Blockchain Solutions for Tracking and Reporting Climate Data

This week kicks off the 26th annual United Nations Conference of the Parties (COP26). World leaders, representatives, businesses, and citizens are gathered in Glasgow for twelve days with the following four goals as a top priority:

Present emission reduction plans to reach global net zero by the middle of the century to limit global warming to 1.5 degrees Celsius.
Encourage the protection and restoration of ecosystems and build resilient infrastructures.
Mobilize at least $100 billion in climate finance.
Work together to accelerate action and collaborate with governments, businesses, and citizens.

President Biden will attend the conference as the administration has made climate a top priority since re-entering the Paris Agreement on January 20th of this year.

At that time President Biden signed an Executive Order on Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis. The EO directs agencies to “capture the full costs of greenhouse gas emissions as accurately as possible, including by taking global damages into account”. The accounting and accountability on carbon, nitrous oxide, and methane as they pertain to greenhouse gas emissions was specifically mentioned in the directive.

A subsequent Executive Order on Climate-Related Financial Risk further cements the administration’s climate policy and addresses five broad priorities:

Develop a government-wide strategy for mitigating climate-related financial risk.
Encourage financial regulators to assess climate-related financial risk.
Encourage consideration of climate-related financial risks related to life savings and pensions.
Modernize federal lending, underwriting, and procurement practices by incorporating climate-related financial risks.
Reduce the risk of climate change to the federal budget.

The addition of the Financial Risks EO brings the Securities and Exchange Commission (SEC) into the mix. In February, the Division of Corporation Finance of the SEC announced it will review and update 2010 guidelines on documenting climate-change matters in public disclosures. The SEC aims to ensure the accuracy and accountability of Environmental, Social, and Governance (ESG) declarations for investment decisions. The end goal is to facilitate the disclosure of consistent, comparable, and reliable information on the business’s actions on climate matters.

“Investors are considering climate-related issues when making their investment decisions. It is our responsibility to ensure that they have access to material information when planning for their financial future. Ensuring compliance with the rules on the books and updating existing guidance are immediate steps the agency can take on the path to developing a more comprehensive framework that produces consistent, comparable, and reliable climate-related disclosures.” - Commissioner Allison Herren Lee, SEC

Why do businesses have to report their carbon footprint?

Regardless of one's stance on climate-related matters, businesses are now left with the task of accurately tracking, recording, and reporting their emissions. Failure to do so could result in reduced opportunities for investments, contracts, and even customers.

What should businesses do to prepare and ensure compliance with SEC disclosures?

After a risk assessment to identify areas where they need to improve, businesses will have to develop and implement new policies, procedures, and workflows to address climate-related matters. They will also have to automate and incentivize the accurate capture and self-reporting of environmental data.

What are the expected challenges in filing SEC disclosures on climate-related matters?

In many ways tracking climate-related emissions is much like tracking the supply chain. Like the supply chain, businesses will need quality data, digital tools, and accurate metrics that demonstrate greater transparency and organizational accountability. But also like supply chain management obtaining quality data is difficult.

Breakdowns occur due to subpar self-reporting, missing data sets, or errors. Accepted standards are disparately applied because there isn’t an available platform that is sufficiently secure, transparent, and verifiable across the myriad of required Greenhouse Gas (GHG) accounting streams.

How can Dragonchain help businesses record and report climate-related data for SEC disclosures?

With the SEC indicating its desire to require more stringent disclosures of climate related data, the accurate accounting of said data is crucial. This is no small feat for a business but it is obtainable through the use of blockchain. While the SEC determines what specific metrics should be reported in yearly disclosures, businesses should be making moves to get as much data on-chain as possible.

Dragonchain is already working with several projects who are using blockchain to track and report carbon emissions. Implementing tracking and reporting solutions with Dragonchain gives these projects a distinct advantage over their competition.

Flexibility and Interoperability for Climate Data Tracking, Recording, and Reporting

Businesses should not be apprehensive about implementing blockchain-based climate-related solutions. The Dragonchain platform is user-friendly and a simple business blockchain can be created with just 3 clicks and in 10 minutes. Specific business workflows can be built into smart contracts that can be written in any coding language. These smart contracts can then be used to automate or verify pretty much any type of value and/or information needed.

Dragonchain’s hybrid blockchain platform, allows for selective transparency, keeping sensitive and proprietary information private while sending proof of any event to multiple public blockchains (e.g. Bitcoin and Ethereum) for transparency and accountability.

Dragonchain’s patented interoperability technology allows any business to connect IoT devices and sensors to any system to record emissions and events for the accurate real-time tracking and recording of climate and manufacturing-related data. Businesses can then provide measurable proof to regulators, climate-aware consumers, or keep for the business's own records that metrics are as stated.

Dragonchain can also connect to traditional non-blockchain systems which drastically reduces the friction involved in building any solution. This level of interoperability is immensely helpful when considering the entirety of a product's life span and determining its complete carbon footprint.

Tokenization and Marketplaces

The inclusion of tokens that represent carbon credits and offsets will ensure accurate tracking, appropriate access, address fraud, create value, and prove the legitimacy of climate-related data.

When climate-related data is on-chain businesses can more accurately track carbon offsets to produce more valuable credits. Using tokens to resell carbon credits in a marketplace will drive its value and provide proof that the history behind each credit is accurate.

Marketplaces can also be used to incentivize partners to accurately report climate-related data and to reduce their own carbon footprint. These marketplaces don’t have to be only for businesses. Even residential or small property owners can tag their trees and offer them up as carbon offsets. The marketplace will incentivize regular property owners to maintain and care for the trees on their property.

Businesses can also use Enterprise NFTs to control what partners have access to specific data sets. Enterprise NFTs can be used for licensing, permitting, and financial matters like loans and payments. When certain predetermined criteria are met, smart contracts are used to reward or pay partners for meeting that criteria. This completely streamlines any supply chain including one recording climate-related data.

Dragonchain is Energy Efficient

Due to the well-designed architecture of the platform, Dragonchain is very energy efficient. The platform infrastructure (including managed nodes), by default, is hosted in carbon-neutral facilities and the verification platform, Dragon Net, operates at just 43.77 kW/day on 2057 verification nodes, including Bitcoin and Ethereum combined. According to the latest report Dragonchain is operating at just ~0.05% network utilization. This means Dragonchain can verify approximately 34 million more blocks a day and operate at the same 43.77 kW/day.

How is it possible that Dragonchain is so energy efficient?

Dragonchain uses TIME as part of its consensus protocol and as the prime scarcity on the network. This system does not require massive amounts of computing energy to verify transactions and create blocks as a proof of work blockchain would. Additionally, the Dragonchain platform does not require keys to be held on a hardware device as is the case in proof of stake blockchains. This allows for much smaller devices to be used as verification nodes that have a significantly lower carbon footprint.

When implementing a solution for the tracking and reporting of carbon offsets or emissions, the solution must include proof of authenticity and legitimacy. Dragonchain makes it possible for businesses to track and report their carbon footprint to evaluate climate-related risks assessments related to their company, its suppliers, and competitors. Businesses can then provide auditable reports that prove the status of their carbon footprint to customers, employees, partners, and regulators including SEC disclosures.