Enhancing Environment, Social, and Governance (ESG) Reporting and Rating Mechanisms using Blockchain

Environmental, Social, and Governance (ESG) mechanisms are pivotal in promoting sustainable business practices. ESG provides a framework for financial institutions on environmental, social, and corporate governance issues closely related to sound financial resource allocation. Companies that perform better regarding ESG can increase shareholder value by adequately managing risks, anticipating regulatory actions, or accessing new markets. However, current ESG reporting and rating processes often lack transparency, hindering stakeholder trust and engagement. This research uses the Design Science Research (DSR) method to address these challenges by designing a blockchain-based solution for the ESG mechanism. We propose an architecture and design that adopts industry standards in ESG reporting and rating. To evaluate the design, we experimented and simulated to prove that blockchain can enhance the ESG Reporting and Rating process. The decentralized nature of blockchain technology ensures transparent and immutable recording of ESG data, thereby enhancing the credibility and accountability of ESG reporting. The findings suggest that blockchain technology can significantly improve the transparency, accuracy, and efficiency of ESG mechanisms. However, the limitations in elapsed time gas cost before the transaction is complete can hinder the actual implementation.