Traceability and Transparency_TEST

Chapter 1

Introduction

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The Glasgow Leaders’ Declaration on Forests and Land Use restates the commitment of 145 countries to conserve, protect, sustainably manage, and restore forests and to work toward halting forest loss and land degradation for climate, development, and other targets (COP26 2021). Close to 90 percent of forest loss is associated with the expansion of agriculture (FAO 2022b; Pendrill et al. 2022), resulting in increasing calls for better traceability and transparency solutions to identify and help manage the risk of forest loss in these commodity supply chains (Goldman et al. 2020; Pendrill et al. 2022). The role of traceability and transparency in the application and enforcement of laws that underpin sustainable production, efforts by companies to ensure sustainable sourcing of agricultural commodities, and efforts by stakeholders and civil society to enhance accountability are also recognized in international processes, such as the Amsterdam Declaration Partnership and the Forest, Agriculture and Commodity Trade (FACT) Dialogue.1 The FACT Dialogue, launched in 2021, aims to promote sustainable development and trade while protecting forests and other critical ecosystems.

This independent research project, undertaken by World Resources Institute (WRI) with support from the Food and Agriculture Organization of the United Nations (FAO) and a team of consultants on behalf of the Forest Data Partnership, seeks to provide an updated evidence base that can inform and advance collaborative actions on traceability and transparency.

Traceability and transparency: Research objectives

The aim of this research was to assess traceability and transparency tools and initiatives that help address forest loss associated with forest and agricultural commodity supply chains to draw out the enabling conditions that support these systems and identify success factors and priority actions. The research focused on soy, cattle, timber, palm oil, cocoa, coffee, and rubber as the commodities identified as those most closely linked to forest loss.

Traceability and transparency can have different meanings to different stakeholders in different circumstances.

They are often considered critical, and designed specifically for meeting and monitoring compliance with market requirements and commitments made at company, national, regional, and international levels to halt and reverse forest loss associated with forest and agricultural commodity supply chains, and to support increasing requirements for disclosure, monitoring, and reporting. However, the terms traceability and transparency are not used consistently. The ambiguity in terminology is explored further in “Results from a global mapping of traceability and transparency tools and initiatives.” For the purposes of this report, the working definitions for traceability and transparency are the following:

  • Traceability refers to the ability of an actor to link a product or unit of material with information about its history of locations, owners, and transformations between points in the supply chain such as from production site to end user. The information associated with commodities also includes sustainability aspects at the production site, notably forest loss.
  • Transparency refers to the making available of information by any stakeholder. The information that is made available often relates to the traceability of commodities, but can include broader information that is relevant and useful in the context of halting and reversing forest loss such as sustainability policies and practices, commitments, land use information, monitoring, or outstanding grievances. There can be different levels of transparency, ranging from information sharing within an organization or among peer companies, to sharing with specific stakeholders, to sharing publicly.

Thus, even when applying these working definitions, a specific action of generating or sharing information may be accurately described as contributing to either traceability or transparency (or both) depending on what information is being shared, by whom and to whom.

Traceability and transparency systems can provide information to stakeholders on the origin of a commodity, along with other attributes that link to forest loss. A wide array of traceability and transparency tools and initiatives exist, from earth observation; use of information technology to trace product-related information from source to end user; and methods for data verification to provide assurance of credibility using internal processes, voluntary and/or mandatory certification, or systems of compliance and disclosure.

These systems support efforts by the following:

  • Producing and consuming governments to develop, apply, and enforce laws that underpin sustainable production based on information about the links among commodity supply chains and forest loss
  • Private sector actors (companies and financial institutions) involved in supply chains to monitor production and manage the supply base including to ensure and demonstrate sourcing of sustainably and legally produced agricultural and forest commodities
  • Civil society to enhance accountability
  • Donors and philanthropies interested in addressing forest loss

In addition, the following are factors relevant to traceability and transparency that are not always directly referred to:

Enabling conditions and interdependencies are terms often used to describe certain underlying factors that can influence the likelihood that any given traceability or transparency system or initiative will achieve its objective(s).

  • Enabling conditions are often broad external factors relating to the policy, regulatory, or cultural context within which the traceability or transparency system is operating. These factors both motivate and facilitate the emergence and use of traceability and transparency systems, as well as translate information provided by these systems into impacts on the ground.
  • Within the enabling environment, interdependencies often exist among stakeholders within a shared process, for example, one stakeholder may be dependent on data provided by another stakeholder to make progress, but these data may not be publicly available or published in a format that is usable. In addition, decisions that affect one part of the supply chain (such as changes to legal frameworks) can affect supply chain actors in other geographies.

Enabling conditions and interdependencies are critical for the effective implementation of traceability and transparency systems and are drawn out throughout the report and reviewed in “Summary of findings.”

Evolving global conditions driving traceability and transparency

The need for traceability and transparency is not a new phenomenon. For more than 20 years, traceability and transparency have been applied in the forest and other sectors, from which other forest risk commodity actors can learn. There are also useful lessons in the development and implementation of government-mandated systems that institute broad market requirements in the forest sector, complementing and building on voluntary initiatives, sometimes led by the private sector, to improve timber supply chain governance.

There has, however, been a step change in the last 10 years with the recognition of the role that some agricultural commodities play in driving forest loss—contributing to the 11.1 million hectares (ha) of tree cover loss in the tropics in 2021 (Weisse and Goldman 2022). This is in turn increasing demand for traceability and transparency tools and initiatives, an expansion of their coverage in both commodities and users, and continuous evolution in technology. For example, over the past two decades, there has been a shift from paper-based traceability systems to digitalized processes for mapping, monitoring, verification, and sharing of information as in the case of timber (discussed further in Appendix F).

Figure 1 depicts this evolving landscape through examples of corporate and international commitments, development of certification standards, and industry initiatives.

Figure 1 | Illustration of the evolving and increasingly crowded space addressing forest loss and related issues

Note: WWF = World Wildlife Fund; FSC = Forest Stewardship Council; PEFC = Programme for the Endorsement of Forest Certification; CDP = Carbon Disclosure Project; ISEAL = International Social and Environmental Accreditation and Labelling Alliance; FLEGT = Forest Law Enforcement, Governance and Trade; RSPO = Roundtable on Sustainable Palm Oil; RTRS = Round Table on Responsible Soy; UN-REDD = United Nations–Reducing Emissions from Deforestation and forest Degradation; FCPF = Forest Carbon Partnership Facility; ISPO = Indonesia Sustainable Palm Oil; UK SCI = United Kingdom Soft Commodities Initiative; TFA = Tropical Forest Alliance; EUTR = European Union Timber Regulation; MSPO = Malaysian Sustainable Palm Oil; NYDF = New York Declaration on Forests; GFW = Global Forest Watch; ADP = Amsterdam Declarations Partnership; SBTi = Science Based Targets initiative; TCFD = Task Force on Climate-related Financial Disclosures; SDGs = Sustainable Development Goals; AFi = Accountability Framework initiative; SBTi FLAG = Science Based Targets initiative Forest, Land and Agriculture; COP15 = 15th Conference of the Parties; TNFD = Taskforce on Nature-related Financial Disclosures; GFANZ = Glasgow Financial Alliance for Net Zero.

Source: Compilation by authors.

Alongside these developments, means of providing assurance have evolved from voluntary-based, private sector–led certification to an increased role of national government–led systems. For example, a Timber Legality Assurance System (TLAS) (see “Traceability and transparency through the supply chain,” Box 6) is a core component of the bilateral Voluntary Partnership Agreements (VPAs) under the European Union (EU) Forest Law Enforcement, Governance and Trade (FLEGT) Action Plan.2 These government-led traceability and transparency systems emerged to meet timber market requirements in the EU, United Kingdom (UK), and United States but more importantly were developed to improve sector-wide forest enforcement in VPA countries.3

Government commitments and actions

Traceability and transparency systems are components of government-led actions in both producing and consuming countries, although the distinction is not always binary, given the important role of domestic markets and the fact that some countries are engaged primarily in processing and transshipment. At the national and subnational levels, governments are working to strengthen the enabling conditions to provide greater traceability and transparency from production and processing to end user markets.

Producing countries, through processes such as designing and implementing a TLAS, have increasingly seen the benefits of traceability and transparency tools and initiatives as part of improved natural resource management and governance. Traceability, transparency, and monitoring approaches for forest resources may also be used, for example, increasingly as part of compliance with climate commitments and supporting efforts to access climate finance. They may also be used in managing resources through greater collaboration among actors, as shown in the collaboration between the Ghana Forestry Commission and the Cocoa Board (see Appendix D).

At the same time, consuming countries and markets are taking responsibility for the footprints of their consumption of forest risk commodities and forest products (in the context of this report, forest products include timber, wood products, and pulp and paper, but not non-timber forest products). They are also building on the experiences with timber regulations: For example, the United States, UK, and EU have developed or are discussing regulations on agricultural commodities and forest products to ensure that consumption of these commodities does not drive forest loss and supports the production of commodities in compliance with the laws of the country of origin. In addition, the joint declaration from Brazil and China on cooperation on climate change expressed an intention to collaborate toward eliminating illegal deforestation, which highlights the broad interest in the topic even among consuming countries that are not pursuing regulatory options at this time (MMA 2023).

Traceability and transparency tools and initiatives will be important in meeting due diligence requirements at least in some import markets, along with supporting frameworks, guidance, and other resources, as shown in Box 1.

Box 1 | A five-step framework for risk-based due diligence using traceability to link information with sustainability characteristics

There are a growing number of tools, approaches, and guidance documents to meet evolving market requirements. Once such tool is the Organisation for Economic Co-operation and Development and Food and Agriculture Organization (OECD-FAO) Guidance for Responsible Agricultural Supply Chains. It introduces a five-step framework for risk-based due diligence that helps companies observe and meet evolving sustainability standards linked to global trade, risk management, and traceability (see Figure B1-1).a,b

Based on their guidance and due diligence framework, the OECD and FAO have also launched a deforestation-focused handbook to help companies embed considerations on deforestation and forest degradation into their responsible sourcing and corporate due diligence efforts. The OECD-FAO Business Handbook on Deforestation and Due Diligence in Agricultural Supply Chains shows how traceability can complement due diligence across contexts, considering both large and small companies and upstream and downstream supply chains.c

Figure B1-1 | OECD-FAO five-step framework for risk-based due diligence

Note: OECD = Organisation for Economic Co-operation and Development; FAO = Food and Agriculture Organization of the United Nations.

Sources: a. FAO 2022b, Box 3.2, 59; b. OECD and FAO 2016; c. OECD and FAO Forthcoming.

Private and financial sector commitments and actions

In addition to government commitments to combat climate change, there has been a plethora of private sector commitments and pledges to reduce the impact of agricultural production on forests and forest loss, all of which require greater levels of traceability and transparency (see Figure 2).

Most major private sector companies, including producers, traders, and manufacturers of key commodities, and many consumer-facing brands have committed to addressing forest loss (often articulated as commitments to “deforestation- and conversion-free” supply chains) and developed programs of work to deliver on this. Ambitions on traceability and transparency vary—Table 8 in “Traceability and transparency through the supply chain” describes a range of approaches. Coupled with this are climate change commitments, such as the Race to Zero Campaign supported by the United Nations Framework Convention on Climate Change (UNFCCC).4 However, as shown in the 2022 Forest 500 annual report, three out of four companies do not have a deforestation commitment for all the forest-risk commodities in their supply chains (Forest 500 2022a). Thus, private sector actors are responding to increasing demand for information about products and their associated supply chains through traceability tools and disclosing information through varying levels of transparency.

Notwithstanding this increasing move toward company pledges driven primarily by large corporations, companies working alone cannot achieve the scale and pace of change required. Therefore, collective action is needed, such as through the Consumer Goods Forum Forest Positive Coalition, which has developed commodity-specific roadmaps and reporting requirements for four commodities: palm oil; soy; pulp, paper, and fiber-based packaging; and beef.5 The Coalition of Action has 20 members among the leading retailers and manufacturers that aim to leverage their influence to catalyze wider transformation in commodity supply chains, production landscapes, and jurisdictions globally (CGF 2021). Further examples of collaborative action are discussed in “Collaboration beyond individual supply chains” and in Appendix H. Further, to achieve market-wide uptake of tools and initiatives, other types of companies, including small and medium-sized enterprises, need to be part of the process. The role of other supply chain actors is described in more detail in “Traceability and transparency through the supply chain.”

Financial institutions (FIs) are increasingly making commitments to act on deforestation. Examples of this include the Glasgow Financial Alliance for Net Zero,6 a commitment made at the 26th UNFCCC Climate Conference (COP26) by 30 FIs with more than US$8.7 trillion in assets to tackle agricultural commodity-driven deforestation (Global Canopy 2021); the Task Force on Climate-Related Financial Disclosures,7 which is now mandatory in the UK; and the Taskforce on Nature-related Financial Disclosures.8 However, the majority of FIs to date have not taken steps to actively assess or manage deforestation risks within their portfolios. In fact, according to the 2022 Forest 500 annual report, two-thirds (93) of the 150 FIs providing $2.6 trillion in finance to the companies with the highest exposure to deforestation risk do not have deforestation policies covering their investments but are lending to companies in key forest-risk commodity supply chains (Forest 500 2022a).

Recognizing the importance of the finance sector in creating change, both the UK government and the European Commission are considering options for mandatory due diligence obligations for financial institutions, potentially in line with those under development for private sector corporations, such as the EU Corporate Sustainability Due Diligence Duty (EC 2022; GRI Taskforce 2020; 2022).

Transparency and the role of civil society

Civil society continues to play an important role in monitoring action, ensuring that credible and verifiable data are used, shared, and reported on, and in holding actors accountable to commitments.

Alongside the focus on accountability, civil society actors have supported the development of traceability and transparency tools and are often at the forefront of developing new systems and generating new data, as shown in “Innovation and direction of travel of technological applications for traceability and transparency,” while also supporting the development of guidance including, for example, the creation of the Accountability Framework initiative and other certification and assurance processes (see Appendix G). Civil society has also been leading efforts to monitor progress toward company commitments, such as the assessments by Forest 500, World Wildlife Fund (WWF), and SPOTT.

Addressing forest loss through traceability and transparency

This report recognizes the important and increasing role of traceability and transparency in the application and enforcement of laws that underpin sustainable production, efforts by companies to ensure sustainable sourcing of agricultural commodities, and efforts by stakeholders and civil society to enhance accountability. Governments play an essential role in supporting the process, providing an enabling environment that improves consistency (e.g., what information is needed, definitions, reporting formats), while supporting the availability and usability of the data from the ground up to the end user. While global supply chains are complex and traditionally not established to provide information pertaining to forest loss, traceability and transparency tools and initiatives are constantly evolving in line with technological advancements. What is not possible today could be possible tomorrow. Thus, it is important to not limit aspirations based on what traceability can deliver today.

Working collaboratively, governments, private sector actors, financial institutions, and civil society are increasingly supportive of consistency in data collated, transferred, and shared throughout the supply chain, and across all producer and consumer markets. Civil society is also working to create a consistent framework of definitions and means of assurance. While progress is being made, this consistency takes time to achieve. However, alignment is an essential enabling condition for broad-scale application of traceability and transparency in commodity supply chains.

It is important to note that traceability and transparency tools and initiatives, while providing much needed information, do not alone lead to reduced forest loss. More information, more tools, and more reports do not automatically lead to changes in behavior. Traceability and transparency are not solutions in themselves but are necessary to support decisions by supply chain actors that affect forest cover.

The causal link between traceability and transparency on one side and forest conversion on the other is complex (Pendrill et al. 2022), and relates to a number of other challenges such as poverty, lack of secure land tenure, power imbalances in supply chains between upstream and downstream actors, and disconnects among actors in the supply chain. Increased access to information does not solve all these issues, but does enable better decision-making in supply chains to avoid forest loss. For instance, access to easy-to-use and consistent data on forest areas, land allocations, and crop cover can enable companies to avoid sourcing from commodity production areas that overlap with forest areas. Early warning deforestation alert systems are important tools to prioritize enforcement action to protect remaining forest areas and understand patterns of conversion pressure to inform government policy. Software designed to enable smallholders to easily map their farms with smartphones makes linking products to the impact of production on the ground easier and can be a way to collect data in a more inclusive manner.

None of these examples necessarily leads directly to reduced forest loss, but traceability and transparency underpin the shift to consistently considering forest loss risk in decisions. All these examples enable more effective monitoring of the impact of commodity supply chains on forests, which is necessary for civil society actors to hold companies accountable.

This report is not intended to be a review of the status of traceability and transparency tools and initiatives per se, nor of compliance with specific market and regulatory requirements. Due to the wide variety of traceability and transparency systems and the fact that they are often developed for a specific purpose, this report cannot define a prescriptive list of recommendations and best practices for policy development for specific contexts. Each supply chain, sector, geography, and situation requires a targeted approach. However, the report does highlight limitations, opportunities, and the core elements of traceability systems along with enabling conditions and success factors required to the extent possible.

Structure of the report

This report considers the use of traceability and transparency through the lens of a commodity supply chain, from the point of production to end use, looking both at individual approaches and at collaborative efforts. It aims to draw out and better understand interdependencies and enabling conditions that are needed to deliver improved and more sustainable resource use on the ground.

It assesses this ecosystem through a focus on data related to forest loss: how data and information on forest and agricultural commodities are generated, passed on within and across supply chain entities, and disclosed, and how innovation is tackling data gaps and remaining challenges.

However, it does not address overarching questions related to the sustainability of land use, living incomes for farmers, and power dynamics within supply chains, and topics that do not directly relate to forest loss, including human rights and labor issues.

The information, examples, and analysis within this report are therefore intended to support decisions and actions made by a range of actors—from those in the private sector, governments, and civil society, including monitoring bodies and researchers.

The next chapter, “Research process,” describes the methodology we used to map the development and application of traceability tools and initiatives, assumptions, and research questions. “Results from a global mapping of traceability and transparency tools and initiatives” (and Appendix A) summarizes the results of the global mapping of traceability and transparency tools and initiatives used across commodity supply chains globally.

The remainder of the report follows the approach of a commodity supply chain, from data availability and usability at the point of commodity production (see “Availability and usability of data at the point of origin and/or production”) through the supply chain (see “Traceability and transparency through the supply chain” and “Collaboration beyond individual supply chains”) to the end user, including downstream actors or wider reporting and disclosure commitments (see “The role of public reporting and disclosure”). Traceability and transparency tools and initiatives are rapidly evolving to meet changing demands and address data gaps, inconsistencies, and usability constraints (see “Innovation and direction of travel of technological applications for traceability and transparency”). The final chapter, “Summary of findings,” reviews our findings and suggests priority areas for action.

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