Supply chain traceability and transparency for a global circular economy

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.

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.

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.

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.

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.

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.

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.