I have written in this column before about the new types of investment arising from blockchain technology (bitcoin, cryptocurrencies, NFTs) and how advisers can help their clients put this new wild west in context for their long-term savings.
But what about the implications of blockchain technology for our industry itself?
The ultimate use of blockchain technology is to securely capture the provenance of things, to create a record of transactions, to ascribe ownership, including to assets and wealth.
A blockchain is often explained as a distributed ledger, a filing system that is maintained across multiple computers in a network rather than centrally.
Any transaction between two participants is encrypted, recorded only once, cannot be changed so it is immutable and is shared with all participants making a blockchain transparent and reducing risk and cutting costs.
Though that might not sound radical, it has huge implications for the value chains of many industries, not least our own.
Let’s take sustainable investing as an example. The way that asset managers and ratings providers rank securities from an environmental, social and governance perspective remains a source of debate – consider the headlines and opinion pieces that resulted from the recent news that Tesla has been removed from the S&P 500 ESG index.
As the focus on sustainability grows, the emerging industry around reporting is producing vast quantities of data of variable quality and definitions. Managers must patch together information from multiple sources, making comparison an inexact science.
As a result, everyone is looking for greater transparency – asset managers, ratings agencies, advisers and ultimately clients.
In 2018 US retailer Walmart hit the headlines by requiring farmers to track the lettuces they produced on a private blockchain in an effort to trace the provenance of these leafy greens following an outbreak of E coli. Today the system is used increasingly widely across north America.
Anyone with access to the network can trace the provenance of goods within a couple of seconds, a task that previously took hours if it was possible at all.
Last year, Jaguar Land Rover trialled blockchain for its leather supply chain traceability, including assessing its carbon footprint. The long-term ambition is to produce carbon-positive leather by sourcing from local, grass fed herds where there is no deforestation.
What is more, if I really want to form an opinion on a manufacturer, I do not just want to look at the company itself and its financials but at its supply chain and non-financial information.
Where does an electric vehicle manufacturer, for example, get the cobalt for its batteries, and what is the human rights record of these countries and mines?
IBM has already partnered with Ford to make this possible. Pioneering companies like Covalent Fashion allow the consumer to track the carbon footprint of their pair of sunglasses on their website via a blockchain.