Is Blockchain the Answer to Ethical Sourcing?

Date: 09 February 2021
Author: Richelle Jem, Guest Contributor

Thanks to globalisation, people have become more conscious of the environmental effects of manufacturing and consumption. More consumers are willing to spend a premium on sustainable products, with the total spending reaching £29.7bn in the UK alone. This trend in consumer behaviour has led businesses to embrace sustainable practices, including ethical sourcing.

What is ethical sourcing?

Ethical sourcing is an environmentally-friendly approach to supply chain management and sourcing. This means that manufacturers and retailers guarantee that their products are acquired sustainably and fairly. Workers should be paid proper wages, factories should be safe and fit for work, and communities impacted by the sourcing should be respected and given their full rights. Ethical sourcing is a method that pushes companies to become socially and environmentally responsible.

Why ethical sourcing is important for businesses

Sourcing ethically gives you a competitive edge over your competitors. In the UK food industry, for example, 75% of shoppers now want supermarkets to only stock food that has been sustainably and ethically sourced. And 72% of the market expect their supermarkets and restaurants to know the sourcing process of each ingredient—despite the long and multi-country journey these products may have gone through.

Sure, an ‘ethical’ or ‘fairly traded’ stamp on your packaging can attract more sales, but sourcing ethically does more than just that. Companies that implement an ethical sourcing strategy tend to have better relationships and communication with their suppliers. In turn, this cultivates trust among the suppliers and improves efficiency in their supply chain. Another compelling reason, as seen on Ethical Trade’s write up on the reasons to source ethically, is attracting business investors, since ethically motivated investors are growing in number.

What is blockchain and why do we need it for ethical sourcing?

Blockchain is a technological advancement where digital information and transactions can be securely duplicated and distributed across computer systems on the same network. In FXCM’s post on ‘What is the Blockchain?’, they talked about how transactions made through the digital platform will be impossible to erase. This is especially important for consumers who demand transparency from the companies they choose to patronise.

Additionally, they also talk about the advantages of a smart contract, defining it as an agreement between companies to ensure that both parties meet the specifications and protocols written on the generated contract. This is especially important for companies that work with several third-party suppliers, so that they can ensure that workers’ rights and treatment, ethical sourcing practices, and fair trade and labour are being maintained—even if they’re not personally there to meet with these suppliers.

The sourcing of parts, ingredients, and other elements for manufacturing are all documented in a blockchain network. Manufacturers are then able to trace an audit trail and all ensuing activities at each stage of the materials’ lifecycle in the supply chain. This allows them to answer consumers’ demands of transparency and sustainability. And with the added option of making blockchain documents available to the public, companies are able to share immutable proof of ethical and sustainable practices to consumers.

How to run an ethically-sourced company

There’s no single way to do this. The methods of ethical sourcing will vary depending on the industry you’re in, the size of your business, and the type of supply chain you have. However, the Ethical Trading Initiative (ETI) sets the following as the Base Codes for any business looking to join the ETI:

  • Demonstrate a clear commitment to ethical trade;
  • Integrate ethical trade into their core business practices;
  • Drive year-on-year improvements to working conditions;
  • Support suppliers to improve working conditions, for example through advice and training; and
  • Report openly and accurately about their activities

Moreover, the International Labour Organisation also encourages companies to get management and staff buy-in as part of a fair and transparent working environment, and you can use blockchain technology to document this. It’s important to note that ethical sourcing doesn’t just involve a manufacturer-supplier relationship—it starts within your own organisation.

Blockchain is one way to address the increasing demands of ethical sourcing, among other things. Find out how else it’s propelling sustainability efforts in our article on ‘Using blockchain for P2P energy trading‘!


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