Harnessing the potential of blockchain technology for due diligence and sustainability in cotton value chains

The United Nations Economic Commission for Europe (UNECE) has developed an open source blockchain system to advance responsible consumers’ choices and business conduct in the cotton market. Through the system, industry actors can track and trace sustainability and circularity claims for cotton made clothing, from field to shelf, based on the UN standard for traceability and transparency of value chains.

Innovation Summary

Innovation Overview

In the garment and footwear industry, companies are being confronted with the rise of the conscientious consumer who questions the social conditions and the environmental footprint of the clothes they buy while calling for greater transparency. Hence, making responsible choices easier for both businesses and consumers is a requirement. Traceability and transparency of value chains and reliable sustainability claims can help facilitate more informed choices. However, the sector is awash with misleading labelling and complex language that makes it difficult for both business and consumers to follow through on their good intentions.

Cotton production not only affects the health of the textile workers directly, but also that of wider communities because of the environmental pollution it causes; so one major industry challenge is to improve cotton production practices and, very importantly, to link these better practices to the sustainable cotton used by brands, retailers and manufacturers. This makes traceability a central component of many of the current sustainability initiatives in the apparel sector (UNEP, Sustainability and Circularity in the Textile Value Chain.)

In January 2020, UNECE launched a pilot project to develop a blockchain system for traceability and due diligence in cotton value chains, from field to shelf. The pilot is connected to the UNECE-UN/CEFACT framework initiative called “Enhancing Traceability and Transparency for Sustainable Value Chains in the Garment and Footwear Sector” jointly implemented with the International Trade Centre (ITC) and with financial support of the European Union from 2019 until 2022. The initiative aims to provide governments and companies with a set of tools to advance traceability, transparency and sustainability in this industry (a policy recommendation, a call to action, a standard for information exchange, implementation guidelines and blockchain pilot projects).

Hence, the purpose of this first pilot is to test the UNECE-UN/CEFACT traceability toolbox in a blockchain environment that enables immutable data storage and distributed access to all the actors involved in a value chain. These tools support the identification and coding of the key data entities that need to be collected and exchanged at critical data points in order to assess the sustainability performance of products, processes and facilities.

The pilot is being implemented in collaboration with industry actors, such as brands, cotton cooperatives, certification bodies and garment manufacturers covering the entire spectrum of value chain processes from field to shelf in countries like Egypt, Germany, Italy, Switzerland, the United Kingdom and the United States.

The collaboration with partners has been developed around four streams: sustainability claims definition, key data entities identification data and information sharing and stakeholders’ cooperation. Starting from UNECE Recommendation n°46 and Guidelines, the partners provided relevant information on sustainability claims regarding the origin, the composition, the use of chemicals and OECD due diligence requirements for cotton-based products, following the EPCIS reference data model template for traceability (who, what, why/how, where, when). Sustainability claims have to be supported by evidences (e.g. inspection, audit report, shipping notes, invoices, contracts) and certifications, whereby the robustness and verification is ensured through four assessment types (self-declared, self-assessed, second-party verified, third-party verified). The purpose of such process is for value chain actors and partners to provide data to be stored in the blockchain in order to support the claims formulated along the value chain. The data provided is analyzed from a business and a legal perspective to ensure data confidentiality and privacy by design through several levels of supply chain data disclosure in the platform.

As a complement to the digital traceability, the physical traceability (connection between the physical and digital traceable assets) can be ensured by markers, such as DNA markers. Physical traceability adds an additional layer of trustworthiness supporting risk mitigation, quality control and claims enforcement.

The availability of traceable materials and transparent data enable the circularity of these materials for both cases: the pre-consumption and the post-consumption phase.

Furthermore, this pilot will also define the governance model of an open blockchain consortium which is the foundation of a blockchain platforms for the industry.

Innovation Description

What Makes Your Project Innovative?

Innovative aspects of this pilot, the first of its kind in the UN system, include:
• advances transparency of sustainable value chains in the garment and footwear industry;
• enables end-to-end traceability of standardized information exchange, farm to consumer, based on blockchain-based application and the UN traceability and transparency standard;
• provides open source solutions as Global Public Goods that harness the role of advanced technology for achieving the SDGs;
• leverages distributed ledger access versus proprietary systems;
• explores the connection between digital traceability and physical traceability;
• establishes a link between technology and the governance model, to move from a verticalized value chain to a consortium approach whereby all players participate to create transparency and traceability;
• applies the methodology in a circular economy system and uses the IOT technology combined with blockchain to further the digitalization in the industry.

What is the current status of your innovation?

The blockchain has been designed by Swiss SUPSI University with support of UNECE in compliance with the EPCIS standard (traceability of the WHO, WHAT, WHERE, WHAT, WHY + HOW) based on 3 different layers:
• Blockchain client (web-app browser based interface)
• Off chain platform (Google cloud server for events registration utilities and off chain database management system (standard data types in MySQL for full API integrations)
• Blockchain platform (Ethereum testnet, smart contract architecture for onchain events handling and data management)
Data entry at this stage is happening in a manual way. APIs for a future automation of the data entry have been designed exploiting EPCIS standards and xml digital file exchanges. Secure by design data visibility, privacy and confidentiality in public and permission-less environment were solved using cryptography and private and public keys encryption-only the owner of the information have the capability to decrypt blockchain stored information.

Innovation Development

Collaborations & Partnerships

The pilot coordinated by the UNECE secretariat, is implemented in collaboration with industry actors at operational level, such as brands, garment and fabric manufacturers, cotton cooperatives, covering the entire spectrum of value chain processes from field to shelf in Egypt, Germany, Italy, Switzerland, the United Kingdom and the United States. Implementers also include service providers technology-solution provider, standard-setting bodies, a legal advisor, and DNA marker provider (start-up).

Users, Stakeholders & Beneficiaries

• Consumers: increased trust in sustainability claims;
• Companies: risk-informed decisions; improved market access for SMEs and small actors undertaking sustainability and due diligence; enhanced trust with partners; improved efficiency in managing data management and sharing and reduced auditing;
• Regulators: improved access to information on compliance with policy/regulatory requirements for sustainability;
• Investors: enhanced visibility and accountability for impact investment decisions

Innovation Reflections

Results, Outcomes & Impacts

The key results and impacts observed so far include:
• A proof-of-concept for an end-to-end traceability blockchain-based system and full transparency proof;
• Scalability to the whole sector;
• Multi–claim solution in line with OECD Due Diligence Guidance
• Alignment of partners and assessment of companies’ capacity to make risk-informed decisions with UNECE traceability standards and sustainability guidelines
• At least 1 brand and 4 manufacturers/farmers participate in the pilot project to test the system
• Blockchain technology reliability to store data, connectivity and accessessibility
• Providing a single source of information to share documents and coordinate high seas logistics from port to port
• Clear identification of data collection points for value chain sustainability performance
• Reduced paperwork and emails between multiple parties
• Provide multiple parties with the ability to share real-time transaction data
• Train at least 30 stakeholders to use the platform

Challenges and Failures

The pandemic hit hard the garment and footwear sector, which may have resulted in the adjustment of priorities at the operational level. It was even more timely to emphasize about the importance of implementing traceability and traceability systems to better identify the risks, mitigate and prevent them. However, such systems request human resources and time to coordinate data collection along the value chain, onboard relevant partners and train to use the system. The biggest challenge was to bring all the value chain actors around the same table to exchange data and make them available (at different levels). Another important challenge involving immutable data storage was about data privacy and confidentiality when collaborating with industry partners, and the type of legal instruments which had be put in place to agree on the use of data collected and shared on the system (i.e. governance and ownership protocols of the data in the blockchain).

Conditions for Success

The key success factors in the case of the cotton blockchain pilot are:
• The provision of a neutral and collaborative platform, which was enabled by UNECE leadership;
• The commitment of the implementing partners to coordinate the collection of documents and information throughout their value chains;
• Trust between partners along the value chain to collect and share information along a minimum set of data for traceability, minimizing the need for resources;
• The use of a standardized approach building upon the UNECE approach and standard to trace information exchange and sustainability performance;
• The interoperability with existing data management systems in place to make sure industry actors can pool resources and integrate innovative solutions, building on the existing and not reinventing the wheel.

Replication

The proof-of-concept is planned to be replicated to other main textile fibres and materials (e.g. synthetic, wool and cashmere). The second pilot is at the concept, business and technical requirements definition phase, whereby several actors of the leather value chain have been engaged with (tanneries, manufacturers, brands, certification bodies, NGO, international organizations) in April 2021 and which is plan to run until first quarter of 2022.

Lessons Learned

• Any work on new solutions should involve the development of instruments for the exchange of information, supporting documents and certificates/inspection reports at key data points along the value chain.
• To effectively coordinate the collection of relevant information and supporting documents and achieve the end-to-end traceability, all value chain actors need to commit and allocate the necessary financial, human and technical resources.
• Such solutions may be challenging for SMEs, small-scale actors and vulnerable groups due to the digital gap, implementation costs and the required skills.
• The development of new policy recommendations, guidelines, must include a proof of concept phase where to validate that the new proposal fit with the needs of the industry actors.
• Nonetheless, several benefits stand out from the implementation a blockchain-based solution to support the attainment of traceability and due diligence for consumers, businesses, regulators and investors.

Anything Else?

At this stage of experimentation, two work streams are still under development: proving that the concept works for an entire lifecycle that goes for a long period (>12-18 months) in a continuous mode and not only backward but also forward (live data upload) in at “synchronous approach”; and defining the governance model for a blockchain consortium model approach.

To complement 6.1., please note
Once the pilot is completed, it aims to achieve:
• A good understanding of the modelling required to build an inclusive blockchain application for garment and footwear value chains, for all value chain actors and beneficiaries
• Quantitative results about cost-benefit indicators of blockchain and physical DNA markers potential for risk-management
• Interoperability assessment with existing data management systems.
• API integration
• Proof that also circular economy models can be tracked via this methodology
• Integrate IOT technology to better secure and validate the exchanged information

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