How to drive a wider shift to deforestation-free supply chains?
posted by Helen Burley, 16 May 2019
The evidence is clear. The UN’s IPBES Global Assessment of the state of biodiversity spells out the urgent need for action to protect our natural world. As the Chair of the Intergovernmental Panel for Biodiversity and Ecosystem Services (IPBES) Sir Robert Watson said: “We are eroding the very foundations of our economies, livelihoods, food security, health and quality of life worldwide.”
Land-use change is the primary driver of this erosion, with agricultural expansion the most widespread cause of land-use change, mainly at the expense of forests [pdf]. The expansion of cattle ranching, and soy and palm oil plantations are the biggest drivers of forest loss. Despite voluntary commitments to make these commodity supply chains deforestation free, forests are still being cleared. So what can be done to turn this around? And what is the role for governments – particularly in the European Union (EU), one of the biggest consumer markets for these commodities?
This was one of the questions addressed at a recent panel discussion in Brussels, organised by FERN, Aidenvironment and PRI.
Limits to the voluntary approach
Forest 500 has tracked the progress made by companies who have opted to commit to action on deforestation since 2014. The 2018 assessment found that more than half of the 350 most influential companies in forest-risk supply chains (57%) had made commitments to remove deforestation from their supply chains. Of these, just 50 had reported on how they were implementing their commitments across all of their commodities.
These numbers show the limits of relying on the voluntary approach: 150 of the companies assessed have not made any commitments, and are therefore unlikely to check whether the palm oil, soy, beef, or pulp and paper they source are from land that has been recently cleared.
And as Tim Steinweg from Aidenvironment told the Brussels event, reliance on a voluntary approach always creates a risk of greenwashing.
But some companies and some investors are increasingly recognising that the damage to the natural world poses a business risk. Agriculture, in particular, is vulnerable to climate change, soil degradation and water stress, with poor harvests driving up costs for business – and potentially denting profits.
As Peter van der Werf from sustainable investors Robeco told the event, the risks from climate change and from human rights impacts will increasingly come at a price, and part of his job was to factor that in.
“If we see risks materialising on the investment horizon, we will discount the current value [of a company] if they are not taking into account those risks,” he said, adding that a company that has systems in place to address the risks of deforestation will add value to their share price.
Some investors also see a financial risk from the reputational damage that comes from being associated with environmental impacts such as deforestation. This, new research suggests, could affect the share price for consumer goods companies.
But while some investors have recognised these risks, 97 of the 150 financial institutions assessed in Forest 500’s 2018 assessment do not have policies in place concerning investment in forest-risk commodities. So again it would seem that the voluntary approach is not enough.
So could governments in consumer countries legislate to address this problem? One option could be to introduce due diligence legislation requiring all companies to assess whether there are environmental and social risks in their supply chains. Companies would then need to assess and report on these risks.
This has been the approach taken by the French Government, which introduced its Loi de Vigilance in 2017, and there are now calls for similar legislation at the EU level and in other member states.
Legislation could help drive action by some of the laggard companies that appear reluctant to address this issue, and would also provide investors with information on the risks in their investments.
The idea for due diligence legislation was supported by Peter van der Werf, who argued that it would create a level playing field for companies.
Companies who have already taken action would benefit from the steps they have already taken –while laggards would have to play catch-up to meet the standards the leaders have set.
Legislation cannot however be seen as a silver bullet. Speaking in Brussels, Christina Hastings-Newsome from Louis Dreyfus Company‘s Global Sustainability Team pointed out that new legislation in isolation would not deliver deforestation-free supply chains, and that a broader package of measures was needed.
“We do need to make sure that different components of the value chain are involved and not too much burden placed on the producer,” she said, adding that the role of finance was essential in incentivising farmers to do the right thing.
Zsofia Kerecsen representing the European Commission on the panel pointed out that the French model, was unlikely to have any immediate impact because it had been left to the courts to determine what constitutes a serious breach.
She said that different models were being investigated and recognised that any measures needed to have a positive impact urgently.
The EU and many EU member governments have made their own commitments on deforestation – including through the New York Declaration on Forests and the UN’s Sustainable Development Goals and as such have a responsibility to find ways of driving progress.
Legislative action to require companies to better manage their supply chains could form an important component of this. Global Canopy has called for the forthcoming EU Action Plan on Deforestation – now not expected until the autumn – to take forward this agenda
Producer countries have also endorsed these global goals and have a role to play in protecting that natural resources in their territories, whether through legislative protection or through incentives to shift agricultural expansion away from the forest frontier.
The solutions are complex, but governments, companies and investors all have an important role to play in supporting this change.