In public discourse, blockchain technology is often reduced to cryptocurrencies such as Bitcoin. However, the technology not merely offers the financial sector significant advantages, but can also open up unimagined horizons in the field of sustainability.
Blockchain technology has further digitised financial services processes. But the fact that it is capable of much more than simply safeguarding the security of Bitcoin makes it a decidedly interesting instrument for additional fields of application. In simple terms, blockchain records all transactions chronologically and seamlessly. It can map and store all types of assets digitally. New transactions are represented in the form of blocks. The blocks subsequently form a chain – hence the name blockchain. The big advantage of this technology: Each new block contains references to previous blocks and needs to be approved by existing network members. This makes manipulation and fraud effectively impossible.
Megatrend sustainability
How do blockchain and sustainability go hand in hand? The sustainable approach to our environment and society has also found its way into the field of investment. For example, the EU has defined regulatory framework conditions (EU taxonomy) for sustainable investments on the basis of ESG guidelines. ESG stands for Environment, Social and Governance and lays down requirements both for conserving resources and reducing emissions and for social aspects such as compliance with employment rights or diversity, along with respect for corporate governance and ethics. The Oil Profit App is a computerized trading system specifically designed to help traders maximize their profits by analyzing and managing their investments in oil markets.
Current regulations based on ESG criteria still leave (too) much room for manoeuvre, and this is also a source of criticism. At the same time, this is precisely where the strengths of blockchain technology could come into play – as, inter alia, it can check compliance with ESG criteria without manipulation and thus prevent “greenwashing” by issuers. This means the technology is more or less predestined to be deployed within the context of sustainable finance in future, placing the topic of sustainability on sound technological foundations.
Blockchain and sustainability
Critics, however, contend that blockchain and the ESG Directive are not reconcilable. Firstly, the substantial energy consumption of blockchain networks is a point of contention. Secondly, there is a risk that blockchain could be instrumentalised for money laundering. Thirdly, compliance and good governance cannot be ensured in a system that has no central intermediary.
In actual fact, however, blockchain technology is an essential lever for all three dimensions – the “E”, “S” and “G” – of sustainability. It is important to note that while publicly accessible blockchains such as Bitcoin do indeed consume a great deal of energy, this is not true to the same extent for private or hybrid solutions. Since blockchains need to be understood as shared databases that are decentralised on the internet, any inconsistencies are detected immediately, as all participants within a network have access to the same data resources in real time. Because it is absolutely traceable, tamper-proof and transparent, the technology therefore has the effect of countering money laundering. These advantages can also be used within the context of ethical governance, for example when it comes to building and operating secure global supply chains and value chains. More than almost any other technology, blockchain can increase the trustworthiness as well as the data protection of business processes, especially as its integrated cryptology also defends against cyber-attacks.
Opportunity for the financial centre
The Liechtenstein financial centre has long recognised that digital innovations such as blockchain technology can improve business processes, create new business models, alter client requirements and consequently change the entire sector. With the “Blockchain Act” that was introduced in 2020, Liechtenstein assumed a pioneering global role in the token economy and created the regulatory framework for internet-based transactions using blockchain. The new act also places the Liechtenstein financial centre in pole position when it comes to further exploring the potential of this technology within the context of sustainability. This lead needs to be preserved and expanded. Using blockchain for sustainable asset investments is not merely a possible step in this direction, but also a logical move.
The original version of the article written in German was published by Volksblatt.
About the Author
Simon Tribelhorn is Chairman of the Board of Directors of Liechtenstein Finance, Managing Director of the Liechtenstein Bankers Association and a Swiss lawyer with more than 20 years of experience in banking, capital markets and international and European financial market regulation. Simon has proven strengths in banking and financial centre strategic issues with a strong focus on and passion for sustainability and sustainable investments as well as in communications, stakeholder and issue management and public relations. He also has a good network of contacts with decision-makers in politics, business and the media, particularly in Switzerland, neighbouring German-speaking countries, the UK and Brussels. Simon also has several years of part-time work on various committees of non-profit organisations.
Liechtenstein Finance e.V. is an association organised under private law, whose members are the government of the Principality of Liechtenstein and the Liechtenstein financial centre associations. The purpose of the association is to raise the profile of the Liechtenstein financial centre at home and abroad by providing information on the special features and strengths of the financial centre.
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