Improving supply chain inclusivity: technical and financial opportunities

Sufficient traceability is a key challenge to achieving deforestation-free commodity sourcing, especially for supply chains that include smallholders. Smallholders often have limited resources for collecting traceability data or are not sufficiently incentivised to provide such data to their buyers. At the same time, supply chain traceability is becoming more important as companies seek to comply with emerging government legislation, such as the EU Deforestation Regulation (EUDR). In order to maintain or strengthen supply chain inclusivity, especially in the smallholder context, it is important for this challenge to be addressed.

Experts explored the technical and financial mechanisms that can help during a panel discussion entitled Creating an Inclusive Supply Chain: Incentivising and Facilitating Smallholder Traceability. It was held during the 2023 RSPO Annual Roundtable Conference on Sustainable Palm Oil. The panel featured speakers from the AFi Southeast Asia Secretariat/WRI Indonesia, Asia Investor Group on Climate Change (AIGCC), the Climate-smart Landscape Fund (ACLF), and WWF-UK. They discussed ways to accelerate smallholder plantation data collection and potential incentive schemes for improving traceability for smallholders. The event also highlighted possible mechanisms to integrate available support and incentives into existing traceability platforms.

Key takeaways

An important first step towards closing technical gaps is to understand the different approaches to achieving sufficient traceability, including what to look for when selecting a context-appropriate approach. Many tools are available to help facilitate this understanding, such as the Forest Data Partnership report.

To advance towards greater traceability, companies should engage with their suppliers, including smallholders who are often most in need of support. This engagement can include increasing supplier awareness of the importance of traceability, and offering technical assistance to adopt good practices.

Companies that are committed to supply chain sustainability also have greater access to financing mechanisms. Investors are increasingly focused on ESG and mitigating related risks within their portfolios. As such, funding opportunities may be available to support companies in acquiring the technology they need to achieve traceability and supply chain inclusion.

Notably, financing and investment should not only focus on traceability, but also on all actions necessary to achieve responsible supply chains. Companies should invest in the collection of traceability data and also ensure that data collection is integrated into a broader plan of achieving impact on the ground.

Finally, as companies implement traceability, they should consider both mandatory and voluntary mechanisms. While regulatory pressures can help accelerate action, mandates alone are not sufficient. For example, in a country like Indonesia where domestic consumption is increasing, the EUDR and other importing country regulations will be less influential. As such, companies should adopt voluntary mechanisms to avoid creating leakage.

Watch the event recording here

The Accountability Framework offers resources to support companies in understanding good practice on traceability, and how to integrate it into a broader supply chain management approach. To get started, visit the AFi webpage on managing production and supply chains and the Operational Guidance on Supply Chain Management.