Two entrepreneurs are turning to blockchain technology to help businesses combat child labour, the financing of armed conflict and environmental devastation in their supply chains.
Under the tagline “the blockchain for raw materials”, Dorae is currently piloting an Ethereum-based solution that tracks a mineral’s journey from source to end-user. The aim is to make global supply chains for anything from smartphones to electric cars more responsible. Or, in Dorae’s own words, to “revolutionise the global market for these materials”.
That revolution starts in Central Africa, more specifically DR Congo, a hotspot for minerals mining, but also a country hugely troubled by armed conflict and a poor human rights record.
This is where blockchain could help. By recording information about the origin, transit and processing of raw materials into finished goods – in an immutable, distributed ledger – companies, financiers and consumers will know exactly where a material comes from and what has happened to it along the way.
The startup has just kicked off its first pilot project to track cobalt and coltan, minerals used in items such as phones, laptops and electric vehicles, from three mines in DR Congo.
“The highest value of blockchain is addressing the disconnect in the information that’s needed in one end of the supply chain and the information that exists at the other end,” Aba Schubert tells GTR. She is the co-founder of Dorae, along with Ricardo Santos Silva, who together also run Aethel Partners, an asset management and financial services firm.
“That’s why we decided to start our project in DR Congo, because there is information on the ground that end-users need, particularly US manufacturers who have actual regulatory requirements to conduct diligence on their supply chains, but it gets lost along the way,” she says.
As previously reported by GTR, blockchain technology is ideal for tracking and tracing the physical supply chain. Some fascinating developments are already underway, including projects to trace wine, coffee beans, cotton, avocados and fish. Most notably, Everledger has created a global blockchain-powered registry for diamonds.
According to the Dorae founders, they attempt to differentiate themselves from their competitors because, “we understand that we need to work with governments”, in the words of Santos Silva.
They say the platform could benefit governments as well, giving them a tool to manage the information collected from their mines and empowering them to combat issues such as child labour and tax evasion.
“We don’t work against governments, we don’t work independently from them, we work with them,” adds Schubert. “Instead of just running our business on a private basis, we went and showed them our project, to get their blessing”.
As a testament to this, they recently received approval for the project from President Joseph Kabila of DR Congo, after meeting him in person.
A case for business
While Dorae’s solution could help combat human rights abuses, regional conflict and environmental exploitation, the company’s founders are approaching the issue from a business-focused point of view: being associated with these issues could have huge legal, reputational and financial repercussions for a company.
“We’re not an NGO, we’re not going in scolding people and telling them they shouldn’t do business this way or that. We’re saying ‘here is a way you can do it, and be economically compensated for the effort that that involves, and this is a system to get that information from A to B’,” Schubert says.
Ultimately, the expectation is that firms will be rewarded by the end-consumer for observing proper standards. That is exactly why the founders of Dorae expect to get backing from the wide range of companies along the supply chain, because each has “an incentive to preserve that information”.
The tech firm will be targeting all supply chain participants, from small to large-scale miners, distributors and processors, and large international operators like Apple and Tesla. Anyone can be onboarded to the platform as long as they have “good quality information”, Schubert says.
The dataset will be tailored to each material and include information related to the origin, amount and state of the material, time and location of the transaction, transaction participants and satisfaction of legal requirements. It will be collected and verified through the collaboration with government inspectors, certification organisations and NGOs.
Explaining how the solution works, Schubert says: “Our system takes the information, aggregates it at point of origin, loads it to blockchain. When a unit of material moves from the mine to the initial distributor, that sale is logged, and then when that distributor sells it to a processor, that sale is logged too. What the processor actually does to the material, that information gets logged, and so you get this immutable chain of information that is there as a pre-packed audit trail for the end-user.”
Starting their pilots with the point of origin – three mines in DR Congo – over the next couple of months Dorae will be looking to “filter the solution up throughout the supply chain”, one company at a time, with the hope of reaching the big consumer-facing firms within a year.
Companies all over the world are already spending a lot of resources on supply chain due diligence. In the US, it’s a requirement by law: the 2010 Dodd Frank Act imposes mandatory supply chain due diligence and annual reporting obligations for companies using what has been dubbed ‘3TG minerals’ – tungsten, tantalum, tin and gold. In the EU, similar legislation is set to be passed in national parliaments by 2021.
And while the Apples and Teslas of this world may already have efficient internal processes in place, the legal requirements often come at a high compliance cost for smaller businesses. The consequences have been dire: academics and commentators have argued that the resistance of companies to the costs of due diligence has led to a de facto embargo of minerals from DR Congo, which has only devastated the country’s economy even further.
Utilising blockchain, the new information sharing system could make it cheaper and easier for companies to ensure their supply chains are responsible. It could also give more comfort to trade financiers, who, because of high due diligence requirements and scrutiny, are increasingly risk-averse when it comes to financing minerals from countries like DR Congo. But more transparency could encourage more financing to countries that need it most.
“Financiers don’t want to get associated with it if there is some liability attached to it, and with this system they can know that what they are financing is actually green mine-sourced,” Schubert says. While not the main target for now, it is the aim that trade financiers too will be onboarded to the system at a later point.
The next milestone will be to add more mines and expand to more countries and raw materials, with the startup already in discussions with locations in other countries in Africa and South America.