Using tech to tackle illegal deforestation in the supply chain

Posted on 21 Feb 2023 by Joe Bush

Scope 3 emissions are becoming increasingly vital for UK manufacturers in the pursuit of carbon neutrality and the ultimate goal of achieving net zero. This is hardly surprising considering that Scope 3 emissions (indirect emissions that the company is responsible for up and down the value chain) can account for more than 70% of an organisation’s carbon footprint.

For an organisation that manufactures products, there will often be significant carbon emissions related to the extraction, manufacture and processing of raw materials, which can be linked to illegal deforestation. To this end UK start-up iov42 and Singapore-based DoubleHelix Tracking Technologies (DoubleHelix) have announced plans for a new Due Diligence Management Platform (DDMP), co-funded by Innovate UK and Enterprise Singapore.

iov42’s first proof of concept centred around the world’s largest certifier of timber,

Speaking about the partnership, Esra Kasapoglu, Director of AI and Data Economy at Innovate UK said: “Innovate UK is delighted to be supporting this project which has been funded through our first UK-Singapore Collaborative Research and Development Call. Singapore is a priority country for Innovate UK, and we have a growing strategic partnership with Enterprise Singapore, with more joint activity planned for the future to strengthen our co-innovation relationship. We wish the collaboration between iov42 and DoubleHelix every success.” The Manufacturer sat down with Dominic von Trotha Taylor, CEO and Chairman at iov42 to find out more.

The DDMP platform will combine iov42’s distributed ledger technology (DLT) and DoubleHelix’s science-based supply chain verification processes, to help tackle illegal deforestation in the sourcing and supply chains of commodities like timber, pulp, paper, beef, cocoa, palm oil and leather.

This comes as organisations importing into the UK are facing increasing expectations to comply with due diligence requirements set by the UK Environment Act 2021, particularly Schedule 17, which relates to the ‘Use of Forest Risk Commodities in Commercial Activity’.

The DDMP will create a shared, secure and decentralised system that serves all impacted commodities and makes due diligence frictionless. The DDMP will also interact with other data sets and technologies such as geospatial imagery and additional science-based testing methodologies.

First steps

Having forged a career in the technology sector, including the founding of payment system PayPoint, on turning 60 Dominic decided to focus on his passion, namely helping fledgling businesses who want to make a difference. Having previously invested in iov42 in 2017, he quickly became chairman in 2020, at a time when the business was busy building its technology and were in the early stages of commercialisation. The initial focus was around the world of blockchain, specifically identifying what the company felt was the missing piece around the technology, i.e., the element that spoke the language of business which could be relied upon.

“In business you need to know who you’re dealing with, the assets you’re trading, when an exchange has happened and that it’s legal. And in a digital context, that’s quite difficult,” he said. “As such the company built a completely new blockchain protocol from the ground up with the concept of identity at its heart.”

The company’s first proof of concept centred around the world’s largest certifier of timber, Preferred by Nature. A company partner was exporting wood out of Malaysia into Europe. And, as a starting point, iov42 mapped the process in the supply chain that related to logs arriving into the sawmill, where they were converted into planks and then prepared for export, thus providing importers into Europe and potential retailers the provenance of the supply chain.

The process has taken time and effort as the company has had to address the issue of how to engage with an industry that is traditionally unaccustomed to embracing emerging technology in a way that they can be confident about its use.

However, the technology achieved something of a Eureka moment breakthrough during the last few years, following the introduction of the aforementioned regulations in the UK and Europe associated with the importing of wood. These tighter restrictions have enabled the company to demonstrate the real value of the technology to the industry.

palm oil
Primary commodities currently considered for inclusion under The Environment Act are soy, palm oil (pictured), cocoa, maize, beef and leather, rubber and coffee

“Suddenly, importers were able to see that not only had their shipments arrived at a specific port, but also that they were accompanied by the whole suite of required documentation. With the increase in regulations, that could take months under normal circumstances,” Dominic added. “With these significant efficiency gains, importers told us they would be prepared to pay significantly more for the whole shipment.”

iov42 has since extended its experience into other areas, particularly through the relationship with DoubleHelix in Singapore and with the UK government, which is keen to establish a platform through which these products can be imported safely into the UK (following the departure from the EU), with all the associated provenance and the documentation. In this case iov42 will serve as a conduit into the UK, with the other end of the highway being managed through Singapore with DoubleHelix.

Out with the old

As mentioned, the DDMP will usher in a new era of efficiency for companies involved in commodities such as timber, and not a moment too soon. The increased regulation in recent years has seen a dramatic rise around the burden to provide proof of provenance, through all the various stages in the value chain.

“Technology will be able to help,” Dominic added. “Good actors have always been trying to do the right thing, but have often had to deal with manual paperwork, photographs, emails etc. Changes to regulation has given businesses like ours a huge opportunity to assess the industry for compliance.

“We recently conducted a large research study, mainly in the forestry space, talking to a number of exporters and importers across different countries, to describe their perspective around our platform and the benefits. As well as feeling somewhat comforted that we’re able to help them adhere to the regulations, they all described massive efficiency gains.”

Traditionally, to adhere to compliance, it was not unusual for certifiers to fly all over the world to check paperwork and gather data. Not only does blockchain rapidly speed up this process, it is also immutable, cannot be erased and is tamper-proof.

The UK Environment Act 2021 and Schedule 17

In November 2021, the UK adopted the Environment Act, a wide-ranging law on water, waste and resource management, air quality and biodiversity. Schedule 17 focuses on forest risk commodities linked to commercial activities. This draws on a recommendation by the UK Global Resource Initiative (UK GRI) to introduce a mandatory due diligence obligation for the UK supply chain. Secondary legislation is required to determine the commodities and businesses in scope, reporting requirements and timelines for implementation.

The regulation prevents the use of a forest risk commodity or its derivative in UK commercial activities unless ‘relevant local laws’ are complied with in relation to that commodity. The primary commodities currently considered for inclusion are soy, palm oil, cocoa, maize, beef and leather, rubber and coffee.

‘Relevant local laws’ means any laws having effect in the country or territory where the source organism was grown, raised or cultivated and which relate to the ownership and use of land. The government has clarified that commodities are subject to the legislation as long as their location of production is protected by local laws.

Dominic added: “Essentially, what we’re trying to do is track datasets relating to a particular type of commodity going through a supply chain. It will start with where it’s grown and the land, the way it’s been planted and treated in the field, how it’s cropped and then how it’s processed through the supply chain to end up in the form that it would arrive in the UK.

The impact of deforestation

Illegal deforestation is a huge challenge globally, not least because the source of these commodities is often located in countries where it is often challenging, for economic reasons, to track due diligence in the correct way. The important factor around the Environment Act, and the DDMP platform, is that it makes sure that the local law in those countries around the production of these materials, is applied properly.

Dominic added: “This is fundamental within the provenance of the regulation, but it’s very difficult to track. What we’re seeking to do with this platform, is to get verification that the land is properly authorised, the people working there are getting a fair wage and there’s no slave labour etc.

“This is very powerful, because once certification has been achieved, the data sits on the blockchain all the way through the supply chain. Therefore, the product arrives in the UK with an enormous proof mesh or graph of trust, for all the statements that have been made about the importing of the product, right back to source, including the land and employment etc.”

iov42 has had to address the issue of how to engage with an industry that is traditionally unaccustomed to embracing emerging technology

Dominic explained that the DDMP platform can be applied across a whole range of commodities. Any process, in any manufacturing supply chain, can be tracked to verify that the key elements in the supply process have been adequately covered. For example, iov42 is working with Tata Steel in the UK (see case study below). One of its challenges is that every batch of steel is made with slightly different impurities, so each batch needs to be tracked through the supply chain regardless of the end application for that steel.

“They are very keen on proof of delivery, which is a big topic in that industry,” added Dominic. “The supplier, receiver and delivery company must all agree on proper delivery to allow payments to be made. In some industries this is a big problem.”

Platform potential

Despite being a young business quite early in its commercial evolution, Dominic believes that if iov42 can be successful in delivering on the government funded project, it will serve as a huge beacon for others around how some quite challenging commodities can be safely imported into the UK and with the right documentation.

“In the UK, we’re talking about putting legislation in place to digitise the whole bill of lading process for everything coming into the country, so the DDMP could have enormous relevance to the supply chain and be a very powerful and efficient mechanism.

“The capability of the architecture we’ve built around identity, understanding what assets look like and tracking all the proof points of that asset’s journey, is very relevant to this new source of regulation. When we first developed the platform in 2016 it was slightly ahead of its time. However, with the tighter regulation and the added benefits around increased efficiency, it’s now coming into its own.”

Case study: Tata Steel

In late 2022 Tata Steel UK and iov42 announced the details of an eight-week project to improve traceability in the steel industry through the introduction of digital product passports.

Using iov42’s distributed ledger technology, Tata Steel UK and iov42 collaborated on the development of a prototype that not only meets the specific needs of Tata Steel UK, but also provides industry-changing capabilities that give businesses accurate and up-to-date information about their steel supply chains.

This kind of technology is an essential tool to tackling the challenges of responsibly sourced materials, such as steel. As a key element of the UK’s decarbonising strategy, the ability to prove and deliver high quality data about the source of materials and its corresponding carbon footprint, will prove invaluable to businesses across the supply chain in driving greater sustainability.

iov42’s prototype provides businesses with the foundational technology to tackle this issue by allowing users to scan a steel product with a smart device, instantly retrieving all the relevant information needed – whether that’s for ESG, compliance or commercial reasons. This data includes everything from the date or place the steel was manufactured, to its environmental footprint and changes made along the supply chain.

Richard Clarke, New Product Development Manager at Tata Steel UK said “We needed a partner that would help us drive our journey of digitisation and collaborate to develop a proposition that would create a digital passport for all our steel products. We’re delighted by the results of our collaboration with iov42 and the possibilities that we have opened, and we look forward to working together more closely in the future.”

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