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How the role of Blockchain can help strengthen your ESG credentials

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Piotr Blazewicz, Co-founder of MicroClash Ltd – company behind CoinClash Games

 

Investors, businesses and brands can no longer ignore the rise of cryptocurrency, with reports stating that the global market will more than triple by 2030 and hit a valuation of nearly $5 trillion. The creation of decentralised peer-to-peer payment systems has led to the boom of payment services that will quickly become the most popular way that people pay for products in the future.

It is clear that the blockchain is a rising and critical element in today’s digital economy. As well as this, companies are now striving to meet Environmental, Social and Governance (ESG) criteria, which encourages them to act responsibly. It helps investors to ensure the companies they are funding are responsible for the environment, have a good relationship with stakeholders and use accurate and transparent accounting methods. ESG criteria allow investors to avoid any losses when companies engaged in unethical practices are held accountable. This criteria holds great importance when determining the value of a company as it is estimated that the global value of global ESG assets will exceed $53 trillion by 2025.

 

Piotr Blazewicz

Exploring the evolution of ESG

The reporting of data and supply chain transparency are crucial areas where blockchain can help companies abide by ESG standards. Every business is now intertwined with ESG concerns, so by creating a strong proposition, these companies will generate real value. When using Blockchain-reporting tools, companies can store verifiable data and create reports which demonstrate their ESG credentials.

The environmental criteria involves the energy a company consumes, the waste it discharges and the resources it needs. Responsible and effective management of environmental factors is becoming an increasingly important driver of corporate value. Examples include researching, developing and implementing renewable energy solutions, boosting efficiency in carbon-intensive practices and improving energy conservation, as well as adopting clean technology.

ESG encompasses various social factors which are centred around a company’s social management and its relationship with employees. Broadly speaking, human rights, community welfare and the health of stakeholders are just a few considerations that are becoming an increasingly important component of global business. As transparency and trust are regarded as critical factors for blockchain, it makes it the perfect tool to support ESG concerns. Its ability to digitally represent assets which move along value and supply chains makes it a standout technology when monitoring traceability during industrial processes.

A report by Forbes says ESG issues were first mentioned in the 2006 United Nations Principles for Responsible Investment (PRI) report, where it then became an imperative part of a company’s financial evaluation in an effort to reinforce ongoing sustainable investments. Investors now want full disclosure of any risks a company might face up front, as well as its plans to mitigate those risks. Organisations that omit environmental policies and practices leave themselves exposed to financial and legal risks, which can then result in harm to their shareholder value, which is why many are now investing in blockchain to alleviate those risks.

 

Unleashing the potential of blockchain

The potential of blockchain and its impact on different sectors across the world is constantly growing. Its technology is set to transform how businesses and users make their lives online simpler and safer in the long term. The decentralised nature of the blockchain provides new ways to interact with other businesses, exchange vast amounts of data and securely carry out transactions.

Using distributed ledger technology, blockchain allows companies to adhere to ESG’s supply chain transparency. This is crucial when demonstrating the clear route materials take to get from a company’s warehouse to the customer. It also enables issues along the supply chain to be identified quickly and reliably traced back to their source. Companies which use blockchain to verify transparency in a way no other digital technology can, are in a position to dramatically boost their sustainability record and reporting procedures.

In addition, the blockchain utilises advanced security in comparison to other platforms, as each transaction is encrypted and has a link to the old trade using a hashing method. Security is also enhanced as each node holds a copy of the transactions that have ever been performed on the network. Blockchain networks also ensure that data, once written, can not be reverted, meaning that the technology boasts immutable data. Organisations using blockchain can reduce the costs involved when using third-party vendors and as it has no inherited centralised player, there is no need to pay for vendor costs, which is an added bonus to its ESG benefits.

 

Final thoughts

According to a report by Bloomberg, ESG investment is set to grow rapidly and already represents a third of global assets under management.

Blockchain technology might be more associated with the financial sector, but we also now see a variety of different use cases where it can play a key role for companies. Examples include the tokenisation of forests as trading for capital assets, food provenance to protect endangered species and certificates of origin for green power.

Its ability to track, trace, store and securely share the data that dictates the success of sustainability projects, programmes and policies, mean this emerging technology is well positioned to help address the growing global challenges.

The wealth of opportunities the blockchain can provide to companies is endless, and those which embrace this responsibility and take on a new way of thinking about growth will undoubtedly benefit in the future .

That’s great and good to go, hwovere, would we be able to squeeze one paragraph on what MicroClash is doing in that Space? Low energy blockchain solution, proof of stake rather than mining, ESG officer and advisor (From SF).

Business

How can businesses boost employee experience for finance professionals?

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By Martin Schirmer, President, Enterprise Service Management, IFS

Over the course of the last year, The Great Resignation has seriously impacted organisations across the globe. Staff are quitting in huge numbers, leaving companies unprepared and struggling to fulfil their workloads. In fact, mass departures are happening at all levels of the labour market, as employees attempt to adapt to the hybrid working model and growing socio-economic uncertainty.

In light of this, optimising the employee experience (EX) to attract and retain talent has become a top priority for employers. Organisations have come to understand the necessity of taking immediate steps to drive employee engagement and reshape workplace culture.

The financial services (FS) industry is no exception to this trend. From increasing employee burnout to growing career dissatisfaction, the pandemic has exacerbated the need for transformation across finance teams. This is exemplified by recent data from Spendesk, which found that approximately 40% of finance professionals are willing to leave their roles or already have concrete plans to do so.

Organisations looking to get ahead of the competition must put in extra efforts to retain their existing workforce. The fact is that employee expectations and requirements have irreversibly changed, with more workforces becoming increasingly distributed. Today’s hyper-connected workforce values flexibility and simplicity, and it is organisations which offer these experiences that will succeed in the long term.

As part of this process, finance companies must look towards the power of technology to create seamless user experiences across devices. From automating workflows to improving overall efficiencies, Enterprise Service Management (ESM) can help organisations to boost user satisfaction and go that extra mile for their employees.

How poor EXs are driving finance teams to quit

With over 40% of employees spending a significant proportion of their time carrying out mundane, manual tasks, it is not surprising that poor EXs are having a detrimental impact on job satisfaction. Finance teams in particular have been slower to digitise core processes, leading to a heavy reliance on manual tasks. This not only increases the amount of time spent on each task, but also impacts the engagement levels of finance professionals who cannot focus on more strategic aspects of their roles.

As a result of the pandemic, flexibility has also moved to the forefront of finance teams’ desires. Given the fast-paced nature of this industry, the conversation surrounding work-life balance has increased rapidly. Failure to offer flexible working policies, coupled with a lack of technology to facilitate this flexibility, has led to poor EXs across the board.

Most notably, the overarching move to omnichannel, digital-first approaches has dramatically reset both customer and employee needs. Finance is the third-slowest running corporate function behind legal and IT. Operating in a competitive environment, 73% of finance operations are facing pressures to speed up, improve efficiency, and prioritise automation.

Mitigating the problem using technology

ESM, an offshoot of IT Service management (ITSM), is the cornerstone of smart digital transformation for organisations. It can help finance teams to streamline and automate routine processes, such as monitoring the status of service requests, approving expenses, sending invoices, and tracking payments. In turn, this will free up employees’ time, reducing the burden of manual tasks and enabling them to focus on the more strategic tasks.

Another advantage ESM can offer finance teams is the ability to adapt to each department’s minimum requirements for data privacy. Accounting, for example, needs additional layers of compliance built into the system.

ESM can also facilitate cross-departmental collaboration, helping finance professionals to communicate with the wider business and perform tasks more effectively.  Organisations can use ESM to incorporate all internal services into a single platform, offering employees a well-rounded view of the business and promoting a sense of community across all levels of an organisation. This will boost productivity, whilst enhancing visibility and control.

Ultimately, the current job landscape has brought with it a new set of challenges. Organisations in the FS industry looking to navigate the storm and retain top talent must refocus their efforts on bolstering the EX. Embracing a new era of technological innovation that empowers employees and boosts engagement is a critical step in this process.

 

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CBDCs: the key to transform cross-border payments

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Dr. Ruth Wandhöfer, Board Director at RTGS.global

 

If you work in finance, you’ll have been hearing a lot about central bank digital currencies (CBDCs) and the moves different markets are making towards using, regulating and evaluating the viability of moving to an economy based on digital currency.

We are already seeing progress in the research, piloting and introduction of CBDCs into the financial system. The Banque de France for example, recently launched its second phase of CBDC experiments in line with the “triple digital revolution” unfolding in the financial sector. The infrastructures of financial markets and fintechs, however, are not prepared to accommodate their security, stability, and viability.

This could be an issue in the not too distant future. Each year, global corporates move nearly $23.5 trillion between countries, equivalent to about 25% of global GDP. This requires them to use wholesale cross-border payment processes, which remain suboptimal from a cost, speed, and transparency perspective. In fact, the G20 cross-border payments programme considers improving access to domestic payment systems that settle in central bank money, as one of the key components in facilitating increased speed and reducing the costs of cross-border payments.

The current state of cross-border payments

International transactions based on fiat are currently slow, expensive, and highly risky due to today’s disconnected financial infrastructure, messaging, and liquidity. Wholesale cross-border payment settlement can take 48 hours or longer, which is not practical in today’s digital world. Even if not every market moves to CBDCs, in an increasingly digital era, cross-border settlements between central banks will unavoidably involve dealing with CBDCs. So, not only will we have different currencies, we’ll have different technical forms of currency being exchanged – digital and fiat – as markets adopt CBDCs at different rates, adding another layer of complexity to cross-border settlements.

While there is much anticipation about the opportunities CBDCs can bring, the adoption of this technology will only be widespread if payment and settlement capabilities are overhauled to allow for new innovations in currencies.  This need for transformation represents an opportunity to redesign existing infrastructure to support cross-border CBDC transactions.

The current cross-border payments system involves correspondent banks in different jurisdictions using commercial bank money. Uncommitted credit lines used in cross-border transactions are a potential risk for any bank that relies on credit provided by a foreign correspondent bank. Interestingly, there is no single global payment and settlement system, only a complicated network of interbank relationships operating on mutual trust. While trust has allowed financial systems to function smoothly, when it begins to fail, as it did during the 2008 financial crisis, the result can be catastrophic.

Following the crisis, the Bank for International Settlements (BIS) implemented the Basel III agreement, which required banks to maintain additional capital against correspondent banking account exposures. These risk-weighted assets impose a costly capital charge on positions held by banks at other banks under correspondent arrangements. While this framework helps combat risk, it neglects to address the inherent problems in traditional correspondent banking that contribute to these risks.

Making the case for CBDCs

CBDCs can offer an improvement in settlement risks and are certainly thought to have potential benefits by the BIS. If implemented correctly, wholesale CBDCs can indeed accelerate interbank transactions while eliminating settlement risk. They can also encourage a more efficient and straightforward method of executing cross-border payments by reducing the number of intermediaries.

It is likely the evolution towards CBDCs will initially see the financial market supplement rather than replace existing payment instruments with new types of digital currency. CBDCs will coexist with current forms of money in a wholesale context, and their payment rails will also work alongside the existing payment systems. In simple terms, CBDCs will need to be linked to the broader capital markets ecosystem and applications such as securities settlement, funding, and liquidity.

If built with an innovation-first mindset, the future of banking infrastructure should provide full interoperability and convertibility between fiat, CBDCs, and any other type of digital money used in wholesale payments.

The future of CBDCs

To unlock the full potential of CBDCs, a ‘corridor network’ will need to be formed. This involves combining multiple wholesale CDBCs into a single, interoperable network under common governance agreed upon by all central banks involved. The legal framework of this platform would then allow for payment versus payment (PvP) or, where applicable, delivery versus payment settlement.

Practical wholesale CBDCs appear to be on the horizon, either as a supplement to existing financial systems or as part of a transition to a digital, cashless world. Looking ahead, central banks would benefit from collaborating with fintechs that provide innovative cloud native technology to enable seamless wholesale cross-border payments without interfering with the flow of funds. If wholesale CBDCs are to become a reality, fintechs must be prepared to accommodate them.

 

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