What is blockchain and how does it apply to FSC?
Simply put, blockchain is a record-keeping digital technology, and it registers transactions into a digital ledger that cannot be changed (a concept known as immutability). These transactions are recorded in the ledger as a chain of data blocks via a consensus protocol that checks the authenticity and data integrity of each transaction before it can be recorded in the ledger. Unlike public blockchains associated with cryptocurrencies, consortium or “permissioned” private blockchain ledgers can be set up such that only certain parties have permission to use the blockchain, even when the parties are not known to each other. This is the type of blockchain FSC uses.
Like many global supply chains, forest-related supply chains rely on paper documentation, including a paper trail of invoices, bills of lading, and other “wet” signature/stamp trade paperwork. Paper systems open the potential for fraudulent claims, because bad actors can tamper with or falsify documentation. Blockchain can fundamentally change how compliance and traceability of FSC materials across supply chains are verified using secure technology, breaking free of paper-based documentation, and the exclusive reliance on that documentation, to determine whether materials are compliant.
Another advantage of blockchain is that it helps overcome IT limitations related to delivering a full package of immutability, information security, and consensus when the participating parties may be unknown to each other. A certified organization of course knows their direct suppliers, but generally doesn’t have knowledge of their suppliers’ suppliers. Blockchain allows trading partners to be connected to all parties handling materials down to the source, and to verify the compliance of the materials as they move through the supply chain, without the need to reveal or even identify business relationships beyond those direct relationships an organization already has today.
FSC believes that blockchain can help certified organizations verify that the materials they trade are compliant and traceable to the source. Today, FSC-certified organizations are required to maintain up-to-date material accounting records of the certified materials they trade, and we can tap into these records with blockchain to securely share and verify these point-of-trade exchanges across the supply chain.
Why are materials compliance checks and traceability so important?
FSC trademarks are valuable to all of our stakeholders, and FSC works to protect our reputation and enforce our trademark rights by monitoring trademark compliance and investigating false claims. Certified organizations are licensed to use the FSC trademarks for on-product labelling and promotional use, and at the point of trade, organizations’ trade documentation carries FSC claims that tell trading partners that the materials they are buying are certified.
When we find fraudulent claims and non-certified materials in FSC supply chains, there is a breakdown of trust, and the achievements of compliant certified organizations can be overshadowed. FSC’s supply chain investigations and Transaction Verification allow FSC to investigate, uncover, and address fraudulent activities carried out by certified organizations. However, transaction verification has two major downfalls. First, it only allows us to investigate events that occurred in the past, once the damage has already been done. Second, it only allows us to investigate with a very narrow and fixed scope on a particular supply chain. This leaves FSC with little ability to adjust or scale to real-time monitoring during or after an investigation.
Compliance checks and the undisputable traceability of materials are important to certified organizations and for FSC. Information Technology tools can help overcome the obstacles of inefficiency and not having timely verified information while protecting the privacy of business relationships.
What’s going on with FSC’s blockchain?
In 2021, FSC developed and piloted its first cloud-based blockchain platform. The pilot involved ten participating companies and focused on two relatively simple, “short” supply chains in Ukraine and China. Participants were asked to enter data about their transactions in a standardized format into FSC’s online tool. To do this, they could choose between entering the data directly via a Web page, uploading their data via an Excel sheet, or connecting their own existing database to the blockchain platform via an API. The platform then cross-checked this data with that entered by other participants, and provided users with dashboards visualizing the data they had provided.
The pilot was a success in several important ways: it helped to verify point-of-trade claims, gave users simple options to provide data without needing to make burdensome operational changes, and bred ideas for how future versions of the blockchain could meet a growing need to demonstrate compliance, traceability, and legality to trading partners, governments, and consumers in ever more effective ways.
This pilot concluded in early 2022, and we would like to thank all of the participants for their engagement. FSC gathered feedback regarding participants’ experiences with the platform and what they would recommend for future versions. Using this feedback, FSC is currently developing the next version of its blockchain to cater for enhanced materials accounting and mass balance calculations, advanced analytics, and privacy-enabled sharing of legality information, with the intention to increase participation in the blockchain during 2023.