Auburn accounting researchers Greg Jenkins and Eric Negangard, along with colleague Mark Sheldon from John Carroll University, have created an innovative digital method to streamline the way companies gather, use and report essential data from their value chain.

While companies typically have a direct line of communication with the value chain participants they are adjacent to—their direct suppliers and customers—gathering information from participants with more than one degree of separation can be more difficult.  Yet, when provided the opportunity to share information across the value chain, all participants can better focus on their mission, further streamline their processes, and more easily comply with what are often seen as stringent national and international regulations, the researchers said.

Take, for example, recently enacted regulations in Europe and California that require companies to report greenhouse gas (GHG) emissions from their entire value chain. Value chain emissions include not only direct emissions from a company’s facilities and vehicles (Scope 1) and indirect emissions from the energy used to run its operations (Scope 2), but also a third category known as Scope 3, which includes emissions from upstream suppliers and downstream end users that buy a company’s products.

An automotive company, for example, would need to calculate and report emissions generated throughout the entire procurement process, from raw material extraction to the production of parts sourced from thousands of suppliers. If Scope 3 reporting requirements, already established in regions like California and the European Union, become the standard for long-term vehicle emissions tracking, blockchain technology may prove to be the ideal—and possibly the only—practical solution.

The Scope 3 reporting requirements are staggering, said Negangard, an assistant professor in Auburn’s Harbert College of Business.

“We’re accountants, and we had no idea how we’d account for the Scope 3 requirements,” Negangard said. “But the three of us are believers in technology, and we felt this is a good application for blockchain.”

Best known for its use in cryptocurrency, blockchain is a distributed (shared) database that stores its continuously growing data in encrypted blocks that cumulatively maintain a sequential ledger of all previous entries or transactions.

By combining blockchain with smart contracts and non-fungible tokens (NFTs), the researchers created a shared system for tracking and reporting all three types of emissions (Scopes 1-3). They described their proof of concept and working prototype in a paper published in The Accounting Review.

A new way of accounting

The researchers envision their system will take the form of a web-based connection that allows companies involved in a value chain to enter their data.

“The blockchain ledger is a way for virtually unlimited parties to transparently add information to the chain,” said Negangard. “In that sense, it’s a communication mechanism.”

Their system also has the ability to turn on and off different levels of privacy to protect each company’s proprietary information. 

“We can package, aggregate, track and share emissions data without revealing information that companies under traditional [reporting] methods would object to,” said Negangard, citing a company’s reluctance to share information that might reveal raw material suppliers or other information that may provide a competitive advantage.

GHG emissions are represented by NFTs, which are digital tokens that use qualitative and/or quantitative data to uniquely represent an online or real-world item. When one company generates emissions related to the creation, transport, storage, use or retirement of a product, a smart contract software script triggers the creation of a newly minted NFT and adds it to the ledger.

Smart contracts automatically aggregate emissions data from multiple suppliers and generate updated emission tokens. Once an NFT is updated, the old NFT is destroyed, which simplifies the tracking and transfer of emissions and prevents double-counting emissions.

“To our knowledge, no one has ever aggregated NFTs like this,” said Negangard, referring to the way a product accumulates emissions data as it works its way through the value chain.

“Through this recording of the generation, transfer and aggregation of these NFTs and their emissions values, the blockchain ledger provides a full provenance of a product or service’s total emissions in near real-time,” said Jenkins.

When their system is fully built out, Jenkins noted, any company with authorized access can query the blockchain ledger to see the value of each of their products’ total emissions (Scopes 1-3).  Participants also can view just the upstream and downstream Scope 3 emissions by categories such as purchased goods or services, transportation and distribution and end-of-life treatment for sold products.

“Our solution allows for an aggregation, accuracy and precision that doesn’t exist today,” said Jenkins.

“When fully implemented, the system will also allow end-consumers to scan a unique product code [e.g., QR code] and see the near real-time provenance of carbon emissions that contributed to making that specific product and putting it on that specific shelf,” said Sheldon.

Current GHG emissions accounting

According to Jenkins, many large publicly traded companies currently track their emissions in a very laborious and potentially imprecise manner.

“In the process of conducting our research, we interviewed one [individual] who works for a large retail company, and he manually enters data from about 4,000 vendors into a spreadsheet and then performs calculations,” said Jenkins, noting that this method is time-intensive and could result in data entry errors and the double-counting of emissions.

“And that’s just upstream,” said Negangard, referring to the Scope 3 requirements. “What about everything downstream when the company sells a product off their shelf? They currently don’t have mechanisms for when that product is sold, gets incorporated into something else and continues to [produce] greenhouse gas emissions.”

As for small businesses, they are directed to report their emissions through an EPA-provided Excel spreadsheet.

“We see this in accounting big-time right now, where accounting regulation has gotten hefty,” said Negangard. “These rules disadvantage mom-and-pop businesses that cannot afford this level of sophisticated reporting. Our vision is that we can hand those small businesses a connection to our fully automated ecosystem so they can stay in business.”

Wide application for the technology

While tracking and reporting carbon emissions served as the published use case for the technology, many additional applications exist. For example, the developed technology could enable value chain participants to capture, track, and report the origin of a component part, validating that it was sourced from an approved location and that proper materials and procurement processes were followed.

Companies could also track a product as it moves through the value chain and reaches the end consumer, allowing them to monitor, maintain, and recall the product throughout its useful life or facilitate its proper disposal or recycling into another product, Negangard said.

Learn more about their peer-reviewed research paper and patent.

The team’s paper, “Using blockchain, NFTs, and smart contracts to track and report greenhouse gas emissions,” was published online in December 2024 in The Accounting Review.

The emissions tracking technology is protected by a U.S. patent, “System, method, and computer-readable medium for using blockchain, NFTs, and smart contracts to track and report greenhouse gas emissions,” filed in May 2024.

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