Corporate Commitments: Necessary but Not Sufficient to End Tropical Deforestation

Over the last few years, an increasing number of companies that produce, trade, or buy “forest risk” commodities have pledged to get deforestation out of their supply chains. Now, the focus of advocacy groups has rightly shifted to monitoring the implementation of those commitments, and a powerful new tool—Trase—released late last year will increase transparency and accountability.

But voluntary efforts by progressive companies will not on their own be sufficient to end tropical deforestation. A “jurisdictional approach” that marries public and private efforts at the scale of political units offers a promising way forward.

Corporate pledges aim to end the leading cause of forest loss

For years, poor people have been blamed as the main cause of tropical deforestation. In our new book, Why Forests? Why Now?, my coauthor Jonah Busch and I bust that persistent myth. Instead, the leading driver is the commercial-scale clearing of forests to establish new soybean fields, cattle pastures, oil palm and tree crop plantations to produce globally-traded commodities. Much of the clearing is illegal, and a significant portion of the products are exported to rich-world markets.

This industrial clearing of tropical forests is bad news for the climate. Figure 1 below illustrates the magnitude of carbon dioxide emissions from deforestation associated with the trade of such products across continents over the period from 2000 to 2009. Production and trade have only increased since then.

Figure 1

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The good news is that civil society activism, new technology for monitoring forest cover loss, and enlightened leadership at a number of companies have combined to generate an increasing number of corporate commitments to get deforestation out of commodity supply chains. As illustrated by the timeline in Figure 2, a trickle of such commitments starting a decade ago has become a cascade, culminating in 53 companies signing on to the New York Declaration on Forests in 2014.

Figure 2

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Now, as a 2020 deadline for compliance approaches, companies are busy figuring out how to implement their commitments, and forest watchdogs are focused on making sure that they do. On the sidelines of the climate negotiations in Marrakech in November 2016, the beta version of a new tool was unveiled that will be helpful to both in ensuring accountability. 

The Trase platform—for “Transparency for Sustainable Economies”—was developed by the Stockholm Environment Institute and the Global Canopy Programme. It combines data from satellite monitoring of forest loss with customs, trade, logistics, and production data to illuminate the origin of commodities being imported to any country in the world, and thus the degree to which they may be associated with deforestation. 

Crucially for the monitoring of corporate commitments, and a big step forward from the analysis presented in our book, Trase also identifies the traders and importers involved in the supply chain along the way. So if you want to know how much soy was sourced by a specific commodity trader such as Bunge from a particular high-deforestation municipality in Brazil in 2015, and where it ended up (hint: likely China, Spain, or Peru), TRASE can give you an answer.

Necessary, but not sufficient

Ensuring follow-through on the corporate commitments made to date is important in its own right. Given the large area of undeveloped forest land controlled by producers, and the breadth of sourcing by the traders and buyers that have made those commitments, implementation would make a non-trivial contribution to reducing deforestation. And because many corporate pledges also include a social dimension (e.g., “no exploitation”), full implementation would also reduce the misery often inflicted on local communities through appropriation of their land or mistreatment of their labor. 

Unfortunately, a 2015 assessment led by Climate Focus suggests that progress toward the goal of eliminating deforestation from commodity supply chains has been slow on the part of the multinationals who signed up to the 2014 New York Declaration on Forests. But even had it been faster, we need to be honest that implementation of voluntary corporate commitments alone is unlikely to turn the tide on tropical deforestation. As a theory of change, it fails the “3E” test of Effectiveness, Efficiency, and Equity:

Effectiveness: As long as there are markets that are relatively insensitive to environmental and social criteria (for example, the top three consumers of palm oil include China, India, and Indonesia), there will be producers willing to supply them. And forest areas set aside by companies to comply with their commitments are vulnerable to encroachment by third parties in the absence of law enforcement, or even reallocation by government if the land is part of a concession rather than owned outright.

Efficiency: Under the voluntary model, every company has to invest in tracing its supply chains down to the level of individual farms or plantations in order to manage the risk of sourcing from recently deforested land (unless they source from districts with no deforestation at all).

Equity: In order to manage that risk and cut costs, companies might choose to cut smallholders out of their supply chains. Further, cut-off dates (i.e., products from land deforested before year X is okay, after year X is not okay) reward those producers that deforested early, and disadvantage forest-rich areas that came late to the party.

The promise of the “jurisdictional approach”

An idea gaining traction as a way to address those concerns is to link implementation of corporate commitments to efforts to reduce deforestation at the scale of political jurisdictions—districts, states, provinces, or even entire countries—linking public and private sector roles in joint efforts to decouple commodity production from forest conversion. In large countries such as Brazil and Indonesia, action at the sub-national scale may be an essential complement to national-level policy efforts.

Under this “jurisdictional approach,” multiple stakeholders—including companies as well as government agencies, smallholders, indigenous and civil society groups—come together to agree on goals for better land-use, and how to achieve them. Performance standards (such as “no deforestation” and “no exploitation”) would be then applied at the scale of entire administrative units rather than at the level of individual farms, plantations, or concessions. For example, the Roundtable on Sustainable Palm Oil (RSPO) has launched a pilot program to explore certification of entire jurisdictions. 

A key rationale for the jurisdictional approach is recognition of the irreplaceable role of government in land-use planning, conflict resolution, and law enforcement. As a result, the approach is not the same as the so-called “landscape” approach, efforts focused on the supply sheds of particular commodities, or ecological units (such as watersheds), unless they happen to coincide with political/administrative boundaries.

Targeting the jurisdictional scale for transforming commodity production has the potential to score higher on the 3E test than voluntary corporate commitments alone:

Effectiveness: By assessing performance at the scale of an entire jurisdiction, there would be less opportunity for “leakage” to irresponsible producers within or between areas covered by voluntary commitments. Indeed, covering all producers in a jurisdiction would provide incentives for progressive companies to lobby governments for improved regulation and enforcement to level the playing field and maintain their own access to markets.

Efficiency: While such jurisdictional-scale assessment of performance could not completely substitute for the monitoring of individual companies, it could allow a shift to a somewhat “lighter touch” in risk management. The Trase platform will allow companies and watchdogs alike to zero in on areas of greater or lesser relevance to individual supply chains.

Equity: Within such a system, it would be less risky for buyers to source from all producers within a high-performing jurisdiction—including smallholders. And because of the involvement of government, the jurisdictional scale could also provide an entry point for dealing with land-use conflicts, including those stemming from illegal land conversion in the past. It is also the appropriate scale for rationalizing land-use planning, which could include land-swaps to free up degraded land for agricultural expansion, while protecting intact forest areas previously slated for conversion.

The theory of change and its assumptions

In large, forest-rich countries such as Brazil, Indonesia, and Peru, much of the authority for land-use rests with sub-national authorities. But what would prompt sub-national political leaders to sign up for such a change process? In 2014, leaders of some 20 tropical states and provinces participating in the Governors Climate and Forests Task Force committed to reduce deforestation by 80 percent in return for commensurate and certain results-based finance. Yet a recent study by Daemeter Consulting found that at least in Indonesia, there is not currently a “value proposition” for such leaders to depart from practices that result in deforestation-as-usual.

While no single financial or market incentive is likely to do the trick on its own, the idea behind the jurisdictional approach is that a bundle of public and private incentives could be assembled that would provide a sufficient value proposition for change. Those incentives could include:

Preferential market access: At the climate talks in Paris in 2015, Unilever and other leading companies committed to preferential sourcing from jurisdictions making progress toward sustainable forest management. If those commitments could be translated into firm contracts to buy commodities from those jurisdictions if indicators of progress toward reducing deforestation were achieved, that would represent a tangible incentive for change.

Preferential access to finance and investment: A number of banks that have pledged to get deforestation out of their lending portfolios have also committed to increase their investment in “green” projects. In addition, new investment funds are being set up with jurisdictional “screens” that make eligibility for access to money contingent on performance criteria applied at the scale of the entire district or province. The Government of Norway launched just such a fund with a target of $400 million in Davos last week.

Fiscal incentives: High-performing jurisdictions could also be rewarded with cash, either through public sector funding allocations (as is being done in India, where forest cover is included in the formula for revenue distribution across states) or international climate finance (such as those available under REDD+—the framework for reducing emissions from deforestation and forest degradation incorporated into the Paris Agreement).

Reputational rewards: In addition, many political leaders want to be recognized for their contributions to solving the global problems of deforestation and climate change, as well as delivering local benefits such as controlling forest fires or corruption, or providing smallholders with access to international markets. At an official side event at the climate talks in Marrakesh, a governor from Peru emphasized that leaders of provinces in the Amazon wanted them to be branded as “green.”

Together, such incentives could combine to support a “race to the top” as public and private sector interests in reducing deforestation converge. As a district head in Central Kalimantan put it when I met him last year, “I want Unilever to buy palm oil from the smallholders in my district, rather than from that other district down the road.”

But this theory of change rests on a number of assumptions that might not always hold:

• That such incentives will be sufficient to overcome incentives for business as usual on the part of political leaders, who often are able to reap votes and financial benefits from promoting forest conversion. The potential value of countervailing market and fiscal incentives will vary across commodities and jurisdictions.
   
• That companies will be willing to stick their necks out to participate in multistakeholder efforts, and lobby for increased government action. Effective government pressure to disband a group of companies that had pledged to work collectively to implement no-deforestation commitments in Indonesia has had a chilling effect there. 
   
• That companies will be willing to engage in promoting transformation, rather than yield to the temptation to simply disengage from risky jurisdictions. Companies could rationally decide to focus their sourcing from areas where most forests are already long gone rather than at the deforestation frontiers most in need of change, leaving those frontiers to exploitation by companies unencumbered by no-deforestation commitments.

Threading the needle

For advocates of protecting forests and the people who live in and around them, the challenge is how to simultaneously hold companies accountable for performance in implementing their commitments, while encouraging them to engage in transformational change efforts at the jurisdictional scale—a tiny needle’s eye to be threaded indeed. (The nature of the challenge was demonstrated at Davos last week: in response to a Greenpeace report critical of HSBC for financing forest destruction in Indonesia, the company’s CEO defended his company by claiming that continued engagement of poor-performing clients was necessary for change.)

Threading the needle at jurisdictional scale will require that public sector, private sector, and civil society actors reward intermediate milestones of progress—such as delineating protected areas, legalizing established smallholders, and increasing law enforcement effort—even though all problems are not yet solved. It’s a slippery slope away from a focus on ultimate outcomes—such as the “phase three” REDD+ payments for performance in reducing deforestation championed in our book—but expecting immediate achievement of high performance standards jurisdiction-wide is unrealistic in most places.

Such an effort will also require deciding what progress at the jurisdictional scale looks like. For example, while the RSPO pilot program mentioned above has developed principles to underpin the concept of “Jurisdictional Certification,” it will also need to develop indicators for their practical application. 

Finally, such an effort will require providing companies with “cover” for good faith engagement in jurisdictions on the path to transformation, but not there yet. If companies believe that they will be vilified for sourcing from an area that experiences deforestation, even while they are actively working toward transformational change, they are unlikely to take that risk. One corporate representative recently commented to me that being part of a multistakeholder effort involving credible civil society organizations could help provide a level of comfort for such risky engagement.

The bottom line

In Why Forests? Why Now?, we characterize REDD+ as a great idea that hasn’t yet been tried at scale. While there are a number of promising initiatives in Brazil, Indonesia, Peru, and other countries, the same can be said of the jurisdictional approach. By turning a spotlight on the current forest-related performance of supplier jurisdictions and the companies that source from them, Trase provides a timely tool that will help us get on with it.

This blog is one of a set based on a panel hosted by the Stockholm Environment Institute and the Global Canopy Programme at the Global Landscape Forum in Marrakesh during UNFCCC COP 22. The panel discussion focussed on the risks, challenges, and opportunities involved in monitoring progress towards more sustainable commodity supply chains. Links to complementary blogs from the same discussion forum by Charlotte Streck of Climate Focus and Rod Taylor of the World Resources Institute can be found here.