Shameek Ghosh is CEO and cofounder of TrusTrace, a leading platform for supply chain traceability within fashion and retail.
Looking at the landscape of emerging regulations, I think it will only be a couple years before companies need to prove their compliance, through traceability data, with whichever prevailing due diligence and environmental laws govern their industries. For example, in Europe, EV battery manufacturers know they’ll need to adopt digital “battery passports” to enable circular and sustainable supply chains.
My partners and I founded a company in 2016 to help fashion brands clean up their supply chains, and the results have been impactful. We created a traceability technology platform where brands could evaluate their suppliers’ credentials, encourage and reward progress toward greater sustainability, and monitor or enforce fair wages in their supply chains.
In a relatively short time, traceability proved capable of positively impacting sustainability goals. But to truly realize pervasive change—not only in fashion, but also electronics, food, pharmaceuticals, automobiles and elsewhere—I think traceability will be an important factor in driving compliance.
The Push For Sustainability
The modern sustainability era started promisingly enough in 2015, with the Paris Climate Accords. Eventually, global corporations began implementing environmental, social and governance (ESG) frameworks to demonstrate their commitments, and research kept finding consumers would willingly pay more for sustainably made products.
But things change. Last autumn, the United Nations reported countries were falling short of their Paris goals. And as prices have risen on almost everything, there’s concern that despite consumers’ interest in sustainable practices, higher living costs may prevent them from practicing their principles. Even data showing consumers who remain committed to shopping sustainably also finds many don’t trust companies to operate sustainably—or can’t tell for sure when they do.
Against this backdrop come regulations and legislation. As the National Law Review put it, “Amid shifting consumer sentiment and mounting criticism in the press, international legislation is forcing change in how companies make and market their products.”
When it comes to the emerging patchwork of global regulations, in general, I’ve noticed they fall into two categories: The first are due diligence regulations, created to ensure companies take environmental and social responsibility for their supply chains. The second are labelling regulations, aimed at forcing companies to prove their sustainability claims.
Although a patchwork of laws and regulations may seem daunting, data is the universal ask. I think companies will soon require the collection, confirmation and reporting of traceability data to prove they’re in compliance. Once the traceability data is in place, compliance with any current or future regulation can be easier.
Building The Foundation For Compliance
For the companies interested in tracing their sustainability efforts, here are some first steps to take.
1. Map your supply chains so you know everything about your partners and their contributions.
The first step in mapping your supply chain is to identify the key players involved in the process. This includes suppliers, manufacturers, distributors and retailers. Once you have confirmed the key players, you can start to map each rung of your supply chain. This involves identifying the different stages of the process and the various transportation methods used to move goods and services from one stage to another.
As you map the supply chain, it is important to assess the compliance risks and sustainability implications of each stage. This includes being aware of potential risks such as disruptions, environmental impact and forced labor practices.
There are several classes of partner data that you should be aware of. Firstly, there is product data, which is essentially the material composition of your product. For example, if your product is a T-shirt, the material composition would be either cotton, polyester or a blend of the two, along with other materials such as rayon, linen and spandex.
Secondly, you’ll want to capture and record traceability-specific data. This is the who (supplier), where (factory location), when (date/time), what (the good or material being traced) and what else (manufacturing processes, etc.) of your supply chain.
Thirdly, identify and collect sustainability-specific data. This involves mapping out relationships among facilities, suppliers, materials, finished goods, purchase orders and more to identify contingencies and risk exposure. Audit data for suppliers and facilities is also crucial, along with metadata to verify the authenticity of claims and certifications.
2. Digitize supplier information so it’s discoverable and sharable.
In many cases, brands are attempting to digitize a literal paper trail, with much of their supplier information stored in invoices, bills and elsewhere.
As a first step, define a clear strategy for digitization that aligns with your business objectives. Whether your objective is to minimize potential risk or compliance violations, identify bottlenecks and inefficiencies or enhance sustainability and social responsibility, that goal needs to be established before beginning the digitization process.
Make sure to track products and materials at every stage of the supply chain, and keep track of the data as it can be used for various purposes such as quality control, risk management and sustainability reporting.
3. Structure the data so it meets regulatory requirements.
Finally, identify the laws and regulations that apply to your specific industry, products and regions. This can be done by conducting research, consulting with legal experts, and monitoring for regulatory updates.
Once the applicable laws and regulations have been identified, assess your compliance requirements, including the specific supply chain data needed for compliance. With the parameters in hand, it’s then your company’s responsibility to track the data, while developing policies and procedures that enforce compliance.
Progress toward traceability takes time, but it works. Sustainability is a journey and we’re not yet at our destination. We’ve seen great progress in the fashion industry and now companies in other sectors are starting to embrace traceability to future-proof their business. Compelled by regulation to forge a more sustainable future, brands are finding that traceability is not only good for the planet, but also for them.
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