A focus on EUDR: Leveraging DLT to enhance the due diligence process

As of the 16th of May 2023 the European Union Deforestation Regulation (EUDR) has officially been adopted. This means that the 27 countries of the EU have agreed to a new law that will enhance the regulation of the trade of soy, cattle, palm oil, wood, cocoa, coffee, and rubber in an effort to reduce their contribution to global deforestation. It also means that one of the natural methods of removing greenhouse gases is now even more protected.

But what does this mean for the importers and exporters affected?

There are now new requirements for improved due diligence to prove that commodities affected by the regulation have not caused deforestation, and that they are produced in accordance with the relevant legislation of the country of production. iov42’s use of notarisation, digital identities, encryption, and more, means meeting the due diligence requirements of this regulation doesn’t have to be as complex as it seems. These due diligence requirements include keeping a collection of information about the products, conducting risk assessments, and mitigating risks that aren’t negligible, all before selling or exporting from the EU market. The due diligence statements will accompany the import and export of these products.

The following information will be required:

• A description of the product including:
  • The trade name
  • The scientific name
• Verifiable evidence the product is deforestation free
• Verifiable evidence relevant legislation has been followed
• Record of the supplier and buyer names
• Geolocation information relating to the harvest of all relevant products within supply chains
• Date and time of production

Once in place, large importers and exporters will then annually release a report publicly, this includes the steps taken to implement their obligations, as well as collect and maintain all information on their buyers and suppliers for up to five years. Doing this will help to foster transparency and facilitate enforcement. SME traders, however, only need to collect and maintain all information for five years, and provide it to the competent authorities when asked, but will not be asked to report publicly.

It may seem like there is a lot of work to do, but with the help of iov42’s solution built on its custom Distributed Ledger Technology (DLT), importers and exporters can benefit from:

• The trusted and secure storage of the required due diligence information, including data being time stamped and tamper-proof
• Digital records, processing, and sales of commodities
• Easy and secure access to relevant information for certifiers, authorities, and customers
• Interlinked information which is easy to navigate without searching through emails and paperwork
• Shipment information is shared with buyers, allowing them to trace the origin of a product
• Easily demonstrate compliance at the point of receiving shipments

The decentralised, immutable ledger that records and verifies transactions helps importers and exporters with traceability and transparency across the entire supply network. Each step from harvesting and processing to distribution can be recorded on this purpose built technology and provide a comprehensive history of the products’ origin and movement. It will then be easier to identify potential risks or illegal activity due to better visibility of the chain of custody.

iov42 and reputable third party verifiers help when it comes to facilitating the authentication and verification of products. This is by assigning unique identifiers to each user and asset and then recording them on the platform – creating tamper-proof records. By linking data with products, and having transparency around which stakeholder digital identities were involved, enhanced levels of integrity and accountability are achieved across the supply chain. 

Users can store due diligence related data including certificates, compliance records, and risk assessments, in a secure way that is easily accessible for inspections, compliance checks, and audits. Once again, this will promote transparency and accountability and make time consuming processes more efficient.

iov42’s technology ensures data integrity through features such as immutability to prevent changes and cryptography to ensure that data is protected from unauthorised access. Public/private key cryptography and a customisable permission model allow participants to securely interact with the DLT network, ensuring that only authorised users can perform transactions and access the data. 

Once information is recorded on the DLT it cannot be erased or changed. Some people are worried that the immutability means that it is not possible to make any corrections. However, any issues can be resolved by making amendments, it’s just that both the original version and the amended version will be stored on the DLT, providing an auditable history of changes. By doing this, the integrity of the due diligence related data is ensured, data quality increases, and the risk of falsified documents or fraudulent claims will be mitigated.

All of this enhances the confidence and trust in the importers’ and exporters’ due diligence efforts, both for external stakeholders and within the supply chain itself.

By using the iov42 solution, users can experience the benefits of joined up due diligence processes and ensure the integrity of data. These benefits will help build bonds of trust across the entire supply chain, as well as importantly, help towards ending illegal deforestation.

For more information on what we have built for the timber industry, check out our solution Timber Chain. This can also be applied to other commodities affected by the regulation so do get in touch and we can set up a demo. 

You may also be interested in learning more about our Due Diligence Management Platform which we are building in partnership with DoubleHelix Tracking Technologies to meet requirements brought about by the UK Environment Act.