making inroads in fields beyond crypto. Those fields include healthcare and logistics. Some of that progress could be transferable to ESG.
New Efficiencies for ESG Finance
Further highlighting the potential potency of BLOK as an indirect ESG play is the notion that blockchain can bring new efficiencies to ESG finance. As noted by Moody’s, that can include adding efficiencies and transparency to fast-growing carbon credit markets, and making it easier to issue ESG-linked bonds. If those objectives are accomplished, it could expand the investor bases for those assets and some digital assets. Expanding blockchain’s ESG usage case requires effective implementation.
“Ensuring the environmental sustainability of blockchains themselves is particularly crucial if the technology is used for ESG management. Moreover, faulty input data can undermine blockchains’ immutability and transparency. The absence of interoperability among blockchains can hinder the comprehensive tracking and verification of ESG metrics across various platforms. Also, companies seeking the benefits of blockchains’ transparency must still be mindful of data privacy requirements,” concluded Moody’s.
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