Blockchain and CSR/CER
Updated: Mar 8, 2019
Blockchain Technology
Blockchains are incredibly popular nowadays. A blockchain is a chain of blocks that contains information. This technique was originally described in 1991 by a group of researchers and was originally intended to timestamp digital documents so that it’s not possible to backdate them or to tamper with them. A blockchain is a distributed ledger that is completely open to anyone. They have interesting property such as once some data has been recorded inside a blockchain, it becomes very difficult to change it.
How does blockchain work?
In a blockchain, each block contains some data, the hash of the block and the hash of the previous block. The data that stored inside a block depends on the type of blockchain. For instance, the bitcoin blockchain stores the details about a transaction in here, such as the sender, receiver and amount of coins. A block also has a hash. It is like a fingerprint. It identifies a block and all of its contents and it’s always unique, just as a fingerprint. Once a block is created, its hash is being calculated. Changing something inside the block will cause the hash to change. In other words, hashes are very useful when you want to detect changes to blocks. If the fingerprint of a block changes, it no longer is the same block. The third element inside each block is the hash of the previous block. This creates a chain of blocks effectively and it’s this technique that makes a blockchain so secure.
For instance, if we consider blockchain of 3 blocks. Each block has a hash and the hash of the previous block. That means number 3 block points number 2 block and number 2 block points to number 1. Now the first block is very special block in the chain. It cannot point to previous blocks because it’s the do not point to any blocks that why it named as a genesis block. The data stored in the blocks must be protected so that no one can temper with them. Tampering with data can lead to leak of privacy of investors, customers, or can also lead to the development of bogus information which can damage public and civil rights which is major concern of CSR and CER. This can be done by just tampering data in the single block in the chain. For instance, if anyone tamper with the second block. This causes the hash of the block to change as well. In turn that will make block 3 and all following blocks invalid because they no longer store a valid hash of the previous block. So, changing a single block will make all following blocks invalid. But, computers these days are very fast and can calculate hundreds of thousands of hashes per second. With the use of computer, anyone could effectively tamper with a block and recalculate all the hashes of the other blocks to make your blockchain valid again. To terminate this, the blockchains have something called proof-of-work. It’s a mechanism which slow down the creation of new blocks. This mechanism makes it very hard to tamper with the blocks, because if anyone tamper with 1 block, they will need to recalculate the proof-of-work for all the following blocks. Furthermore, the security of a blockchain comes from its creative use of hashing and the proof-of-work mechanism.
In addition to proof-of-work, there is one more way that blockchains secure themselves and that’s by being distributed. Instead of using central entity to manage the chain, blockchains use a peer-to-peer network and anyone is allowed to join (i.e public chains). When someone joins this network, the individual gets the full copy of the blockchain. The node can use this to verify that everything is still in order. In the process of creating a new block, that new block is send to everyone on the network. Each node then verifies the block to make sure that it hasn’t been tampered with. If everything checks out, each node adds this block to their own blockchain. All the nodes in this network create consensus. Individuals agree about what blocks are valid and which aren’t. Blocks that are tempered will be rejected by other nodes in the network. Blockchains are also constantly evolving. One of the more recent development is the creation of smart contracts. These contracts are simple programs that are stored on the blockchain and can be used to automatically execute actions based on certain conditions.
The creation of blockchain technology attract a lot of people’s interest. This technology could be used for other things like storing medical records, creating digital notary or even collecting taxes.
CSR (corporate social responsibility) and CER (corporate environmental responsibility)
Dealing with environmental and social issues to sustain the advantage of firms is not new in the field of business strategy practice. The Nature-Resource-Based-View (NRB) was introduced more than two decades ago. This practice may actually not only sustain the advantages of firms engaging in the environmental and social sustainability but also improve those firms’ competitive advantage. The sustainability can be achieved by engaging in so called corporate social responsibility (CSR). European Commission addressed CSR as an idea whereby firms make decisions voluntarily to take part in activities for the betterment of society and a cleaner environment.
There has been a growing body of discussion around the topic of CSR. The focus of this researches is to study the effects of CSR policy implementation on the financial performance of firms and compared to firms without any CSR policy. However, whether CSR has a favourable impact on corporate performance has remained unclear due to different results among cases. For example, CSR is sometimes criticized for resulting in capital loss (Barnett, 2007), though more research has indicated that there is a positive link. Corporate social performance, for instance, have significantly positive effect on firm performance, but may suffer from the intensity of R&D investment (McWilliams and Siegel, 2000). This conflict could be because CSR adoption may require some time to result in observable business effects (Deng et al., 2013). Thus, CSR can be considered as investment for firms’ future.
Apart from financial performance, CSR is a promising approach for improving the reputation of firms. The enhanced reputation of a firm can attract talent to join and motivate existing workers (Falck and Heblich, 2007). This suggests that increases in CSR practices can lead to the development of firms through building the social sustainability internally. This generates good social status for a firm, which attracts educated employees and new flair. This is the reason why CSR is referred to as a mechanism for reputation building (Hur, Kim and Woo, 2014). Chun (2005) states that corporate reputation is the allied constructs of external image and internal identity. Also, Ioannou (2014) found that engagement with CSR is more likely to contribute to a more stable supply chain rather than greater value from a customers’ perspective. In other words, although CSR practice may not directly affect firms’ performance, it is quite clear that it strengthens the sustainability and goodwill of firms.
These findings imply that even if firms do not always benefit from the CSR contribution in terms of economic performance, they can always enjoy the social benefits, thereby improving the sustainability of firms’ operation. Although CSR is considered as the important factor for the firm to develop sustainability, recently, public focus had switched from CSR to pay more attention to environmental responsibility due to more concern from stakeholders.
Lately, due to more severe environmental problems like environmental degradation and climate change, business leaders are facing increasing public pressure on their business operation referring CSR and the environmental sustainability. Also, the classical model of CSR has been challenged because it does not consider the externalities generated by business operation and production (DesJardins, 1998). Hence, corporate environmental responsibility (CER), as then recognised as one of the vital subsets of CSR (El Ghoul et al., 2011), has been investigated more intensively in recent years. It has been defined as practices negating negative consequence of the company’s operations, products and facilities on the environment in order to protect resources for future generations (Mazurkiewicz, 2014: 7). CER practices include reducing waste and greenhouse gas emissions and improving the efficiency of resources and energy beyond current regulations (Mazurkiewicz, 2014: 7). As mentioned in Section 2.1, the environment and diversity became the main interests of market attitude when concerning CSR (Bird et al, 2007). While CSR can be regarded as a mirror of social expectations (Lee and Kim, 2018), the increasing attention on CER could mean that CSR is expected to be more engaged in environmental issues. Besides, Kassinis and Vafeas (2006) found that in terms of CSR outcomes, stakeholders are more likely concern environmental performance. In the modern world, firms are expected to develop their business, minimize the negative impact on the environment and reduce the consumption of natural resources.
Environmentalists advocate the positive overall impact of CER investment in the long term, insisting that the expenses incurred for CER can be offset by the gains eventually. For instance, some studies concluded that CER contributes to a better reputation and stimulates sales. Thus, CER seems to contribute indirectly to economic benefits. Additionally, Ambec and Lanoie (2008) also concluded that firms are generally able to reduce environmental impacts and get opportunities for revenue increase or cost reduction. They argue that with better environmental performance (e.g. smaller carbon footprint, less pollution, less energy consumption, etc.), firms engaging in CER are likely to have access to certain markets as some companies, especially those firms cooperate with bigger and multinational corporations (MNCs). For instance, IBM and the Body Shop evaluate potential or existing suppliers by their environmental performance (Herren et al.,1998, Wycherley, 1999). On the other side, also, green public purchasing is becoming increasingly common throughout the world (Ambec and Lanoie, 2008). In other words, more government commit to support green business by choosing suppliers of green products or services. Green suppliers are able to satisfy the MNCs and the demand of public sectors (i.e. green public purchasing).
From another perspective, being green can also help to reduce costs in a few ways, such as reducing the cost by improving energy efficiency and reducing the risk through better relationships with external stakeholders. In gaining access of certain market as mentioned, green firms can sustain the relationships with external stakeholder easier. In addition, Ambec and Lanoie point out that engaging in CER can benefit firms by lessening the cost of capital, improving accessibility to green (or ethical) mutual funds and diminishing the cost of human capital by improving the working environment and atmosphere. In other words, with an ambitious innovation strategy, financial performance does not have to be damaged by reducing environmental impacts. Financial performance may not have a significant increase in short term, but to achieve sustainability, firms should have long-term plans. In short, although the effect of engaging in CSR might not be significant, firms are likely to be benefited by engaging in CER.
It might be counter intuitive to think protecting environmental can improve business performance. However, CER literature has shown environmental protection can actually produce positive effects on competitiveness. There are various approaches that can contribute to CER, such as reducing energy and raw material consumption, educating employees to build a green ethic, creating rewards for environmental commitment exhibited by employees, meeting more environmental standards, offering greener product or services (Mazurkiewicz, 2004), donating to environmental conservation Non-Governmental Organizations (NGOs) and implementing recycling (McWilliams and Siegel, 2000: 607). Firms must look for the new methods of operation to deal with the problems of waste management and the scarcity of resources. The link between CER and innovation is found to be positive in several papers: McWilliams and Siegel (2000), Cuerva et al (2014) and Bocquet et al., (2013). McWilliams and Siegel (2000) point out that companies can represent the differentiation in their products to show the customers the environmental or social benefits of their engagement in taking corporate responsibility. Take food supplier for example, ‘organic’ or ‘pest-free’ labels are likely to relate to applying new methods of cultivation, which related to process innovation (McWilliams and Siegel, 2000: 605). Meanwhile, developing new business models to comply with environmental sustainability may need innovation at the organisational level (Nidumolu, 2009). Hence, the practices of CER tend to relate to resource management and EI implementation (Cuerva et al, 2014). To improve resource management, the activities are likely to involve innovation. CER has been proved to have positive relationship with innovation (Lockett, 2006, McWilliams and Siegel, 2000). Additional, improving corporate social performance and financial performance also need innovation (Wagner, 2010). It seems that to achieve CER, a good way is to adopt innovation
To sum up, CER contains a wide range of practices. Environmental protection is originally thought as a burden to firms, but recent studies have proved that CER can improve firms’ competitiveness.
CSR and CER in blockchain technology
CSR and CER is a new idea and concept introduced in Blockchain. The prospectus of using blockchain technology to record intangible and to observe the origin of a product opens up a new field that could revolutionize the concept of CSR and CER. In all cases, CSR should be linked with the company’s main activity—whether the banking, insurance or energy industry—in order to keep and involve a commitment from upper management in fields like human rights, best work and employment practices, protecting health and environmental issues, fighting against fraud and corruption, and considering consumers’ interests. Among other things, Blockchain provides infallible traceability of records and notes from the origin to the destination or final consumer. Thus, a correct application of this characteristic, applied within the CSR, provides the consumer with the trust that the products acquired do not come from illegal operations, such as contraband petroleum, wood, diamonds or any other raw material. In the far-reaching database, any information can be incorporated—something as tangible as hours of work. Therefore, wouldn’t it be a perfect tool to dispel questions or doubts about best business practices?
This is especially true because any person or consumer could monitor activities and be convinced of its veracity, without the need to trust in any other party. They would only need to reveal in this technology, based on mathematics and cryptography. In this specific example, correct adoption would reinforce a company’s image and the commitment it makes to human rights, environment, and the fight against possible fraud or corruption, and in the most transparent manner possible. This technology can be used to track of things like intellectual properties or patents or it can even function as a notary of CSR and CER activities. Blockchains allows you to prove that you created a document at a certain point in time. This allow investors/consumer to get satisfied without any doubts of getting fraud.
In food industries, which contain major concept of CER, one can use blockchain technology to track their food products from the moment the field be cultivated to harvested or made, and to when they end up in the hands of customers. Blockchains could helps us to create a digital certificate for each piece of food, proving where if came from and where it has been and if any kind of pesticide or insecticide has been used. This will create a social responsibility towards to consumers health in a population and reduce the chemicals which harm the environment. If the contamination is detected, we can trace it back to its root and instantly notify other people who brought the same batch of bad food. We can also use this technology to trace industrial appliances and pharmaceutical industries. Blockchain technology can be used to keep track of information and verify its integrity.
We are contemporaries of the birth and development of a new technology that is still taking its first steps, but few doubts that it will grow rapidly in the years to come and could even shift current economic and social paradigms.
Blockchain could be the “industrial revolution of the internet” even though we don’t know when it will take place, or how. Right now, we are still in that period of imagining possibilities and trying to materialize those that make sense. But, with keeping CSR and CER in their prospectus or engaging in CSR and CER in blockchain technology will develop the firm reputation in the mind of investors, consumers or other linked bodies which will eventually increase the firm growth.
Posted contributed by Su Li-Fan
Li-Fan has Masters in Sustainable Development and currently lives in London, United Kingdom. Her passion to help create strategies and policies that will help reduce pollution and promote sustainable development while making sure company complies with all environmental regulations is what attracted her to join Infoeaze food traceability project that uses Infochain Blockchain platform. She is originally from Taiwan and can be directly reached for comments or questions at lifan.su.tw@gmail.com
Follow her on https://medium.com/@Lifan_Su