“We are using distributed ledger technology to help the cooperatives better market and differentiate their products on the back of their sustainability certifications, creating products with provable certification claims and traceability back to their origin. This traceability is then being leveraged to sell “proof packages” containing all this information to downstream buyers, driving more value directly back to a cooperative similar to how impact credits work in other industries,” says Erik Zvaigzne of Convergence.tech as we talk with him, as well as Marina Petrović and Robert Pašičko of UNDP Alt Fin Lab, about their project collaboration in the DLT4EU accelerator programme.
The DLT4EU accelerator programme identifies and connects distributed ledger technology (DLT) entrepreneurs with leading public and private sector organisations for social and public good.
DLT4EU is led by a consortium comprised of Metabolic, Digital Catapult and Ideas for Change, with direct support and advice of the European Commission’s Joint Research Center.
Erik Zvaigzne is VP of Product Innovation at Convergence.tech, a digital transformation and technology development company specialized in digital identity and traceability solutions, with a keen interest in how technologies like blockchain can be leveraged to create sustainability. He leads product development efforts for the company, as well as works with governments and international development organizations globally to help solve problems using emerging technologies. Erik is the venture team lead on the DLT4EU project.
Marina Petrović is the Innovative Finance and Technology Expert at UNDP Istanbul Regional Hub as well as Cofounder of the Alternative Finance Lab (Alt Fin Lab), which is an internal startup, run out of UNDP Istanbul Regional Hub for Europe and CIS. The Alt Fin Lab is exploring how to revolutionize development finance, through innovation, digitalization and technology. Since the Alt Fin Lab launched in 2016, Marina Petrović has been working to provide hands-on technical expertise, advisory support and market intelligence to over 45 UNDP offices, national partners and governments around the world.
Robert Pašičko is the Cofounder of the UNDP Alternative Finance Lab (Alt Fin Lab). He supports innovation in alternative finance mechanisms and in low carbon development in over 40 countries globally. He focuses on finding ways to make green energy affordable through blockchain, crowdfunding and community financing. Robert Pašičko also cofounded the UNDP Crowdfunding Academy, a training program for crowdfunding which has been implemented in over 20 countries worldwide and has created over successful 50 campaigns. He is an evaluator of blockchain projects funded by the European Commission.
Sebastian Klemm: Which deep economic reforms do we need to tackle, in order to arrive at regenerative & intragenerationally just societies that manage to live within planetary boundaries?
Erik Zvaigzne: I think a lot of it has to do with culture and awareness. We are increasingly becoming aware of the actions and impacts we have as people on the planet thanks just to our greater interconnectedness online and discussion of some of the issues in the media, which already feels like it is starting to change the mentality and consumer preferences of the younger generations as they look at things more holistically.
Crisis can spur innovation, and to some extent on the environmental sustainability front. I think, we are starting to see the results of that in some early things like clean energy. Circularity feels like it is up next, given the potential for digital platforms to do the hard work of connecting industries and supply chains together at various levels.
Everyone of course is at a different level of awareness and maturity in that sense globally, and it will take a long time for everyone to get onboard to achieve long and lasting effect. Balanced against the sometimes added cost of “doing the right thing”, if anything needs to change in terms of economic reforms, I would say we need to shift our regulatory landscape to create situations where it becomes more expensive to do the wrong thing and people fall into alignment regardless of their motive. The cost of the impact our products have on our health and our planet should factor into their prices so that people will fall in line regardless of their reasons or motives. Easier said than done, this is a very delicate thing to balance against overall prosperity and economic development in emerging economies for sure, but that is where I think some deregulation of technology innovations and proliferating better technology access can help create new and more sustainable communities.
Marina Petrović & Robert Pašičko: The market is driving producers to adopt unsustainable practices, creating a series of economic, social and environmental problems. The market does not incentivize producers to become sustainable. Brands pledging to be sustainable need to expand sustainable sourcing in order to meet their commitments. In absence of a clear solution, most companies are unable to achieve their target for a sustainable supply chain.
The UNDP United Nations Development Programme is working globally with a wide number of value chains and related commodities. However, more can be done to support the matching between demand and offer. For example, governments could prioritize economic mechanisms that promote the generation of livelihoods and decent and sustainable entrepreneurship. This could be done by introducing smart technologies, like blockchain, and creating decentralized markets which are transparent and efficient and can potentially increase the efficiency of supply chains and positively impact and improve inclusion within the value chain.
Sebastian Klemm: Speaking of the necessary shifts in the regulatory landscape: In a previous interview, David Franquesa elaborates on the EU legislation on Ecodesign – which claims to “further enhance the reparability and recyclability of appliances”.
What enhanced regulatory initiatives do you see already that may nudge both corporate and consumer behavior towards sustainable practices?
Erik Zvaigzne: The European Parliamentary resolution of 22 October 2020 furthering work on the EU legal framework to halt and reverse EU-driven global deforestation is an interesting one in how it will encourage greater accountability, action and transparency in commercial supply chains. By putting the onus on companies to provide proof of compliance with claims such as “deforestation-free”, new levels of traceability and international cooperation will be required to better monitor, track, and prove such assurances using tool sets similar to the one we developed as part of DLT4EU. The emphasis it places on sustainability, production processes and carbon footprint, human rights, and land tenure all require good practices to be followed in the countries of origin, and should naturally create investment in sustainability and development programs in the target countries to help achieve this.
Sebastian Klemm: What particular qualities of the DLT4EU accelerator distinguish this programme in your opinion?
Erik Zvaigzne: The problem-first emphasis. Many accelerators help commercialize an idea but don’t touch the design aspect too much, but DLT4EU left the solution space wide open for ideas on how technology could be adapted and applied to help solve the use cases. Creating a commercial model on the back of it is challenging in this way, but ideation with subject matter experts like this around a problem feels like a strong way to create social innovation and come up with new ideas.
Marina Petrović & Robert Pašičko: The vertical top down support by the European Commission, which is for us at the UNDP a game changer. As we work with and for governments, the solutions that we bring to them need to be more than just a good idea, or solution developed through a hackathon. They also need to be “implementable”, which in a lot of cases is impossible, as solution developers have only covered the “innovation or tech” part, and have not worked in parallel on policies or “restriction” elements.
Sebastian Klemm: Why do you participate in the DLT4EU programme?
Erik Zvaigzne: One of our core focuses at Convergence.tech is on projects that explore the application of technology to create positive social or environmental impact. Sustainable supply chains fit that profile. DLT4EU provided us the opportunity to explore the idea of how traceability can empower smallholder producers in agriculture and others in cooperation with the UNDP AltFin Labs.
Marina Petrović & Robert Pašičko: The United Nations Development Programme (UNDP) is working on “big things”. We are trying to reduce the impacts of climate change, help communities, cities, governments in creating a better world. We call these challenges, 17 in total, the SDGs or Sustainable Development Goals. To fund these and address them, we have a gap: We need around $2.5 trillion per year. To fill this gap, governments and development organisations are trying to rethink their approach, as “business as usual” solutions are not enough anymore. And here comes the innovation part, technology and development. As we live in a digital world, maybe more than ever, development needs disruptive solutions to change the way people live today. From banking for 2 billion people who don’t have access to a bank account, to providing an identity for 1,5 billion people who do not have it, to speeding up access to electricity for 1,2 billion people who live without it. These people don’t have time to wait, and neither do development and the SDGs.
The UNDP mandate is “leave no one behind” and as the SDGs are so ambitious and comprehensive, they require multi-sectoral methods, innovative technologies and financial instruments that can leverage resources from different actors and account for the complexity of the development agenda.
It is the innovation team within UNDP’s Bureau for Programme & Policy Support, specifically itslead regional bureau, Europe and CIS, that has played a key role in accelerating organisational learning on emerging approaches to development. In this context, it has built a portfolio of innovative business offerings that includes:
- Building policy innovation labs within governments as an alternative mechanism for tapping into citizen expertise and assets for policy design and delivery.
- Leveraging alternative financial mechanisms and technologies, such as blockchain, to support entrepreneurship and strengthen competitiveness, as well as promoting understanding of the impact these mechanisms and technologies have on existing regulation and institutional frameworks (regulatory innovation). This service line has given rise to the Alternative Finance Lab, run out of UNDP Istanbul Regional Hub, which has led the design of three challenges under DLT4EU: Digital Impact Currencies, P2P Energy and Track-and-Trace.
- Advising governments on the use of new sources of data for timelier policy response.
- Strategic foresight and R&D aimed at continued market intelligence for new approaches and methods to tackle ‘sticky’ or stubborn development issues.
Sebastian Klemm: What are the societal and environmental challenges that your particular project “Track-and-Trace: Creating Fairer and More Transparent Supply Chains for Women-Owned Cooperatives in Morocco” addresses?
Erik Zvaigzne: Argan oil is a very high value commodity that can be worth over €250 / litre in the EU cosmetics market and is of great economic importance to the rural Moroccan communities that produce it. The primary producers are small, women-owned cooperatives who make less than €25 / litre from the oil that is pretty much ready for sale to the cosmetics market when it leaves their hands. For the coops and their members, the argan oil trade is sometimes the only opportunity for income and employment available to them.
Environmentally, good work is being done around certifications and ecosystem payment schemes that command premium prices and help preserve and grow the argan forests that are so critical to this industry. Proving and marketing these certifications to find interesting buyers willing to pay premium prices remains a challenge.
Despite being so critical to the industry as a whole, the coops who are in fact producing sustainably see a disproportionately small portion of the market value in return for their efforts since they lack broader market access and the ability to differentiate their products among others in the industry.
Marina Petrović & Robert Pašičko: Our project improves the socio-economic inclusion of small and medium-scale female farmer cooperatives, inserting them into a value chain in which their contribution is made visible and fair commercial conditions are guaranteed. On top of that, our project provides a user-friendly mechanism for responsible consumer applications in national and international markets.
Sebastian Klemm: The DLT4EU programme focuses the application of DLTs to the areas of “Circular Economy” and “Digital Citizenship”. How do you apply distributed ledger technologies in your project to help solve these challenges for the public good?
Marina Petrović & Robert Pašičko: We are using it to create a blockchain shared – value ecosystem and platform. End buyers will be able to trace argan oil production and ensure it has been sourced fairly and sustainably. The price will reflect the impact on the ecosystem and the real costs of production and export, with farmers receiving a significantly greater share than through any other method.
Erik Zvaigzne: We are using distributed ledger technology to help the cooperatives better market and differentiate their products on the back of their sustainability certifications, creating products with provable certification claims and traceability back to their origin.
This traceability is then being leveraged to sell “proof packages” containing all this information to downstream buyers, driving more value directly back to a cooperative similar to how impact credits work in other industries. This is all being done on the back of privacy protecting digital identity wallets and open standard W3C-compliant verifiable credentials, to build an ecosystem around certification-based traceability.
By open sourcing core parts of the platform and basing it on verifiable credentials as a data format, our hope is that this pattern can also be applied to other industries where smallholders have similar challenges that can in turn create fairer and more transparent supply chains in other commodities industries.
Sebastian Klemm: Track and trace may possibly be distinguished according to direction & point in time. Whereas tracing is about following the completed path backwards from its current point to where it began, tracking is about following the emerging path forwards from your starting point to wherever an economic resource currently is.
Could you further elaborate on the interplay of tracking to support the value creation in your application?
Erik Zvaigzne: We are collecting data points that provide both. Registration of the oil by the coop solidifies point of origin information and the beginning of the data record, associated with a cooperative profile, branding information, and any certifications they have. This is traceable by anyone who wishes to inspect the provenance of the oil that is being sold to them, and is a key data point that weigh into purchasing decisions made by commercial buyers, who have specific sourcing standards, certification and information requirements for the oil they purchase.
The present back-and-forth exchange of unverifiable paper documents is something that is made much easier, with high assurance data that can be validated as authentic in real-time by use of our technology.
To end consumers interested in sustainable and ethical purchasing, it also provides an opportunity to transparently see where their goods are coming from and under what conditions and certifications they were produced. We are working on also creating a channel here where consumers can choose to support the cooperatives directly financially as a part of this and looking at meaningful methods in which they can benefit the women and their families.
When the oil is sold to a new buyer, that information, and changes of custody thereafter, is where tracking comes into play as new data is added to the registered oil which enriches the traceability data. Recording this information on a shared digital data platform enables this. Incentive to do this comes by way of purchasable data passports that contain the proovable certification and claims information, which they in turn can use as proof of sustainable sourcing or as a marketing tool to incentivize their buyers and their branding. Branding is the element of importance we are trying to build for these cooperatives as well by equipping them with data and tools to help tell their story and reach new markets. They need to differentiate and promote their product and their certifications to open up new markets and commercial opportunities, and data passports are one way of doing that.
Sebastian Klemm: Can you elaborate on the aforementioned W3C World Wide Web Consortium and what specific relevance its standards compliance for your project development has? Perhaps, how does the application of these standards support your solution in terms of the public good?
Erik Zvaigzne: W3C is one of the leading internet standards organizations in the world. Their Verifiable Credentials (VC) and privacy-protecting Decentralized Identifiers (DID) standards in particular have been very influential in the decentralized identity world as of the last few years in this space, which create the pathways for interoperable cryptographically signed data packages (VCs) and identifiers (DIDs). For instance, both have been used to good effect in the European Blockchain Services Infrastructure (EBSI) project supported by the EU Commission.
What this creates are pathways for interoperability with data systems between vendors, between industry participants, and increasingly between government infrastructure globally so they can all speak the same language and make sense of the signed data packages and identifiers being used in the solution since all these data formats are non-proprietary. This is how basing our solutions on standards like these is beneficial. Others, not just us, can participate in this ecosystem and bring DID-compliant identities or issue certifications and credentials into this traceability platform, which reduces the barrier to participation significantly since we as Convergence.tech are then not a barrier to platform participation to create new data.
Anyone who complies with these standards will know how to create and validate the information that flows into and out of our platform. People can also leverage existing user-owned digital identities and signing functions that will increasingly be in place on the buyer side thanks to broader initiatives like EBSI and some of the digital signing work they are doing.
Sebastian Klemm: Throughout the DLT4EU programme and along the bootcamps with mentoring therein: What have you been developing so far?
Erik Zvaigzne: We have been developing refinements to our existing digital traceability technology and tooling to work for some of the specific needs in the argan oil value chain, as well as exploring what B2C market channels can be created on the back of this to help the cooperatives sell more directly to end consumers and benefit from the high prices the oil commands in international markets.
We see some other opportunities to be able to help with the administration and digitization of some of the underlying certifications programs, which we feel is another opportunity to get more people participating on the platform we are creating.
Marina Petrović & Robert Pašičko: Based on the tech part that Erik explained, we on the UNDP side have been working on the concept of a responsible value chain with the potential to expand its benefits not only in the agroindustry sector, but also to other sectors.
Our DLT4EU project is the first project of its kind in the UNDP Morocco Country Office and will expand UNDP’s expertise in the application of technologies in development. In line with ongoing discussions about UNDP’s role as a key player in innovation for development, as well as with the private sector, this initiative will have a catalytic effect as it will position the organisation in an evolving niche.
Sebastian Klemm: So far, money has been a fundamental building block of the traditional economic paradigm, where economic actors are incentivised to extract natural and social capital in exchange for money.
In a previous interview, Lynn Foster elaborates on the use of tokens as rewards within their DLT4EU project, where spending the tokens in neighborhood businesses encourages local awareness and more cycles of local economic activity, an ‘economic multiplier’ which increases local resilience.
Could you elaborate on realized solutions in other projects you conducted at Alt Fin Lab as well as at Convergence.tech where you applied alternative finance & currencies, impact credits or token to foster socio-ecological regeneration and resilience?
Erik Zvaigzne: We have not done too much work with alternative currencies as of yet in our projects since the regulatory environment needs to be favorable to be permissible at scale, which we are finding to be a very country-specific situation. Even for the Morocco use case, we are likely starting by way of the commerce angle to buy the data passports as being something happening in fiat currency outside of the system and included in the purchase of the oil itself to simplify the situation since the ecosystem to spend any credits accumulated as a digital currency do not really exist in this case since not much goes into the supply side of argan oil beyond purchasing of the seeds for those who do not harvest them themselves.
We are at present designing a project in Ecuador around deforestation-free livestock production where we are exploring the impact credits earned from proovable production, monitored via geospatial data and satellite photos, to take the form of an alternative currency, enabling the purchase of agriculture inputs and supplies from local suppliers as one potential avenue for the value to take. We are exploring this to be backed up initially by REDD+ credit funding and government incentives for good agricultural practices, before then transitioning into a “price premium” model for sustainable production once the market is ready. Keeping the price gap for sustainable production high enough to change behaviour is the balance we are trying to find with this without introducing pathways where the model can be exploited in some way.
In general, tying benefits of some kind to sustainable production, be it on the sell side or buy side, is one element of great interest as a tool to shift markets to sustainable production. Behavioural economics can be powerful. Some of us at Convergence.tech have done work in carbon credit and cap-and-trade markets internationally as well, which is an interesting dynamic we would like to explore building into sustainable agriculture as well. Some of the patterns that appear in those markets, like well intentioned people buying up a supply of credits simply to make things more expensive for heavy polluters, is one thing we have not been able to trial yet in these types of supply chain systems but is compelling to think about. We have some ideas floating around on what we can do here.
Sebastian Klemm: In our preceding interview about DLT4EU, Alice MacNeil says: “One of my favourite experiences was with the Venture Teams as part of a Storytelling Masterclass by Hayley Bagnall of Altus Impact, as part of the Barcelona Bootcamp in November. It was rewarding to see how the teams shifted their narrative about what they were doing, from a technology-first perspective to a more social, impact-driven focus. Not only was it fun, but we learned a lot about how to tell the story of your project and the power of storytelling. DLT can be quite niche, and this kind of approach allows us to tell a better story to a wider audience, to connect DLT4EU to a more public and democratic space.“
What have been inspiring moments to you personally during both your work together as a team & the overall DLT4EU programme so far?
Erik Zvaigzne: Getting to learn more about the intricacies of the argan oil in Morocco and some of the challenges that the cooperatives face by engaging and speaking with some of them directly has been inspiring, both in confirming the realities of the problem and the excitement and potential that exists in helping to solve it through the use of digital technologies. We have met a lot of people in the UNDP Country Office and in the industry who are passionate about social good and making a difference, and the support we have gotten for some of the ideas has been really encouraging.
Marina Petrović & Robert Pašičko: Working with passionate, creative and proactive people the from UNDP Morocco Country Office, Convergence.tech and DLT4EU who have a new mindset that is needed to rethink economics and tackle the 21st-century challenges, namely re-distributing wealth and respecting our planetary boundaries.
Sebastian Klemm: Were there any particular developments in other Virtual Field Lab teams that also helped you?
Erik Zvaigzne: Though, no specific instances are jumping to mind, I can say it has been great in general to be able to share our experience and progress with the other teams to compare, contrast, and learn as we all try to address similar challenges and issues in the realm of deploying technology for social impact. Many creative solutions have come up that make me hopeful for the future of DLT technologies in the post-cryptocurrency boom era of the industry.
Marina Petrović & Robert Pašičko: To understand the context of DLT4EU’s progress and outcomes, it was really helpful to share with other teams and hear their experiences, how they dealt with challenges and what they learned on their journey.
Sebastian Klemm: Following your participation and insights so far: What evidence of positive impact and benefits of the DLT4EU accelerator do you see already?
Erik Zvaigzne: For us, it has made us rethink our approach to traceability in certain use cases to models that don’t require entire consortiums or industries on board to make a difference. It has also connected us with a great team at UNDP Morocco who are committed to making a difference and exploring the potential of our concept and technology in the industry.
Marina Petrović & Robert Pašičko: We see positive impacts internally, where we have new UNDP Country Offices around the world that are interested to work with us and explore blockchain and track and trace, and externally working with the Convergence team on creating a Track-and-Trace platform that could be applicable not only for Argan Oil and Morocco, but also for other commodities, farmers and Country Offices.
Sebastian Klemm: How will you sustain your engagement and project development beyond the final presentations at the European Commission in March 2021?
Erik Zvaigzne: We are aiming to continue our weekly sync-ups and conversations as we progress our idea in an effort to pilot our technology in the field in Morocco and gain further support for our project.
There are a few complementary initiatives happening in Morocco around a new ecolabel payments program and an export promotion platform which have complementary goals to what we are trying to achieve with our project. We hope our technology can be a unifying factor and will be seeking support and further grant or impact funding to help us scale up and extend our technology.
Marina Petrović & Robert Pašičko: We plan to link the DLT4EU Track-and-Trace project with the Tadamon project, where we are working with and empowering Civil Society Organisations (CSOs), including cooperatives and NGOs from 57 OIC Member Countries. Morocco is one of our first pilots.
Now, the idea is to see how to sign up new Country Offices, their local partners in Civil Society Organisations and their products on the Track-and-Trace platform.
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