Supply chain traceability and transparency for a global circular economy

Enhanced supply chain traceability and transparency is necessary to overcome obstacles to a global circular economy. Many innovative solutions are emerging to help achieve this but more focus needs to be directed towards ensuring solutions work for the most marginalised or affected actors in low-income countries.

Jack Barrie, 13 June 2023

Containers filled with plastic waste are displayed to the media at Port Klang, Selangor, Malaysia, on 28 May 2019. Photo: Copyright © Samsul Said/Bloomberg/Getty Images

Within the context of circular value chains, the tracking and sharing of product information throughout its entire life cycle, holds tremendous significance. This information can encompass various aspects of a product including the methods of production (including social aspects such as gender and social inclusion and workers rights), the material composition, certification and standards compliance, build quality, lifespan, repair and maintenance history, reusability, recyclability and usage conditions.

What is traceability? More granular data on each individual product, for example, the specific chemical composition of a product, where specific materials were sourced from and purchase order information.
What is transparency?Information related to a supply chain such as a product’s components, certifications and the names and accreditation of suppliers. High levels of transparency – and therefore trust – across a supply chain means that participating businesses can easily map, and interact with, the supply-chain network.

Making circular related product information more available across the value chain would prove highly advantageous for the circular economy:

  1. Regulators could more easily verify that certain products comply with eco-design requirements by ensuring provenance and the authenticity of products and the materials used to make those products. This includes validating that a product contains no toxic chemicals, or a certain percentage of recycled content has been used, or collectors of those materials, such as informal waste pickers, were fairly treated and compensated.
  2. It also helps facilitate and regulate transboundary trade of circular trade flows, such as remanufactured or refurbished goods or secondary raw materials, which helps to avoid illegal waste shipments while enabling the efficient redistribution of secondary goods and materials to centres of demand.
  3. Access to this type of information would also allow repair, remanufacturing and recycling services to view an accurate breakdown of the material composition of the product thereby informing them of how to best extend the life of the product or materials. It would also facilitate the roll-out of circular businesses models, such as leasing, sharing and second-hand marketplaces, in which tracking the life cycle of the product becomes critical.
  4. Equally, consumers could verify that the goods they have purchased are not made from environmentally and social harmful practices and materials.
  5. Perhaps more importantly, improved traceability and transparency lays the foundation for trust among all actors along the value chain which can encourage more transformational collaboration towards more circular models.

Challenges with improving traceability and transparency

Despite the critical role in enabling circular economies to function, increasing traceability and transparency is extremely challenging. It requires trust between a wide range of actors along the entire length of the supply chain and often across multiple jurisdictions.

There are also few legal requirements on many actors to be transparent on circularity and, as a result, little data is collected or made available.

Moreover, it can be costly to develop and run supply-chain-wide traceability and transparency programmes and for individual firms to collect and present the necessary data.

Finally, a lack of trust between supply-chain actors to divulge data – some of which may be regarded as commercially sensitive – also inhibits progress.

Frameworks, metrics, standards and tools supporting traceability and transparency

To meet growing legislative demand for improved supply chain traceability and transparency, and the necessary reporting, several standards, assessments, reporting metrics and circular traceability services have begun to emerge.

In terms of circularity transparency protocols, examples include the GS1 Global Traceability Standard , PR3’s standard for reusable packaging and UNECE’s traceability standards for sustainable garments and footwear.

For reporting tools and metrics, examples include include the World Business Council for Sustainable Development’s ‘Circular Transition Indicators’, the Ellen MacArthur Foundation’s ‘Circulytics’, the Boston Consulting Group’s ‘CIRCelligence’ and Circle Economy’s ‘Circle Assessment’.

Numerous service companies have also emerged to help companies embed circular traceability and transparency within both their own operations and the whole value chain such as Circularise, Provenance, Ciculor, TraceX, Reath and many others.

There have also been a range of services being offered specifically focussing on improving transparency for informal waster picker and recyclers to help ensure they are fairly compensated for their work and they are provided with adequate safety equipment and support structures. Examples include BanQu and Plastic Bank. These services are critical when considering than in many low-income countries the majority of recyclable materials are collected and processed through informal channels, the workers of which often have to work in poor conditions for little pay and with no social safety nets. Some estimates suggest that there are over 20 million informal waster workers worldwide.

Technologies for circular traceability and transparency

Increased traceability and transparency must also be underpinned by a new generation of technologies that provide robust verification and certification records as well as real-time identification and tracking of products and components across their entire life cycle.

Examples include digital watermarks, Digital Product Passports, the Internet of Things (IoT), radio frequency identification (RFID) tags and other advanced sensors. Product identification and tracking is supported by the development of data storage and retrieval systems via distributed ledgers on the blockchain, cloud computing and 5G.

Blockchain technology, in particular, offers value in terms of enabling traceability and transparency in circular trade. In simple terms, blockchain is a digitally distributed, decentralized and public ledger that exists across a network of computer systems. It offers a way to store and retrieve data and transactions that is difficult – or even impossible – to change, hack or cheat. Yet it also faces many challenges including its high energy demand, issues of interoperability between blockchains and a high cost to participate thereby potentially excluding many smaller actors in the supply chain.

Solutions for global value chain traceability and transparency

Achieving the scale of traceability and transparency needed requires collaboration and coordination between a wide range of stakeholders across multiple jurisdictions. Below is a shortlist of potential solutions for consideration:

1. Targeted capacity-building in low-income countries: Businesses in low-income countries – particularly micro, small and medium-sized enterprises – will experience the biggest technical and financial barriers to complying with traceability and transparency standards and regulations which are being ratcheted up in industrially-advanced countries. Integrating the ~20 million informal waste collectors and recyclers into global traceability and transparency systems in a way which is inclusive and meets the needs of those workers will also be a major challenge. Dedicated support from the international community is needed through targeted assistance programmes, such as the WTO Aid for Trade initiative, which can help finance access to traceability and transparency infrastructure and technologies and provide institutional and workforce training.

2. Embed transparency and traceability requirements into free trade and economic integration agreements. For example, agree joint commitments and mutual recognition for minimum transparency requirements on the circularity of shipped materials and goods or the joint implementation of traceability protocols and systems.

3. Support digital product passport solutions. Digital Product Passports (DPP) could play a pivotal role in facilitating transparency and information exchange throughout the value chain. These passports, akin to a personal passport, contain all pertinent information related to a product including its composition, quality, usage history and recyclability. Such information can be accessed and utilized by relevant stakeholders across the circular value chain. The EU’s eco-design for sustainable products regulation (ESPR) has proposed the use of DPPs for certain categories, such as batteries, to support circularity. The Global Battery Alliance’s ‘Battery Passport’ initiative that plans to develop a global reporting framework to govern the auditing and reporting of ESG parameters across the battery value chain. Dedicated capacity building support to most affected suppliers in low-income countries must be built into the roll out of these solutions from the beginning.

3. Launch pilots to improve circular trade transparency and efficiency

Trusted 'circular' trader schemes - A ‘trusted trader’ scheme is a certification program offered by customs administrations or relevant government agencies to businesses engaged in international trade. A more specialised trusted circular trade initiative could offer greater incentives to traders specialised in the trade waste in which secondary raw materials can be recovered, secondary raw materials, or used goods fit for direct reuse or reuse after repair, refurbishment or remanufacture. An example of trusted trader initiative is the Authorized Economic Operator scheme managed by the World Customs Organisation.

Resource recovery lane - A resource recovery lane may be considered a specialised version of a Green Lane. It would aim to tackle a current pain point faced companies who need reliable, timely and affordable access to secondary raw materials at scale from abroad to make their products more sustainable or to comply with increasing regulatory recycled content requirements, yet who currently face severe delays, administrative hurdles and costs in trying to obtain such resources due to strict and often inconsistent transboundary waste trade regulations. One example is the now completed North Sea Resources Roundabout (NSRR) – a voluntary joint initiative between France, the Netherlands, the UK and the Flanders region of Belgium, aimed at facilitating trade and the transportation of secondary resources such as scrap metal. Other examples include the OECD pre-consented facility.

Establishment of a special economic zone for circularity - such as for waste for recovery, recycling or remanufacturing activities. Such a zone could be used, for instance, if a country wants to prevent circular trade flows, such as those used or remanufactured goods from competing with local industry, or if it has limited capacity to regulate and inspect such shipments. Examples include the Singapore remanufacturing zone, Jurong Eco-City in Singapore, and Tecnológico de Monterrey in Mexico.

Figure 1: Solutions to improve and streamline circular trade transparency and traceability
Traceability interactive diagramA diagram displaying solutions to improve and streamline circular trade transparency and traceability between exporter and importer countries Country A Country B Suppliers Exporter Export terminal Shipper Import terminal Importer Producer/ distributor Export customs Import customs Environment agency Environment agency F r e e t r ade ag r e ement Minimum t r anspa r ency r e qui r ement Transparency and traceability protocol Blockchain system Product passport Bounded zone for circular value-adding activities Electronic PIC process Fast-track permit system Authorized economic operator Free trade agreement B 2 G and G 2 G data exchange B 2 B data exchange In terms of B 2 B traceability, product passports ofer significant value. An example is the Global Battery Alliance’s ‘Battery Passport’ initiative that plans to develop a global reporting framework to govern the auditing and reporting of ESG parameters across the battery value chain. Harmonization of diferent types of digital systems used across a value chain is key to the success of product passports. Digital product passports can be built on blockchain technology. Increased transparency and traceability must also be underpinned by a new generation of digital and physical tracking technologies that provide robust verification and certification records, as well as real-time identification and tracking of products and components across their entire life cycle. Blockchain technology ofers particular value in terms of enabling transparency and traceability in circular trade. For example, it can enable secure and verifiable transfer of data or information between diferent value-chain actors and ofer traceability right down to the individual worker. It can also be used to conduct and verify due diligence on working conditions for informal workers such as waste-pickers. Despite ofering numerous benefits, blockchain also faces key challenges ranging from high energy consumption, associated costs of participation or technical challenges (such as interoperability). For blockchain approaches to be adopted along entire value chains spanning multiple countries, shared protocols for transparency and traceability are necessary. Interoperable data collection and sharing and storage protocols will be key to the success of a fully functional digital product passport and the use of blockchain. Consideration should be given within multilateral forums as to how international consortiums can be financed to develop blockchain-based transparency and traceability protocols and systems across global value chains in a way that does not overburden those that may struggle to absorb the costs (particularly MSMEs and informal waste-picker cooperatives in low- and middle-income countries). There is significant potential to embed transparency and traceability requirements into free trade and economic integration agreements. Examples of such requirements could include: a joint commitment for minimum transparency requirements on the circularity of shipped materials and goods; or the implementation of internal traceability protocols and systems to underpin sustainability-oriented certification and conservation schemes. To facilitate cross-border circular trade, Governments could also issue fast-track permits to authorized economic operators (AEOs) with prior authorization. This approach, combined with the use of a single-window trade system, would be particularly efective for the trade in second-hand and waste trade flows, as it would help reduce time and costs associated with conducting inspections. According to the most recent AEO Compendium published in 2020 , around 97 individual AEO programmes are already in place. The prior informed consent (PIC) procedure within the Basel Convention requires exporters of certain types of waste (mostly hazardous) to receive prior consent from the national environmental agency in the importing country. Currently, many countries do not use an electronic PIC procedure at all, resulting in delays and lack of transparency on decisions. Building on existing eforts in this area a dedicated capacity-building initiative for automating and digitizing the PIC procedure is necessary. There are more than 3,500 free trade zones globally, but few focus specifically on circular trade. A bounded area could be used, for instance, if a country wants to prevent circular trade flows from competing with local industry, or if it has limited capacity to inspect and regulate such shipments. Circular trade flows would remain within the geographically bounded area – similar to a free trade zone. Recovery, recycling and remanufacturing processes could then only be undertaken in that bounded area, making it much easier to inspect and regulate.

Source: Chatham House

Enhanced supply chain traceability and transparency are essential for realizing a global circular economy. Many challenges need to be overcome to ensure that these systems are developed in an equitable and icnlusive way which supports rather than further marginlises the most affected or vulnerable groups in global value chains. The lack of trust between parties, legal requirements and cost are all barriers to achieving this goal. Potential collaborative solutions include embedding transparency in trade agreements, adopting and harmonizing approaches to digital product passports, exploring trusted trader approaches for circular trade and most importantly providing dedicated capacity-building support in low-income countries.