Blockchain Technology for Sustainable Sourcing Practices

Sustainability is essential for modern businesses. Minimizing carbon footprints will become more important as climate regulations grow and consumers embrace more environmentally minded buying practices. Adopting a sustainable sourcing strategy is a crucial part of this shift.

In many cases, sustainable sourcing is easier said than done. Many organizations’ strategies fail to address partner and third-party sustainability effectively, but new technologies could hold the answer. Blockchain could be the missing piece to the environmental puzzle.

Why Do Brands Need a Sustainable Sourcing Strategy?

Direct emissions from an organization’s own operations (Scope 1) and those from their purchased energy (Scope 2) are easy to understand and address. However, Scope 3 emissions—those from other parties or indirect sources throughout the value chain—account for more than 70% of a business’s carbon footprint but often receive less attention.

Electrification and switching to renewable energy can address most Scope 1 and 2 emissions, so that’s what many companies focus on. By contrast, addressing emissions from supply chain partners and logistics providers is far from simple. It can be challenging to gauge other organizations’ carbon footprints, and some may hesitate or be unable to share this information.

Because of this complexity and the costs of change, many companies fail to minimize their sources’ carbon footprints. That oversight will no longer be acceptable as climate change grows more severe. Businesses that hope to comply with regulations or appeal to eco-conscious consumers must adopt sustainable sourcing.

Where Conventional Strategies Falter

Thankfully, many organizations now recognize the need for sustainable sourcing strategies. Unfortunately, implementing them effectively often proves challenging.

Eco-friendly material and component sources do exist. Researchers have developed items that biodegrade in as little as four weeks and invented many zero-emissions equipment alternatives. Finding partners that employ these resources and verifying their authenticity is the challenge.

Supply chain fraud is rampant. Counterfeiting produces more money than the GDP of most countries, and many supply chains lack the visibility necessary to ensure they can stop it. Consequently, it can be challenging—at times, near impossible—to be fully assured of a product or part’s true environmental impact.

How Blockchain Could Improve Sourcing Sustainability

Blockchain—the distributed ledger technology behind cryptocurrency—offers a potential solution. A blockchain is a transparent, encrypted ledger of records supported by a distributed network of computers. Each record, or “block,” in the chain is visible to everyone with access but virtually impossible to change once verified by the network.

Cryptocurrencies use blockchains to authenticate and record monetary transactions, but businesses could use them for supply chain traceability. Whenever a verified sustainable supplier creates a product or prepares a material, they create a block in the chain. New ones in the same chain record every step in the supply chain from that point through to the final purchase.

Companies could use these records to verify their products or materials come from where they say they do. Major corporations like Coca-Cola and Ford already use blockchain solutions like this to ensure they source from ethical farms, factories and mines. Similar systems could record suppliers’ emissions data, transportation methods and other environmental practices to authenticate their sustainability.

These tracking solutions let businesses plug the data into the carbon calculators many organizations already use to get the full picture of their supply chain emissions. They could then formulate more effective sustainable sourcing strategies. If most emissions rise from one supplier, they could pressure them to change or switch to a more sustainable source.

Because blockchain records are fully transparent, these tracking systems hold supply chain partners accountable for accuracy in their sustainability reporting. The inability to change blocks after the fact further improves trust and reduces fraud risks.

Remaining Obstacles and Potential Solutions

Like any new technology, blockchain still isn’t perfect. Organizations must approach it carefully to ensure an effective, sustainable sourcing strategy.

The biggest downside to blockchain is that many of these networks consume significant amounts of energy. Some of the most popular use proof-of-work (PoW) consensus protocols, in which computers calculate complex equations to verify—or “mine”—blocks. This leads to substantial energy-related emissions. Mining a single bitcoin generates 113 tons of CO2 equivalent.

Proof-of-stake (PoS) consensus protocols are a more sustainable alternative. These blockchains have users stake their own resources to verify other transactions. As a result, they require far less computing power, leading to a 99% lower carbon footprint than PoW blockchains.

Implementing these systems can also be expensive. Building an effective blockchain, even with off-the-shelf solutions, takes time and may require extensive computing knowledge to configure correctly. As a result, some organizations may hesitate to embrace them.

Slow adoption can help spread out these costs. Businesses can apply blockchain tracking to a single product or resource first, then expand it to others as returns come in. Emphasizing the economic benefits of sustainability—notably, increased customer loyalty and justifying higher prices—will also encourage adoption.

It’s also important to recognize that a blockchain-based sustainable sourcing strategy only works if a business’s suppliers agree to use it. The solution is only working with companies willing to participate in these projects. As more companies embrace that stance, the financial opportunities will entice more suppliers to accept blockchain tracking.

In some areas, blockchain traceability may become mandatory. The European Union’s upcoming Digital Product Passport framework could require businesses to offer blockchain-based tracking through QR codes to increase transparency. It will take less persuasion to convince suppliers to embrace blockchain if these platforms become commonplace or compulsory.

Use Blockchain to Build a Sustainable Sourcing Strategy

Sustainable sourcing strategies start with improving supply chain transparency. Blockchain tracking solutions provide the verification and traceability necessary to uphold these policies. While this technology is still in its infancy, further development could make it an important step in supply chain sustainability.

Learning about blockchain, its benefits and its current shortcomings is the first step in capitalizing on it. When more organizations see how this technology can reduce their carbon footprints, it could change the shape of the supply chain industry.