Could distributed ledgers be a solution for supply chain transparency?
Early uses of blockchain are highlighting its potential to provide visibility into the ‘provenance’ of a good or commodity.
Today’s consumers and investors are increasingly committed to spending or investing in ways that benefit the principles of sustainability. But determining which companies truly ‘walk the talk’ when it comes to sustainability can often be difficult to determine.
Little information is known about whether the food we eat or the mobile phone and computer we use every day have been produced using slave or child labour, or in unsafe working conditions, or caused environmental destruction or funded violent and corrupt political regimes.
– Morgan Stanley Researchi
Supply chain governance plays a pivotal role in determining the effectiveness of an organisation’s commitment to sustainability.
This is because supply chains are typically comprised of numerous sub-contractors – which are effectively separate companies with separate principles and compliance requirements. A farmer producing free-range, organic eggs could possess rock solid sustainability credentials, but the freight service used to transport those eggs could also transport livestock from companies with an atrocious and highly publicised record of animal mistreatment.
The process of verifying suppliers' practices is no easy task for companies. Beyond the challenge of assessing supplier and contractor processes, supply chains themselves are increasingly complex, presenting multiple obstacles when it comes to effective oversight.
There are emerging cases of blockchain advancing supply chain transparency, and its technology is already being used across a wide range of areas - both financial and non-financial, including the certification and tracking of diamonds, art and digital music.
But how does it actually work and what are the benefits for the companies using it?
As a tool enhancing supply chain processes, blockchain - also known as a distributed ledger - enables the detailed identification of a product’s provenance.
It tells us where a product came from, where it’s been, who owns it and who bought it.
Put simply, it provides us with an item’s life story.
This means consumers have proof of whether or not the diamonds they wear were mined using unethical labour principles, whether the egg they are eating is from a certified organic farm, or whether the shipping company that freighted their online shopping is the same company known to transport non-renewable energy sources.
It should be noted that Morgan Stanley Research has identified both pros and cons regarding any larger scale adoption of blockchain technology across supply chains.
For information on sustainable and responsible investing, or investment opportunities in the disruptive technology sector, speak to your Morgan Stanley financial adviser.
i ‘S+R Soundbite: Blockchain – The Solution for Supply Chain Transparency?’ Victoria Chapelow; Jessica Alsford, Faty Dembele, Eva T Zlotnicka. Morgan Stanley Research. May, 2016.