SANTA TERESA, NEW MEXICO - JUNE 05: Carlos Carreron brings cattle through a gate in the border fence from Mexico into the United States at the Santa Teresa International Export/Import livestock crossing on June 05, 2019 in Santa Teresa, New Mexico. President Donald Trump has threatened to impose a 5% tariff starting June 10 on all imported goods from Mexico that would "gradually increase" until the flow of undocumented immigrants across the border stopped. Jose Luis Gabilondo, the director of the livestock crossing facility, is worried that the tariffs which would be placed on the cattle coming from Mexico could drive up the prices for the buyers of the cattle and ultimately the consumer. (Photo by Joe Raedle/Getty Images)
By 2050 consumers and investors will be able to follow supply chains from farm to wallet. © Getty

By 2050 experts hope that traceability will be so refined that shoppers will be able to use their iPhone 59X to scan a code and find the exact source of a product and all its constituent parts.

Details could include a picture of the farmer, the biome on which she grew her crops and the environmental, social and governance (ESG) policies she works by.

Today, consumers and investors are already demanding greater transparency about the convoluted financial links behind global commodity supply chains. Efforts are now afoot to make sure that in future there is are clear and traceable connections between financiers, traders and farmers.

But identifying and linking the actors is a Herculean task. The extent of the undertaking is shown by an investigation into the connection between slash-and-burn farming in Indonesia and forest fires that this year alone have razed more than 8,500 sq km.

Environmental groups probed the financing of the farming companies. In what took them more than a year to unpick, they found that international banks and investment funds had funnelled $19.2bn into the palm oil, pulp and paper, timber and rubber divisions of these companies between January 2015 and August 2019.

Helping investors follow the money

Funders want to know the risk posed by the companies they finance, says Peter van der Werf, an engagement specialist at Robeco asset management. “Market developments are pushing for traceability right down to the asset level,” he says.

But at present there is a chasm between investor demands and the information that cross-border commodity groups can provide about how risk-free they are.

Lack of data is the biggest hurdle investors face when integrating ESG analysis into credit risk, according to a recent survey by Moody’s, the credit rating agency.

One tool that will help address this is Trase Finance, developed by non-profit groups Stockholm Environment Institute and Global Canopy.

The software plots the activities of companies involved in commodities such as soya and coffee, the production of which endangers forests in certain areas. This includes the work of their suppliers, subsidiaries and even minority shareholders.

“We are creating pathways so you can ask ‘How far am I from deforestation?’,” says Chris Hart, senior sustainable finance associate at Global Canopy.

Eventually, Trase will help investors and banks to determine the risk profile of financing opportunities more effectively and pursue deforestation-free portfolios.

By 2050 the researchers hope Trase will be integrated with other tools to share information across the commodities sector.

Keeping consumers in the know

The groups developing new supply chain technology hope to make their tools available to consumers in future too.

Supply chain outfit Phoenix works with rice farmers in Vietnam to promote sustainable practices. It uploads information about the farms onto an online platform which anyone at Phoenix can access.

“I can click on a farm, see who it is leased from, how much pesticide it uses and how much water it uses,” says Amitji Odedra, associate director at Qbera Capital, an asset management firm that advises Phoenix.

By 2050, when data protection problems are ironed out, the idea is for the same information to be accessible to anyone in the world.

Many researchers, however, believe consumers do not need such deep knowledge about where a produce comes from. They say customers only need to know that a trader has a robust monitoring system for their supply chain.

Visipec, a tracking system created by the US National Wildlife Federation and Wisconsin university researchers, is one such tool being developed for companies. It focuses on tracking cows in Brazil, where cattle farming is the biggest cause of deforestation.

“At the moment, no one is deforestation-free because no meatpackers are effectively monitoring indirect suppliers,” says Nathalie Walker, NWF director of tropical forests and agriculture.

The tool uses government data that is already collected about cattle and overlays this with satellite imagery of deforestation. This can help slaughterhouses track both their direct and indirect suppliers to spot any link with forest destruction.

It is hoped that independent audits will one day supplement the satellite imagery, says Ms Walker.

The NWF has offered Visipec free to Brazil’s major meatpackers including JBS, the world’s largest meat-processing company.

“Indirect supplier monitoring is complex and an industry-wide challenge,” says JBS, adding that it is considering adopting Visipec.

The ability to verify provenance will improve as drone and satellite technologies advance and eventually consumers and investors will be able to follow the chain that leads from their wallet or purse to farms, factories and mines.

“We’re going to see massive change. We will know exactly what’s going on and we will be sure our products are coming from safe places,” says Ms Walker.

“But we need to see all this happen by 2025 or 2030 at the latest. If we wait until 2050 we risk not having sufficient forests left to protect.”

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