Why The Blockchain Is Standardizing What It Means To Be Sustainable
This article is part of a five-piece series with David Luna, CEO and President of Luna Global Networks & Convergence Strategies LLC.
Authentic seems like a simple term: real or fake, black or white. But the further you dive into what it means for something to be “authentic,” the murkier the definition becomes.
For instance, a popular footwear brand recently experienced a problem at one of their factories. The operators were running two shifts to fulfill orders from the company, but they were also running a “third shift” (also known as a “ghost shift”) and selling those trademarked products to unaccredited, illicit traders.
But for all intents and purposes, they were the same shoes.
Sometimes, these unauthorized shoes are made in the same factory as the authorized footwear after workers have fulfilled a brand’s contract. Other times, the grey market sneakers are made in outsourced factories but are constructed with the same materials and methods. Quality is usually a little lower than normal since the inspection isn’t as strict. But in some cases, like the Jordan 11s, the third shift quality is on par — or even better.
So, are the shoes created during that third shift authentic? Does the manufacturer decide whether a good is the real deal, or is the brand in charge of doing so?
These are the types of questions that producers of sustainably-sourced goods often run into.
There are challenges in defining, labeling, choosing values and complying with regulations throughout a given industry.
Who decides what’s sustainable or organic? What values are they using to make these judgments? And how accurate is the labeling of these products when consumers take them off the shelf in a store?
The answers are just part of finding reliable standards.
Authenticity has various definitions when it comes to sustainably-sourced goods.
Authenticity is not binary. It has its own dynamic elements and complex set of sub-descriptions and implications. For example, these can include grey market, diverted product, unauthorized product and third shift.
The questions raised by the footwear incident are similar to what many other brands and industries have to routinely confront. They illustrate the importance of creating a system for accurately measuring and tracking the authenticity of goods — whether sneakers or ethically-sourced bananas — as an effective way to combat illicit trade, counterfeiting and illegal diversion of products.
“If you don’t have a commitment to brand protection, including certain technologies like track-and-trace in place, it’s easier for insiders who are trying to make a little money on the side to divert some of the product,” said David Luna, former president of the OECD Task Force on Countering Illicit Trade.
Right now, the authenticity of brands is an issue in the sustainable goods industry. There are all kinds of questions about what constitutes organic, free-range, or the myriad of other labels on food and goods. If you were to ask several people in the supermarket what it means when a sticker says their tomatoes are sustainable, you would likely get several different answers regarding the use of pesticides, fertilizers and even farming equipment. But those answers still may not align with the actual definition of sustainable touted by the sticker.
There needs to be a set of standards that can be widely used and trusted by consumers. But that’s where the challenges lie.
People across the world have different values and standards.
One of the most interesting points in the discussion of sustainable sourcing is the cultural and societal differences around the world.
People in different cultures have distinct values — hence the need for unique standards across regions. And the approach for defining these standards should be ethnocentric and sensitive to the values and circumstances in each place.
That being said, there needs to be some benchmark for sustainable products, human rights violations, and ethical and authentic manufacturing. But rather than one benchmark that is applied in a heavy-handed manner across the globe, the goal is to incorporate regional values and demands into the definition of what’s sustainable, authentic, or responsible. This includes how people are incentivized to operate according to those definitions.
For example, a standard for ethical mining in the U.S. would likely be focused heavily on minimizing pollution and environmentally-destructive techniques, such as mountaintop removal mining.
But in a country like India, the incentives for ethical mining would be focused more on preventing child labor. Simply put, the standards need to reflect the reality.
Once those standards are in place, the next step is to incentivize consumers to purchase goods produced by suppliers who meet the standards, adding pressure to the other end of the supply chain.
Ultimately, custom incentives and set standards will help define what it means to be authentic.
The current system for sustainable sourcing compliance is a high-level, overarching model. It’s not well-suited for deep dives or customization.
But a blockchain system offers more in-depth, convergence capabilities, such as tracking individual products and commodities through the entire chain of custody. Which means items have an immutable record of their progress and authenticity from the supplier all the way to the retailer.
The blockchain can also protect IP in grey market goods by licensing the blueprints for a product and machine to fulfill only the authorized order amount. Once, say 10,000 goods are produced, the IP file is locked. This is a big deal across industries and is being used mostly for jet engine parts where the IP and R&D associated with manufacturing can cost tens of millions of dollars.
In the future, true authenticity will be rooted in this record through a secure digital identity for an object — creating a one-to-one link between the object and its identity on the blockchain.
By using barcodes and new technology like tamper-proof seals, companies can create a “digital twin” that lives on a blockchain and records a product’s movement through the chain of custody.
This will allow for:
- Transparency in supply chains to ensure quality and authenticity
- Traceability of commodities for risk management, brand integrity and ethical sourcing
- Fair incentives for suppliers and manufacturers who follow responsible practices
- Regulatory compliance solutions to combat counterfeits and diversion
But it’s important to remember blockchain technology is an asset-centric tool. The system can work perfectly, but it still requires buy-in from manufacturers, suppliers and governments around the world to be truly effective.
Its success is dependent on participants in the network to ensure there are no weak links across global supply chains. The more people who buy into the system, the more powerful it becomes — and the more trust consumers will have in claims of sustainability and authenticity.
