Dual Environmental, Social, and Governance (ESG) Index for Corporate Sustainability Assessment Using Blockchain Technology

Xinlai Liu, Wenbiao Liang, Yelin Fu and George Q. Huang ()
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Xinlai Liu: Department of Systems Engineering, Cornell University, Ithaca, NY 14850, USA
Wenbiao Liang: Nari Group Co., Ltd., Nanjing 210031, China
Yelin Fu: College of Economics, Shenzhen University, Shenzhen 518000, China
George Q. Huang: Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hung Hom, Hong Kong, China

Sustainability, 2024, vol. 16, issue 10, 1-22

Abstract: Investors are increasingly relying on Environmental, Social, and Governance (ESG) indexes to obtain a third-party assessment of corporate sustainability performance. Various ESG indexes are, therefore, released by prominent rating agencies, including MSCI, Sustainalytics, Refinitiv, etc. However, existing ESG indexes overvalue the usage of massive ESG metrics while ignoring various ESG disclosure levels, leading to critical issues such as limited company coverage, inflexible ESG framework, and obscure assessment processes. This paper proposes a novel Dual ESG Index (DESGI) model using blockchain technology to provide a flexible and transparent corporate sustainability assessment. Firstly, the DESGI model is developed by analogy to the rationale and concepts of the academic credit system due to its advantages of scalability and flexibility. Secondly, blockchain is used to build a transparent environment for ESG assessment. Thirdly, the smart contract and crypto token, as the core blockchain constructs, are used to achieve the dual-dimensional ESG depth and width assessment using ESG GPA and ESG credit, respectively. Finally, a case study is carried out to validate the DESGI by using real-life ESG data and comparing it with four existing ESG indexes. Several managerial implications are also found: (1) DESGI can expand the scope of companies evaluated by ESG criteria regardless of company size or scale; (2) DESGI provides a good potential to fight against greenwashing through the blockchain-based traceability; (3) DESGI can identify the ESG elites who disclose fewer ESG metrics but with excellent ESG performances, which can hardly be achieved using traditional ESG indexes.

Keywords: dual ESG Index; blockchain; smart contract; crypto token; corporate sustainability assessment (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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