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As we have seen, there are many issues which can affect supply chains. However, there are an increasing number of potential solutions either logistically or using new technologies.

Redrawing Supply Chains: Blockchain and Circularity

Jon Mowll Jon Mowll Responsible Investment Analyst
Edentree Insight reports

Supply Chains: At the heart of business

Jon Mowll


Responsible Investment Analyst
23 Oct 2020

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Chapter 8

Redrawing Supply Chains: Blockchain and Circularity

Blockchain – Radical Transparency?

One technology that some anticipate may provide ‘radical transparency’ throughout global supply chains is blockchain, which has a number of potential applications, including in theory, allowing purchasers to assess the social and environmental impacts of certain products across their lifecycles.

Supply chain partners from upstream to end customers can follow and audit the history of data records stored as a chain of block. Since records on the blockchain are time-stamped and secure, data manipulation and fraud are detectable and traceable on the ledgers.

Blockchain is already being trialled in some supply chains. Early adopters in the cobalt sector include Ford, Volkswagen, LG Chem, and Huayou Cobalt (none of which are held in EdenTree Funds), which are founding members of the Responsible Sourcing Blockchain Network (RSBN). The RSBN’s pilot projects have demonstrated how cobalt produced at Huayou’s industrial mine site in the Democratic Republic of the Congo can be traced through the supply chain to LG Chem’s cathode and battery plant in South Korea, and then to its final destination, a Ford plant in the United States.

Elsewhere, Nestlé’s blockchain programs will start by tracing milk from producers in New Zealand to Nestlé’s factories and warehouses in the Middle East. Nestlé expects to add palm oil sourced in the Americas at a later date.

Despite some promising reports about the application of blockchain, problems persist in terms of ensuring the ethical or sustainable nature of products as they are passed along supply chains. Tracking ores such as cobalt is complicated. It is not inconceivable that ore mined by children or slave labour could get mixed up with ‘clean’ cobalt before being bagged by a vetted miner and given a digital tag (i.e. the start of the blockchain).

It also doesn’t circumvent the problem of needing to audit mine sites continually to ensure that there are no labour abuses occurring, and that environmental practices are strong. As Lara Smith, Managing Director of Core Consultants notes, “We are talking about applying a technological solution to a physical, manual problem that frequently involves governments and human frailty and so it remains an imperfect solution, although it can assist in alleviating some of the known issues and improving trust.”

Technology provides the options, but society chooses the future.” - Carlota Perez, Honorary Professor at the Institute for Innovation and Public Purpose (IIPP), University College London (as quoted in Roman Krznaric, The Good Ancestor (2020))

These technologies do not offer solutions to systemic drivers of environmental and social injustices. To assume that transparency alone will halt deforestation, human rights abuses, land-grabbing, pollution, waste etc. is at best naïve.

What’s more, it is no longer enough to make sure that some companies’ supply chains are ‘clean’ – as ecological tipping points are just around the corner, and social injustice and inequality persists, everything has to change. To address environmental and social problems within supply chains at a systemic level, we need to reconceptualise, reimagine, and redraw material and energy flows in an ecologically sustainable (preferably regenerative!) and socially just way.

Redrawing Supply Chains – Circularity

The concept of a ‘circular economy’ was addressed in detail in an EdenTree Insight of 2018 – ‘The Waste Problem’. However, we can scarcely talk of the future of supply chains without considering the very necessary transition to circular models.

A circular economy is to minimise the creation of waste, or, rather, to view waste differently – as an input into another product. It essentially re-articulates how we view material supply chains, focusing on stages of repair, recycling, and re-use, and less on the extraction, linear processing, and ‘disposal’ of materials.

The-Butterfly-Diagram-for-Circular-Economy

We have highlighted elsewhere a number of companies held in EdenTree’s Funds which are pioneering circular economy models across their operations, or focus on recycling of products. These include paper & packaging companies and specialist recyclers.

However, the Circularity Gap Report (2020) states that the global economy is today only 8.6% circular —just two years ago it was 9.1%. This decrease has been put down to: (i) high rates of extraction; (ii) ongoing stock build-up; and (iii) low levels of end-of-use processing and recycling. It hints that some more fundamental changes need to occur in terms of how we design and think about supply chains.

Moreover, the concept of circularity does little to address many of the social and ethical issues we encounter when we think about supply chains. For that, future supply chains may need to embrace some new (and old) ideas! 

If it can’t be reduced, reused, repaired, rebuilt, refurbished, refinished, resold, recycled or composted, then it should be restricted, redesigned, or removed from production.” - Pete Seeger

(Re)Localisation of Supply Chains

As we have seen, globalisation has created vast, geographically sprawling supply chains in many industries. It has principally been the result of (a) firms seeking lower costs of production to increase profits, often irrespective of social and environmental costs, and (b) international trade laws constructed to support this endeavour.

With mounting tensions in certain spheres of international relations, an increased focus from policymakers and executives on security of supply may lead to the creation of shorter, better-connected, local supply hubs.

‘Short’ supply chains are actually a key feature of circular economy models: products are repaired, recycled, and re-used within local settings, such as a city, city-region, or country. From the EU to the United States, new laws are being developed to support the ‘right to repair’ to reduce waste radically, make things last longer and make them easier to repair. In some countries, ‘repair cafés’ have been established, where volunteers lend their expertise to repair damaged products like clothing, furniture, or electronics. 11 years since the first Repair Café was set up in Amsterdam, there are now over 1,700 Repair Cafes offering their services in 35 countries around the world. These initiatives and the values that underpin them contrast dramatically with the ‘planned obsolescence’ models of many multinationals, from well-known smartphone manufacturers to fast-fashion brands and retailers producing dozens of new, inexpensive fashion trends each week.

Linear-economy models, combined with planned obsolescence, have meant that supply chains have constantly returned to the biosphere for new materials, rather than making the most out of already-extracted materials. Ultimately, a (re)localisation of supply chains to keep materials in use for longer could take considerable stress off workers in supply chains such as fast fashion and consumer electronics, as well as off the biosphere (both from an extraction perspective, and in terms of the volume of ‘waste’ being dumped into global ecosystems).

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