Role of Blockchain in Governance Under ESG Framework
Blockchain technology has the potential to improve the efficiency of government and corporate operations. It has the potential to improve public service delivery and foster greater trust. Whether a government entity or a business corporation, various departments work in silos. The lack of interconnection across departments contributes to a broader concern about data integrity and consistency.
This article will analyze how blockchain tech can help achieve governance under the ESG framework.
Blockchain In Corporate Governance:
The main characteristic of corporate governance is Agency. In modern finance and corporate governance, agency relationship give incentive to the Principal-agent relationship. It controls costs and adverse selection, minimizes information asymmetries and moral hazard, optimizes risk preferences between principals and agents, and engages in monitoring.
The corporate form is still the most widely used form of a governance mechanism due to the unresolved substantive agency issues related to the separation of ownership (shareholders) and control (agent) and the insufficient and ineffective rules that govern such conflicts.
The maximization of shareholder value has emerged as the dominant corporate governance solution to agency problems. Aligning stakeholder interests within investor shareholders has become the predominant way to implement the shareholder primacy principle to minimize the risk of managerial misconduct and the associated agency issues.
Following this logic, corporate governance rules’ primary goal is to increase shareholder control over other actors within the firm. Proper corporate governance is assumed to result in increased shareholder value naturally.
In Corporate Governance, blockchain tech facilitates the removal of agents through code, peer-to-peer connectivity, crowds, and collaboration. Blockchain-based embedded code ensures no participation in business transactions and agency relationships and helps establish governance rules.
Blockchain guarantees only principal and agent contract execution if both parties meet all contract requirements, and this step confirms in a consensus algorithm. As a result, a lower level of oversight and monitoring of agents in the blockchain infrastructure alters the cost structure of the principal-agent relationship.
Blockchain-enabled smart contracts enable comprehensive, near-error-free, and zero transaction/agency cost coordination of agency relationships. Smart property and smart contracts are blockchain-enabled computer protocols that make it easier to negotiate and enforce the terms of a contract between a principal and an agent. Agency relationships in smart contracts operate precisely as coded, with no room for opportunistic agent behavior. All contractual terms are open to the public and completely transparent.
Smart agency contracts operate on a custom-built blockchain that allows principals and agents to store lists of obligations or promises and build entire markets, among many other yet-to-be-considered possibilities.
Blockchain in Government
Like all large organizations, governments experience difficulties coordinating processes involving multiple stakeholders; most organizations and governments are expected to provide fairness, transparency, and accountability to the public.
Data management is the main obstacle to success in these endeavors, especially in the digital age. Unfortunately, legacy centralized data management tools are inadequate for meeting the challenges that governments face. The standard client-server model’s single point of failure compromises data security, and transparency is difficult to achieve when government databases are centralized.
As a result, most citizens experience slow government operations, time-consuming, inefficient, and opaque ranging from land title registration to voting.
Governments can provide citizens with streamlined, on-demand services. They can leverage a new data management system using a decentralized ledger supported by blockchain and cryptography. At the same time, governments can outperform the tech titans by providing improved data security and unprecedented transparency and accountability.
In the following use cases, the government can adopt for blockchain tech to implement better governance.
Identity management:
Governmental services are built around identity management, but outdated data management tools cannot deliver secure yet quickly accessible and updateable identities. People can self-sovereign their identity with blockchain-based identity management, which means they have granular control over access to their ID. Still, the information provided within it is instantly verifiable.
For registries, Governments and their legal branches are the primary sources of information on everything from land titles to corporate entity registration, marriage, and divorce records, criminal records, and more. Managing registries with blockchain-supported distributed ledgers provides the transparency required to eliminate fraud and corruption while allowing for real-time updates. The latter feature is critical for expediting time-consuming processes such as land title transfer.
Healthcare data management tools’ security, privacy, and interoperability issues currently prevent the proliferation and use of electronic health records (EHRs), which can serve as the foundation for efficiency improvements in government-managed healthcare.
EHRs built on a distributed ledger supported by blockchain can keep some or all of the following use cases:
Mobility within the healthcare system
Removal of unnecessary onboarding procedures and tests
Digital prescriptions that can be easily screened for possible side effects
- More personalized healthcare
- Citizens taking control of their health data and either volunteering or selling it for research purposes
- Citizens are incentivized to make specific positive health-related choices
- Payment automation for healthcare providers and vendors.
Administrative Services:
Coordination between various departments is frequently necessary for the administration of government-run programs, including pension systems, healthcare, education, and defense, and it almost always involves sensitive data that needs to be protected. Blockchain-based administration systems enable real-time coordination among diverse participants while also providing the necessary transparency.
Voting
Every democratic government faces the challenge of counting votes in a timely, secure, and transparent manner. Blockchain has improved transparency and immutability during voting (when votes from individual polling stations are counted collectively to decide a consensus for a given region).
Real Time Gross Settlement (RTGS)
By removing the single point of failure present in legacy systems, blockchain-supported RTGS can ensure transaction privacy, offer finality in the settlement, and boost resilience.
In next few years, we can expect that blockchain tech will cover all aspects of industry verticals. The blockchain technology is emerging as a new way of data security with better transparency in the Governance of corporates and government.
