DG’s Column

Waiting for the end of deforestation: Companies must ante up

Not taking adequate steps to address the risk, Forest 500 report says
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A woman holds a small tree
Getting ready to plant on an acacia plantation near the village of Moussa, Yangambi in Democratic Republic of Congo. CIFOR/Axel Fassio

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Toward the end of last year, it seemed as if it should be “all systems go” regarding global ambitions to end deforestation. Both governments and businesses appeared to be starting to recognize the central role forest ecosystems play in the fight against climate change and biodiversity loss.

The new leaders’ pact on forests and land use – which covers 90 percent of forests responsible for a quarter of global trade in forest-risk commodities – agreed at COP26 climate talks in Glasgow includes a total of $19 billion in commitments by governments and companies.

Trading companies and financial institutions with almost $9 trillion in assets are also on board, while commitments to the tune of $1.7 billion were pledged to support leadership and land tenure rights of Indigenous Peoples.

However, a third of 350 companies and almost two thirds of financial institutions surveyed still have no deforestation policies or commitments, states Global Canopy in its eighth annual Forest 500 ranking.

“The companies behind this trade are financed by $5.5 trillion – twice the gross domestic product of the UK – in loans and investments by financial institutions who are not taking adequate steps to address the risk this represents,” writes Sarah Draper, the non-governmental organization’s corporate performance program manager.

She adds: “While banks such as Barclays, HSBC, and JP Morgan have their own deforestation policies, they are still providing financing to companies that have no policies whatsoever. These institutions do not report on their engagement with these companies, so we cannot be sure they are implementing their deforestation commitments at all.”

The 93 financial institutions without deforestation policies provide $2.6 trillion in finance to the companies with the highest exposure to deforestation risk, the Global Canopy report states.

The findings affirm that the international trading system – which continues to stymy efforts to upend the business-as-usual scenario – must be redesigned.

GLIMMERS OF HOPE

In parallel to this burgeoning number of actions and commitments — while far from sufficient — faint signals are emanating from corporate boardrooms.

Larry Fink’s 2022 letter to CEOs says that “companies are adjusting their businesses for the massive changes the economy is undergoing,” emphasizing that more than lip service must be paid to the environment.

As chief executive of the world’s biggest asset manager BlackRock, he writes that the company focuses on sustainability “not because we’re environmentalists, but because we are capitalists and fiduciaries to our clients.”

He requires the companies BlackRock invests in to set short-, medium-, and long-term targets for greenhouse gas reductions, stating that they are critical to the long-term economic interests of shareholders, and emphasizing the importance of a company’s capacity to adapt to climate risks.

Another CEO, Mark Versey of Aviva Investors, a major British investment fund, put forth in a letter to 1,500 companies in 30 countries that bonuses for company executives should reflect how well sustainability targets — including biodiversity and human rights — have been met. Boards should be held accountable if they are missed, he said, adding that all companies will be asked to develop a climate transition plan, according to reports.

As well, some major new government policy initiatives currently under discussion could perhaps signal a positive trend.

Britain is currently considering new legislation to make it illegal for large businesses trading in the country to use commodities associated with large-scale forest loss such as cocoa, beef, soy, coffee, maize and palm oil if they are not produced in line with relevant local laws.

The European Union is also proposing new regulations regarding companies importing and exporting goods. The idea is to pressure the firms in which they invest to build deforestation-free supply chains and deforestation free products. Regulations would set obligatory due diligence laws for trading deforestation risk commodities, including soy, beef, palm oil, wood, cocoa and coffee and some derived products, such as leather, chocolate and furniture.

In the United States, a new bill is under discussion to prevent illegal deforestation by prohibiting the import of products made of commodities produced on land undergoing illegal deforestation, and for other purposes.

Regardless, even if the last tree is cut legally, it remains the last tree.

These actions recognize that tropical deforestation is largely driven by agricultural expansion to make way for commodities and the need to repair value chains. They also acknowledge findings by the Intergovernmental Panel on Climate Change (IPCC), which estimate that 23 percent of total human driven greenhouse gas emissions result from agriculture, forestry and other land uses.

However, criticisms of the policy initiatives exist: not all high forest risk commodities are included, nor are processed forms of commodities; the high percentage of small and medium enterprises is not recognized because they are not considered a concern; distinctions between natural forests and plantations are not made clear.

This means that the conversion of forests into tree plantations would not be considered deforestation, although it could be considered forest degradation, according to Fern, a forest-justice organization headquartered in the European Union. Additionally, the definition of deforestation in the proposed European Union text is “conversion of forest into agriculture,” which means deforestation to make way for a mine or a road gets a pass.

PULLING TOGETHER

These efforts are formally underpinned at an international scale by not only the constantly evolving Rio Conventions on biodiversity, climate change and desertification first established 30 years ago at the 1992 Earth Summit, but through myriad supporting pacts and agreements, including the U.N. Sustainable Development Goals and the New York Declaration on Forests.

Among its recommendations, Global Canopy urges the so-called Forest 500 companies and financial institutions to include protections against human rights abuses in establishing strong deforestation commitments and policies.

Many emerging market and developing economies dependent on commodity exports are tied to the boom-and-bust cycles of commodity prices. The latest Global Economic Prospects report from the World Bank states that these cycles have been particularly intense over the past two years at a time when commodity prices collapsed in the shadow of the COVID-19 pandemic and then surged again last year.

“Commodity-price booms since the 1970s have tended to be larger than busts, creating significant opportunities for stronger and more sustainable growth in commodity-exporting countries — if they employ disciplined policies during booms to take advantage of windfalls,” the bank states.

Scientists at the Center for International Forestry Research and World Agroforestry (CIFOR-ICRAF) are observing and recording the detrimental impact of the climate crisis on commodities.

Their findings fuel the argument for sustainable integrated landscape management to ensure the future of commodities, which can help protect economies, financiers, companies and investors, while  protecting their portfolios over the long term.

In addition to recommending that governments implement legislative frameworks, Global Canopy also recommends that companies and financial institutions should join multi-stakeholder efforts to raise awareness and enable cross-sector collaboration.

Research conducted by CIFOR-ICRAF demonstrates the effectiveness of multi-stakeholder forums in supporting transformational change. By bringing people together from all sectors to discuss land management and by designing procedures to address power inequalities between participants successful outcomes can be achieved.

A handbook titled How are we doing? A tool to reflect on the process, progress and priorities of your multi-stakeholder forum offers practical tips and insights into ways how to reach shared integrated and sustainable landscape goals. It allows multi-stakeholder forums to identify and consider challenges, while supporting social learning that can lead to strategies for achieving goals equitably and effectively.

It is a unique tool because it was developed jointly with members of several subnational multi-stakeholder forums and it is intended for use by participants, not external evaluators.

Other work at CIFOR-ICRAF involves exploring historical contexts demonstrating changes that have occurred over time due to climate change, agricultural and extraction activities. Two new studies trace the history of the shea trade in West Africa from the late 19th century until today, shedding light on how the rich nut butter has been traded and produced, from local to international, in the niche cosmetics industry and the large-scale food industry.

As the shea trees decline, so do the livelihoods of the women who have managed them. The research papers detail the consequences for the local people, landscapes, local ecosystem services, global warming, regional and international trade and commodities markets.

This example is just one of an untold number of materials produced by CIFOR-ICRAF which explore the interrelationship between human activities and landscape degradation, offering ideas and solutions to improve land management.

Commodity certification schemes are another area of specialization – by evaluating the effectiveness and pitfalls of various commodity-producing, forest-risk operations, companies and smallholders benefit.

Other research involves examining the role of wildlife and wild meat in the diets of forest dwelling communities and the high potential for disease transmission when they are cleared.

Health is also a consideration in research that demonstrates the impact of fire and haze on people, landscapes and climate.

Not to mention the rich critical commentary provided by a vast network of researchers and policymakers associated with CIFOR-ICRAF.

For more information on this topic, please contact Robert Nasi at r.nasi@cgiar.org.
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