Impact Incentives (also known as credit trading or Book & Claim) are the certificates that are traded in support of a sustainability claim. In the case of LIA, the Incentives are issued to a farmer when a set of criteria have been confirmed to have been met. Physical goods and the Incentives are traded separately from one another; the Incentives certificates represent a specified quantity of verified material that has been produced but has not been physically traded as verified goods.
The way that LIA Impact Incentives work is quite simple: farms that are certified to a standard or program that meets the LIA Animal Welfare benchmark or is verified DCF will be able to sell Incentives for their volume of output; brands can then purchase these Incentives to balance out their use of these output materials, or to meet their CSR goals. The farms selling the Incentives may or may not be in the supply chain of the brands, as the Incentive trading system does not address traceability. While this means that brands may not make any content claims on their products, they can by-pass the cost and complexity of long or opaque supply chains in order to deliver impact at the farm level, quickly and efficiently. Furthermore, they may still make claims about their support for best practices.
The aspiration of LIA is to drive supply and demand through the sale and purchase of incentives while physically linked supply chains are being built. While building up the supply of responsibly produced materials, Impact Incentives also provide market access to all within the industry, regardless of their location.
The concept for Impact Incentives came about when Textile Exchange was asked to develop a solution for brands to address animal welfare in their leather supply chains. Given the cost and complexity of developing a traceability solution, we realized there needed to be a more efficient solution.
There were a number of challenges to address: