Is this important?
Yes, it is! Forests are the most important carbon sink in the world. Around 200 million hectares of forest has been lost since the beginning of this century. Guess how that affects our journey towards a carbon-neutral society?
It’s not just about carbon, though. The loss of biodiversity, and the lengthening list of extinct species, is humongous. Livelihood is adversely affected, mostly in poorer countries. According to the FAO, 25% of the world population relies on forest resources for their livelihoods. The water cycle (think about water in the atmosphere that is regulated by huge swathes of green) is disturbed, limiting our capability to grow crops efficiently. Soil erosion and flooding becomes more common, further feeding this cycle.
Figure 1 Forest Area Lost, 2000-12, Source: World Resources Institute
Regulations and Voluntary Commitments
The European Union: Moving on from the EUTR, the EU’s recent draft regulation on deforestation-free products proposes to restrict imports of 5 further key agricultural commodities – cattle, cocoa, coffee, palm oil, and soy – grown on land that was deforested after 2020.
USA: The planned Fostering Overseas Rule of Law and Environmentally Sound Trade (FOREST) Act, would prohibit agricultural commodities produced on illegally deforested land from entering the US market.
UK: The planned amendments to the Environmental Bill are mostly in line with the EU’s draft regulation, making it illegal to import the same list of commodities coming from illegal sources.
Switzerland: The Timber Trade Regulation (“Holzhandelsverordnung“) that came into effect this year, banning import of illegally harvested timber. Requirement from all importers of timber-related products to undertake strong due diligence while importing, and the introduction of fines is seen as a step in the right direction.
Deforestation has historically been a major issue of concern within the timber industry, with existing guidelines in forest management certifications like FSC and PEFC. Besides the regulatory requirements, a number of corporate voluntary pledges have been made. Some examples which could have the largest impact globally:
Palm Oil industry’s NDPE commitments (Learn More)
Colgate Palmolive’s No-Deforestation Policy (Learn More)
Unilever’s Zero Deforestation Pledge to achieve a deforestation-free supply chain till 2023 (Learn More)
BUNGE’s commitment to reach deforestation-free supply chains till 2025 (Learn More)
Nestle’s commitment to move beyond deforestation-free to forest positive (Learn More)
A BCG study found, however, that though deforestation-related commitments are rising, they are still far behind topics such as climate change and water security. Figure 2 Commitments related to deforestation are increasing, however still trail water security and climate change by a huge margin, Source: Boston Consulting Group
Challenges that remain Though progress is being made to stop and reverse deforestation, many key issues surrounding the issue have yet to be addressed. These two examples highlight some of the problems:
The proposed EU legislation is being seen as not going far enough, since it does not place restrictions on commodities linked to rights violations as defined under international standards. Globally, industrial agriculture is the chief driver of forest loss, and environmental destruction is often entangled with rights abuses against forest-dependent communities.
According to Greenpeace, the US FOREST Act ignores the anti-environmental policies in producer countries that incentivize forest and ecosystem destruction.
Clearly, a lot more needs to be done to solve the issue of deforestation holistically. Where do we stand on implementation? A majority of the regulatory framework does not require certification, which is typically backed by intensive auditory requirements, to ensure compliance. However, a loose due diligence requirement means that implementation is patchy, with no clear guidelines on how to achieve compliance. Regarding voluntary corporate commitments, the recent Forest 500 report found that a majority of the companies are still at a stage of becoming aware about deforestation-free topics and in the process of formulating commitments.
As things stand, compliance is exhibited by companies in very manual and inefficient ways (think data available on a variety of sources – from paper documents, excel sheets, and non-ideal ERP systems). The lack of suitable tools further drives inaction to address deforestation-free commitments and their implementation.
Can blockchain-based technology help?
The Sustainability Operating System (SOS) by ProDecipher, which smartly combines process intelligence with the power of blockchain, can easily implement various use cases where digitization of the timber industry is required.
Some examples are:
A single organization within the supply chain can maintain chain of custody of all products using the ProMassBalance tool. Maintaining the chain of custody is a prerequisite for compliance to various regulations, such as the EUTR, US Forest Act, and the Swiss Timber Trade Regulation.
All important regulatory certificates, as well as logging permissions, can be saved as non-fungible token on the blockchain using the ProCert by the issuing authority – ensuring absolute trust
Physical products can also be tokenized using the ProCert. This is an important step to achieving end-to-end traceability (by bringing data to a common platform – the ProTrace). This leads to easy and efficient transactions and information exchange between parties on the supply chain. Being supported by the trust and efficiency of blockchain, the customer can be sure that a product is from a deforestation-free source, and for authorities to ensure compliance.
The individual sustainability tools can be easily integrated with enterprise ERP systems, as well as standard databases providing information on wood species, and the risk of a particular product being from an illegal source that has caused deforestation. Existing certifications such as FSC and PEFC can be considered as an existing source of data, and easily integrated to display conformance to local regulations.
Figure 4 The ProSOS from ProDecipher can completely digitize the timber supply chain, helping monitor and improve compliance, while bringing transactional efficiency helping organizations save costs
Let’s wrap up
There is an increasing regulatory landscape surrounding deforestation-free supply chains, however key issues such as rights violations and global laws are yet to be addressed Voluntary corporate commitments are becoming more important, however still trail behind other commitments such as water security and climate change Implementation and monitoring of regulatory compliance and voluntary commitments is patchy due to missing tools to achieve supply chain traceability, exacerbated by unclear guidelines
So, what’s the solution? The problem of achieving supply chain traceability to define, monitor and improve deforestation-free commitments can be solved by a combination of collaboration and technology. The key word here is collaboration. Supply chain actors (companies) need to collaborate with each other, as well as regulatory and certification bodies to achieve transparency. The right incentives need to be created to drive this collaboration.
ProDecipher is a Switzerland-headquartered vision- and mission-driven organisation bridging sustainability and technology to decipher the complexity in product traceability. ProDecipher is building a set of digital tools (the Product Sustainability Operating System – “ProSOS”) to validate sustainability claims using the power of blockchain and distributed ledger technologies. Contact our team of experts at email@example.com.