Banks to incentivize sustainable supply chains under DFID-backed pilot

Tea farmers in Malawi. Photo by: Skip Russell / CC BY-NC-ND

PARIS — Blockchain technology will be used to incentivize sustainable supply chains under a pilot program uniting banks, fintech startups, and major food companies.

The year-long initiative is backed by the U.K. Department for International Development and was announced at the One Planet Summit in Paris on Tuesday. It is the first project convened by the Fintech Taskforce at the University of Cambridge’s Institute for Sustainability Leadership, which was launched earlier this year to examine how financial technology could be used to tackle social and environmental problems.

Under the pilot, three banks — Barclays, Standard Chartered, and BNP Paribas — will offer more favorable lending terms to food giants Unilever and Sainsbury's according to the sustainability of the supply chains linking them with tea farmers in Malawi. Materials that go into the tea’s wood-fiber packaging, produced in Europe by the South African company Sappi, will also be monitored. The fintech startup Halotrade will help provide input into banks’ decision-making on how much to charge when extending credit to pay suppliers according to quality and price, as well as how well each link of the supply chain respects land rights.

Shona Tatchell of Halotrade told Devex this would lead to “a kind of curve that should drive behavior so that the suppliers want to continually improve.” This information will be constantly available to players at all levels, thanks to technology developed by the blockchain services firm Provenance.

Tatchell said the pilot won’t do away with the existing certification system, whereby auditors visit a farm once a year to conduct a report. Rather, it will mean “everybody who is in that supply circle can see that information in real time, rather than it being passed from party to party in the way that bits of paper get passed.” Thanks to the greater level of detail, she said, what was previously a bulk commodity will become “a product with a story.”

“We know who that farmer is who delivered that bag of tea to that particular cooperative and received his payment at the farm gate,” Tatchell said. “And the very fact that it now has an identity means that it is inherently more valuable.”

Marguerite Burghardt, global head of the Trade Finance Competence Center at BNP Paribas, said the pilot will allow banks “to broaden the scope of their financing offers and to propose financial incentives to their customer clients, based on their environmental and social standards.” If scaled up worldwide, the collaborators say the technology could benefit the 1.5 billion families who depend on small-scale agriculture by helping them get easier access to finance and more visibility with end consumers.

DFID is putting up more than half of the 600,000 pound budget for the pilot, with the rest coming from the banks and companies involved. Land rights documents will be provided by Landmapp, which uses mobile technology to ensure small-holder farmers’ property rights, and the FOCAFET Foundation will make sure open-source data standards are followed.

Andrew Voysey, director of sustainable finance at CISL, warned that “if we’re not careful, we will produce new policies and practices fit only for the ‘old’ financial system.” However, he said the initial collaboration with 10,000 tea farmers in Malawi shows how new technology can “deliver valuable new data about sustainability performance to financial institutions, which is key to greening financial flows.”

In October this year, the taskforce found that multi-sector innovation rarely happens on its own, emphasizing the need for catalyst projects such as this.

Provenance has used blockchain to track sustainability criteria before, such as with tuna in the Southeast Asian fishing industry. What is new this time, according to Rhian-Mari Thomas, managing director and chairman of Barclays Green Banking Council, is “we’re combining lots of different technologies in a way they haven’t been combined before, and hopefully by doing that, there will be a smarter transfer of value.”

Thomas added that “If there are some people in that supply chain that are acting as aggregators or some sort of intermediaries that aren’t adding a huge amount of value … it’s going to be entirely up to Unilever and Sainsbury’s how they choose to apportion that value along the supply chain.”

The initiative begins in January, Tatchell said, with the building of the system. It will be tested in the second quarter of 2018, before being replicated on other products, such as coffee and cocoa, in the second half of the year, “to ensure that the tea isn’t just a fluke,” she said.

The One Planet Summit, hosted by the French government, World Bank, and United Nations on Tuesday, examined ways to accelerate financing for the fight against climate change.

Read more Devex coverage on supply chains.

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    Vince Chadwick

    Vince Chadwick is the Brussels Correspondent for Devex. He covers the EU institutions, member states, and European civil society. A law graduate from Melbourne, Australia, he was social affairs reporter for The Age newspaper, before moving to Europe in 2013. He covered breaking news, the arts and public policy across the continent, including as a reporter and editor at POLITICO Europe.

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