Traceability is Essential for the Green Transition
From the food to the goods and services sector, tracking a product from origin to destination is gaining increased space in companies' climate and social commitment strategies. Effective green transition needs investments in transparency.
Investments in traceability solutions for companies are essential to ensure business resilience and efficiency. Besides, they are also strategic for the decarbonization of production chains and the fulfillment of the Sustainable Development Goals. Undoubtedly, traceability technologies are more advanced in the field, see the exponential growth of Agtechs, which are startups in the agribusiness sector. In Brazil, for example, the growth of Agtechs in 2021/20 was 40% compared to 2019 (Radar Agtech Brasil). There are 1125 active startups, enabling solutions for other companies to achieve their carbon and ESG goals. Although this is not yet the focus of the investment - usually traceability in the agricultural sector and food industry is much more related to food safety issues - traceability as a supporting tool for decarbonization gains strength once climate change becomes a compliance issue.
What is Traceability?
With investors and consumers increasingly demanding transparency to understand the coherence of companies' actions, it is impossible to imagine any sector "immune" to traceability. This investment will need to be made in the short term, for better or worse. Only by adopting traceability systems will it be possible, in the face of a change in regulation, to explain how a product is made, from the choice of raw material, how much water is consumed, whether it involved slave-like labor, and how much carbon from production to distribution.
Traceability allows the construction of a product's digital identity, and its journey from the origin, through the supply chain to the final consumer. This X-ray improves the business because the data generated is valuable information to review processes, make them more sustainable, review supply chains, and seek solutions for moments of disruption, such as the current one. In addition, of course, to meeting new demands from legislation, climate agreements, and consumers.
“67% of consumers want to know where their food comes from and 69% of people under 40 say they would pay more for electronics made from sustainable resources" – World Economic Forum.
It is in the field where traceability has become popular. The global market could reach $9.75 billion by 2028, more than double the amount recorded in 2020 ($4.54 billion), according to Emergen Research. As the key driver of growth, there are also more essential requirements for documentation and registration of each manufacturing stage. This is the case with beef produced in Brazil. No traceability, how to prove to investors, international buyers, and consumers that the food is produced sustainably and is not related to burning and deforestation.
As per the Radar Agtech 2020/2021 report, Brazil's number of companies with solutions for traceability in agribusiness is 111, the third in volume in the sectoral mapping.
Traceability for Decarbonization
The global carbon footprint traceability market is estimated to reach $12.2 billion in 2025, a growth of 6.2% compared to 2020 (Markets and Markets).
In the material entitled How digital tracing can reduce industrial carbon emissions, the World Economic Forum points out that the transition to renewable energy is a direct way to reduce greenhouse gas emissions. Still, the decarbonization of indirect emissions from industries remains a significant challenge. And they have in traceability a solution.
Indirect emissions are, for example, those that occur in energy consumption during the transport and distribution of raw materials or are associated with waste disposal. These are scope 2 and 3 emissions in a company's value chain. Depending on the industry sector, value chain emissions can account for 80% of your environmental impact.
“A survey by The Washington Post shows that carbon emissions are underreported globally, because of the quality of the data and the inconsistency of the reports. Gap ranging from 8.5 billion to 13.3 billion tons per year."
Businesses that emerge or point to traceability technologies for companies to deal with this immense challenge are a great investment opportunity. Because they will bring reputation and long-term sustainability – guaranteeing the license to operate – in addition to accurate information and results. And it's time to be precise in our actions.
Returning to the World Economic Forum material, traceability technologies can help the industry with some challenges:
1. Offer detailed carbon emissions that are easy to access and share.
2. Deliver new competitive advantages: Benchmarking carbon footprint information across all industrial sectors will result in faster reductions in emissions and control costs for sustainable materials and manufacturing.
Who are the companies that are paving this way?
1. Newlight Technologies is a fashion industry biotech using blockchain to track the carbon footprint and supply chain of its brand Covalent. The company delivers accessories with a regenerative material made from microorganisms found in the ocean, replacing plastic and fibers.
2. Flexidao offers traceability of the energy used by companies and what this represents of CO2 emission (these are indirect scope two emissions)
If traceability in the field is an established path with proven results, traceability solutions are still a novelty in other sectors, such as decarbonization. However, I can only see this future: within a few years, each product will leave the factory with a digital identity, with a QR code or sustainable tag containing all the information from origin to carbon emissions. It will be much easier to decide from choosing what to buy to where to invest in composing an accurate and green portfolio.
Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.
About the author
Luciana Antonini Ribeiro is co-founder of eB Capital, a leading private equity firm investing in highly scalable solutions to Brazilian structural gaps.