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Transparency in fashion – UNECE mobilizing industry and experts to develop blockchain ‎traceability tool and policy framework under EU-funded project

In the garment and footwear industry, worth 2.4 trillion USD, brands are increasingly confronted with the rise of the “conscious consumer”, who questions the environmental footprint of clothes and the social conditions in garment factories and calls for greater transparency and sustainability. Indeed, opaque and unethical practices entail substantial reputational risks, with the potential to affect corporate profitability, brand equity and operational capabilities.

As a result, the industry is increasingly motivated to change its business models and enforce these through solid traceability mechanisms. Supply-chain traceability in fact, allows companies to follow material and production flows from farming and extraction until end-use, re-use and re-cycling. And it is critical for legal compliance and corporate social responsibility.

However, the industry is far from getting the full picture of their products’ journey. According to a 2019 UNECE study, about 34% of companies track and trace their value chains, of which half have visibility up to their immediate suppliers only. Considering that the value chain has at least 15 nodes between the production of raw materials to the end-user product, improving transparency is a complex issue. It requires the collaboration of all industry partners, the deployment of common approaches and reliable technical solutions in widely different environments. Existing databases are fragmented across the supply chain and are therefore unable to provide a single picture of a product’s provenance. In addition, most of the data collected refer to immediate suppliers and purchasers without information about “the suppliers of a supplier” or the clients of a buyer.

In the clothing sector, supply chain traceability has been a lower priority than in other industries, like pharmaceutical, automobile, food and beverages, where regulations and labelling standards make traceability a prerequisite due the direct impact on consumers’ health. But things are starting to change. The Global Fashion Agenda has recently set as a minimum requirement for companies to identify 50% of their Tier 2 suppliers (product manufacturing), while they define best practice as 100 percent identification (GFA and BCG 2017). To make solid and reliable sustainability claims, even this may not be sufficient, since much of the environmental and social risk lies within Tiers 3 and 4 (raw material extraction, supply and processing).

Advanced technologies, such as blockchain, artificial intelligence and internet of things, provide an opportunity to increase traceability and sustainability through the creation of a common source of verifiable information on transactions, accessible to all supply chains parties, regardless of their location, so long as they have access to Internet. A well-designed blockchain-based application has the potential to allow brand retailers to access the blockchain (via a user interface program) and to verify the origin of each input used in manufacturing. Industry regulators will be able to check the data and examine the entire lifecycle process using the blockchain’s digital ledger (including registered inspections made by authorities to identify, for instance, occupational health and safety violations, unauthorised subcontracting or child labour practices). Consumers will be able to view a product’s full journey and its certification from field to shelf via QR codes or apps. So, this will help them to make an informed decision before purchasing a product.

In line with Sustainable Development Goals 8 on decent work and 12 on responsible production and consumption, following the signature of the funding agreement with the European Commission in July 2019, UNECE, with its UN/CEFACT, is working to provide the industry with a concrete solution to advance transparency, trust and due diligence. The UNECE project ‘Enhancing Transparency and Traceability of Sustainable Value Chains in the Garment and Footwear Sector’ jointly implemented with the ITC and ILO, is developing a supporting normative framework and a technical standard for full traceability of the value chain in the industry, and capacity building activities to disseminate project outcomes globally. In order to explore the potential of advanced technologies, a blockchain pilot has just been designed for the cotton value chain and is to be started by early 2020.

A multi-stakeholder network of more than 100 experts (major brands and actors from across the footwear and garment industry supply chain, academia and think tanks, standard/certification bodies and policy makers) is supporting the project activities. Recent meetings in Paris on 11-12th September at the OECD Blockchain Policy Forum, and in London on 30-31st October at the 34th UN/CEFACT Forum, have been a chance to discuss policy recommendations, look into the key elements of the traceability architecture, and advance on the development of the value chain and data model for the traceability standard, including business requirements and information entities, and map sustainability hotspots, relevant KPIs and standards and certification schemes.

The aim is to set-up a traceability system by 2021, to have all players speaking the same language, to achieve a fully transparent value chain, for a sustainable and circular garment and footwear industry!