Almost 90% of the world’s forest loss is driven by the expansion of agriculture, thanks to growing consumer demand for commodities like coffee, cocoa, beef, soy, palm oil and timber. Because of this, governments, businesses and NGOs are increasingly targeting action to reduce deforestation in this sector. Several markets are developing policies that prohibit the sale or importation of products grown on deforested land, while hundreds of consumer goods companies have made zero-deforestation pledges.
Some of these regulations are still in the early stages of development or implementation so their potential positive impact remains to be seen, but existing measures have so far failed to stem the tide of deforestation. One of the major reasons is the persistent lack of traceability and transparency in supply chains.
Why Are Traceability and Transparency in Supply Chains So Challenging?
For companies to know whether they are contributing to deforestation, they need to be able to link a commodity or product with information about its origins. But this is no easy feat.
Take the example of a simple chocolate bar: Its key ingredient is cocoa, a raw commodity that can change hands and borders multiple times before it finally reaches a consumer. While most of the world’s cocoa is produced by smallholder farmers in West Africa, it is primarily exported to Europe where it is processed and transformed into chocolate products that then get distributed to retailers all over the world. Connecting the dots between hundreds or even thousands of points along a complex global supply chain is a big task. For instance, a multinational consumer goods company like Unilever sources raw materials from up to 52,000 suppliers.
Even when this information exists, it may not be available to everyone who has a responsibility to root out deforestation. Downstream companies and investors need access to information to make informed decisions about who they buy from or invest in. Governments and civil society need transparent supply chains to track companies’ compliance with policies and pledges.
Tools Are Emerging to Help Companies Trace Their Supply Chains, but They’re Not Enough
Technology is beginning to illuminate opaque supply chains and change the way companies monitor and manage them. For example, data platforms like Global Forest Watch (GFW) and GFW Pro enable organizations to monitor supplier locations and track nearby deforestation.
Another example is the Trase tool, co-developed by the Stockholm Environment Institute and Global Canopy, that maps the international trade and financing of key commodities associated with tropical deforestation, allowing companies to identify sustainability risks in their supply chains.
Individual companies and governments are also making progress. For example, Nestlé notes that its partnership with satellite-based monitoring tool Starling enabled it to map 97% of its palm oil supply to the mill level. In another example, the government of Ghana is developing a cocoa tracking system that will be able to trace cocoa pods back to the farms they came from.
These are just a few of the many examples covered in WRI’s recent report that show traceability and transparency are achievable despite complex challenges. In many cases, changing voluntary and regulatory requirements have encouraged innovation and solutions.
What’s Needed to Make Supply Chains More Transparent?
The report highlights what we can learn from these successful projects to scale up existing efforts, and accelerate both the pace and scope of action. For companies and others to effectively trace deforestation in supply chains market wide, transparency tools and initiatives must meet four key conditions:
1) Alignment across stakeholders
If individual projects are set up with different objectives and data sets are created with different definitions and metrics, efforts to build collaborative systems or use existing data for different purposes become cumbersome or even infeasible. Therefore, there needs to be alignment among supply chain stakeholders — including governments in commodity-producing and exporting countries, private sector companies and civil society organizations — and collaboration to ensure that data can be shared and used across different traceability systems. This includes the development of consistent, harmonized definitions, standardized data reporting requirements and formats, and data-sharing strategies with ethical, legal, commercial and technical considerations. In addition, a clear framework of rules is required for the collection and reporting of transparent data.
The U.S. government-funded Forest Data Partnership, a consortium led by WRI, aims to address this challenge by harmonizing data from different sources using machine learning to provide supply chain actors with high-quality, validated benchmark land use data. Similarly, the Digital Integration of Agricultural Supply Chains Alliance (DIASCA) is working towards interoperability of traceability systems in global agricultural supply chains by establishing common best practices for overcoming the current challenges of data exchange.
2) A supportive regulatory environment
A supportive regulatory environment is critical for ensuring that data is available and shared among different stakeholders. For example, due diligence requirements and mandatory reporting standards set out by government agencies for companies and financial institutions are powerful tools to increase levels of disclosure, creating broader demand for traceability and transparency, especially where reporting currently remains voluntary. They also help to create a level playing field for companies already disclosing data that may open themselves up to more public scrutiny than those who do not report their progress.
For example, the UK was one of the major economies to make climate disclosures mandatory for publicly listed companies, using standards from the Task Force on Climate-related Financial Disclosures (TCFD). While TCFD began as a voluntary set of recommendations for companies to report on climate-related risks, it has since become part of the regulatory framework for mandatory disclosure in some countries. Its guidance for agriculture, food and forest products companies is to provide key metrics related to the implications of land use change and associated greenhouse gas emissions, which helps companies and the banks that fund them prioritize these chronic risks.
3) Broad-based collaboration
As traceability and transparency tools and initiatives proliferate, the risk of duplication increases. For example, several companies could be mapping the same farms. Collaboration is vital to avoid wasting time and investment, especially when different companies often share the same supply base.
It can be challenging for companies to figure out how to collaborate with their competitors. Data confidentiality and commercial sensitivities often hinder data sharing. But it’s essential that companies come together with others in the industry to tackle a shared challenge and coordinate traceability efforts.
For example, private sector actors teamed up with civil society partners to create the Universal Mill List, which mapped close to 2,000 mills across 26 countries, using standardized identifiers to prevent duplication, representing a leap forward in transparency in the palm oil industry.
4) Inclusion of small farmers
Collective action is also central to increasing support for vulnerable actors, such as smallholder farmers, and advancing their inclusion in supply chains so they are not left behind in the transition to sustainable commodity production. For example, if companies choose to only source from larger producers capable of meeting stringent traceability requirements to avoid costs, this overlooks a significant opportunity to support smallholders, who produce one-third of the world’s food.
A specific example of how collective action can support smallholders is the Cocoa & Forests Initiative (CFI), where the governments of Ghana and Côte d’Ivoire and major cocoa and chocolate companies joined forces to end deforestation and restore forests in these countries. Together, these companies have been working to map smallholder farms, which produce most of the cacao grown in West Africa, to better understand where their cocoa comes from and identify areas at risk of deforestation. The initiative also supports farmers in growing more cocoa on less land — such as by creating agroforestry cocoa plots and distributing cocoa seedlings to farmers. These practices help farmers produce higher yields and increase their incomes by growing other types of crops like wood, fruits and nuts.
Success Requires All Hands on Deck
Realizing sustainable, deforestation-free supply chains will require unprecedented collaboration among stakeholders. Each sector has a role to play in advancing traceability and transparency.
- Governments can create a supportive policy environment that encourages companies and smallholders to gather and share information. In commodity-producing countries, governments can create legal requirements for national standards and assurance systems. In Malaysia, for example, the Malaysian Sustainable Palm Oil standard makes it mandatory for producers to be registered, to follow legal requirements for production, to provide traceability information to buyers and meet minimum environmental standards.
It is also important for governments to provide official public sector data sets on land use, land use change, rural property registration, land titling and trade. Such data is essential for companies to verify if the supply chain actors they source from have clear tenure, but also for government agencies to avoid issuing overlapping land allocations, like concessions in protected areas.
- Civil society can support consistent objectives of traceability and transparency systems in policy responses — by, for example, defining what constitutes credible evidence in reporting. They can provide technical expertise and ensure that suitable safeguards are in place to manage data privacy issues in a way that encourages data sharing. In addition, they can help convene stakeholders to encourage greater alignment.
The Accountability Framework initiative (AFi) is a collaboration between dozens of NGOs to support companies on their supply chain commitments in agriculture and forestry by establishing good practices and common definitions, like what “deforestation-free” means in practice. It provides an international reference that all companies can use, regardless of geography or commodity.
- The private sector can make sure that costs incurred by traceability and transparency are equitably shared, taking measures to address specific challenges facing smallholder farmers. Doing so is important because many smallholders lack access to technology, along with the technical or financial capacity needed to meet monitoring and reporting requirements. Companies could, for example, develop data collection systems that take smallholder interests into account, empowering them with easy access to their own data like production and yield and sale prices.
Engaging in pre-competitive collaboration is also important, especially when different companies are sourcing commodities from the same landscapes. For example, to help end cocoa-driven deforestation in West Africa, WRI joined forces with the World Cocoa Foundation and 19 major cocoa and chocolate companies to create two new data resources. Cocoa sector stakeholders can use the tools to identify high-priority areas in Ghana and Côte d’Ivoire and coordinate action to prevent deforestation before it happens. This was an unprecedented collaboration in the industry, where companies agreed to share highly sensitive cocoa plot data in a way that respected companies’ proprietary data and protected farmers’ privacy.
Ultimately, eliminating deforestation in commodity supply chains is a complex issue that requires multi-faceted approaches involving many different supply chain actors. Traceability and transparency are not silver-bullet solutions. But with the right conditions in place and an all-hands-on-deck approach, they can be key to removing barriers to ending deforestation.
