Blockchain in Financial Services

How blockchain can drive sustainability accounting

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Blockchain technology is, almost without argument, the topic of the year and is even more high profile for the accounting and financial services industries. Almost without exception, major conferences, journals, media publications and most conversations, are impacted by this technology. Even with all of the excitement, investment and analysis, however, most of the conversations have tended to revolve around how blockchain can improve, augment or eventually replace core functions of accounting and finance. Without taking away from these conversations, including the disruption of financial services as well as the ramifications of regulations like GDPR on blockchain implementation, there are other areas where blockchain could arguably have an even greater impact.  

Sustainability has traditionally been a difficult are for management professionals, and specifically for accounting practitioners seeking to add value and create clearer insights for clients. A variety of regulatory frameworks, differences in how information is reported and disclosed across different industries, and the lack of transparency with regards to how data is compiled and analyzed contribute to this difficulty. That said, with the number of exchange-traded funds (ETFs) aligned toward sustainability and environmental, social and governance (ESG) issues now numbering in the hundreds and with billions invested toward sustainability activities, this is not merely a theoretical conversation. In spite of this growing investor and market interest, however, sustainability accounting remains something of a work in progress. Blockchain technology is already having a dramatic effect on traditional accounting functionality, but the connection between sustainability, blockchain and accounting remains worthy of additional analysis.  

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That is, how can blockchain help generate new revenue opportunities for accounting and financial services professionals? Specifically, how can practitioners link the seemingly disparate forces of increased interest in sustainability, growing accounting interest in this space and blockchain technology itself?  

Transparency will drive better reporting  

One of the biggest and most often cited issues with sustainability accounting is that organizations do not always communicate nonfinancial information with the same effectiveness as financial data. This can be even more pronounced and important with regards to sustainability data, which 1) drives bottom line performance, and 2) exposes the organization to outsize risks if violations go unnoticed. Blockchain, virtually by default, requires that all members of the network communicate in a near continuous and transparent manner. Specifically, this could mean that information connected to sustainability initiatives, including those with a financial orientation (like Ecomagination) as well as those with an operational angle (like Coca-Cola’s Water Stewardship program) can be disclosed, reducing some of the murkiness often linked to sustainability.  

Standards can be built on the blockchain 

There are numerous frameworks currently in the marketplace that attempt to bridge between sustainability projects and financial results. Integrated reporting, other various frameworks put forth by accounting associations, and company specific initiative all exist. The issue is not the lack of standards, but rather the lack of agreement as to what should constitute standards. Smart contracts, in and of themselves, represent an excellent first step toward establishing standard and executable protocols for doing business — accounting for sustainability is no exception. Leveraging the reality that, in order to upload and confirm information onto the various blockchain platforms, the data must be consistently formatted is a blockchain-generated concept that should be expanded upon. If the information is standardized, and building off of the first point, communicated in a transparent manner, accounting professionals can have the in-depth conversations required to develop and refine comprehensive sustainability accounting standards. More importantly, these standards can be applied across broader swaths of the economy, versus the siloed regulations that all too often result. 

Sustainability accounting is a revenue opportunity 

This is perhaps the most exciting point for accounting professionals looking to build a business case around sustainability and technology. In the face of increasing technological integration, taking the form of artificial intelligence, blockchain and automation, financial services firms, and accounting firms specifically, are continuously looking for new revenue lines. The growing interest in sustainability, in addition to representing a reporting change, is also an opportunity for forward looking firms. Clients and customers, both current and future, are going to be held accountable by different stakeholder groups interested in 1) how the firm is performing, and 2) how the firm is obtaining those results. Practitioners able to connect these dots, between blockchain, reporting and sustainability, are going to be well positioned to monetize this opportunity.  

Blockchain, at least in the finance and accounting space, is often spoken about in equal terms of excitement and anxiety as it further accelerates and amplifies the trends toward automation and elimination of traditional accounting roles. That said, only thinking about the possibility of blockchain in the context of improving traditional attest and tax roles overlooks the numerous opportunities blockchain can help create. Sustainability reporting, operating in an environmentally sustainable manner, and connecting the bottom line to everything else going on in the organization are trends positioned to grow only more important moving forward. Blockchain, already driving change in the accounting and finance industries, can also open the doors to new opportunities for individuals and firms willing to embrace these changes.      

From time to time, we invite industry thought leaders, academic experts and partners, to share their opinions and insights on current trends in blockchain to the Blockchain Unleashed blog. The opinions in these blog posts are their own, and do not necessarily reflect the views of IBM. 

Blockchain for financial services means more trust for all

Assistant Professor, Lehman College, City University of New York

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