Forrest Footprint Disclosure - Annual review - 2012

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Forrest Footprint Disclosure - Annual review - 2012

  1. 1. Forest Footprint Disclosure Annual Review 2012 1
  2. 2. Contents Chairman’s Introduction 5 Climate, forests and land use change 6Forest Footprint Disclosure Project Food Security 8(FFD) is a special project of the If we halt deforestation, will the world starve? 10Global Canopy Programme, initiatedin 2008. FFD engages with private How are governments addressing deforestation at the international level? 12sector companies to ask them to The Journey 14disclose their current understandingof their ‘forest footprint’ based on 2012 Timelines: Introduction 17exposure to five key commodities –soy, palm oil, timber, cattle products 2012 Timeline: Cattle Products 18and biofuels – in their operations 2012 Timeline: Soy 20and/or supply chains. All of thesecommodities have the potential to 2012 Timeline: Palm Oil 22be sourced from recently deforestedland. FFD goes beyond simple 2012 Timeline: Biofuels 24disclosure and acts as a catalyst 2012 Timeline: Timber 26for investors to really engage withthe companies in their portfolios Results of the Disclosure Request 2012: Introduction 28on this issue. In 2012, the Forest Results of the Disclosure Request 2012: Sector Leaders 29Footprint Disclosure Request wassent to 450 international companies, Sector: Agricultural Products 30100 of which responded. Thisfourth Annual Review describes Sector: Food & Staples Retailing 32the findings of the Disclosure Sector: General Retailers 34Request based the responses ofthe 100 participating companies Sector: Industrials, Construction & Autos 36and provides some context on Sector: Media 38the current issues and concernssurrounding forest risk commodities. Sector: Oil & Gas 40 Sector: Packaged Foods & Meats 42 Sector: Paper & Forest Products 44 Sector: Personal Products & Household Products 46 Sector: Textiles, Apparel & Luxury Goods 48 Sector: Travel & Leisure 50 Sector: Utilities 52 Forest Footprint Disclosure: The End and the Beginning 54 Signatories 56 Acknowledgements 59 References 60
  3. 3. Chairman’s IntroductionAndrew W. MitchellIn June 2012, Brazil announced it spoke of their commitment to tacklehad achieved a 76% reduction in deforestation in a new way – byits deforestation rate against 1990 cleaning up the supply chains thatlevels1 - an incredible achievement drive it. And in June 2012, at theand close to their target of an 80% Rio+20 Earth Summit, the Consumerfall by 2020, eight years ahead of Goods Forum and US Governmentschedule. In terms of tonnes of announced that they would workcarbon, this equates to a reduction together to reduce deforestation bygreater than the total achieved by promoting sustainable supply chains.all 30 nations participating in the These are important developmentsEU Emissions Trading Scheme which could, over time, rid supply(EU ETS) over the same period2. chains of unsustainably grown ‘forestFurther, a recent calculation by risk commodities’ (beef, soy, palmDr Dan Nepstad of the Amazon oil, timber and biofuels), which areEnvironmental Research Institute responsible for the majority of(IPAM) has shown that, per tonne global deforestation5.of carbon saved by preventing Andrew W. Mitchelldeforestation, climate mitigation FFD is ideally placed to help Chairmanaction in Brazil was 875 times companies make this vital transitioncheaper than efforts to reduce and for them to showcase theiremissions under the EU ETS3. progress, but to do this with the whose funds can, often unwittingly, urgency needed, FFD must scale facilitate the erosion of irreplaceableThese two facts clearly demonstrate up its action too. When the Global natural capital. The launch of thethe scale and value of the opportunity Canopy Programme, an NGO I Natural Capital Declaration6 atoffered by halting deforestation in founded in 2001, decided four years Rio+20 by the UNEP Financethe fight against climate change. ago to launch a disclosure project Initiative, Global Canopy ProgrammeAnd for those who remain unsure for forest footprints, we were given and the Sustainability Study Centerthat human-induced climate change marvellous encouragement and of the Brazilian Business Schoolpresents a risk, the World Bank’s support from the Carbon Disclosure FGV, attracted the endorsement ofreport “Turn Down the Heat – Why Project (CDP). Indeed we modeled 40 banks, investors and insurers.a 4°C warmer world must be our project on theirs. We were This was a firm step in the rightavoided”, released at the UN Climate delighted therefore to announce direction, as was the commitmentnegotiations in Doha, should make in June 2012, with the full support by the Government Pension Fundfor convincing reading4. of FFD’s principal donor, the UK of Norway- the world’s largest - to Government, a merger between review its portfolio of investments forBut of course reducing rampant FFD and CDP. their impacts on forests from 2012.deforestation, the ultimate purposeof the Forest Footprint Disclosure This strategic merger will be It’s clear that as the world economyProject (FFD), is not just about completed by February 2014, and is re-engineered financially, a quietcarbon. It is a global imperative in the will result in the world’s largest and revolution is also underway in itsmove towards more responsible and most comprehensive natural capital relationship with the natural capitalsustainable use of natural capital. disclosure system, covering the upon which the corporate and theThis underpins wealth creation in climate, water and forests. GCP will financial sector depends for theirthe world economy and the security then take on a new role as principal sustainable future. It is not aof water, energy, food and health for advisor on forests to CDP. moment too soon.millions of people. Over the next decade, I see the For a complete list of references,Just before Doha, I joined a meeting exclusion of deforestation from please see page 60.on curbing deforestation hosted by global supply chains gatheringHRH the Prince of Wales at Clarence considerable pace, led by far-sightedHouse in London. At this meeting, companies. This action needs also toministers and business leaders be embraced by the financial sector, 5
  4. 4. Climate, forests and land use changeDr Gillian KayOver the last century, the global Because of the longevity of Climate change and variability 2060s12. It is valuable to understand degradation15. In drought conditions,average surface temperature previously-emitted GHGs in the Climate change has the potential to how climate change may affect event fires set for forest clearance burnrose by 0.75 °C and the decade atmosphere, as well as some inertia have severe consequences for the magnitude and frequency, but the larger areas. Forest fires, drought2000-2009 was the warmest in the within the earth system, there is world’s tropical forests. In Amazonia, extremes of today also give insight and logging increase susceptibilityobservational record. Global average already a commitment to some some climate and vegetation into the functioning of the integrated to further burning while deforestationtemperature provides a consistent climate change into the future models project a shift in biome from system and may provide lessons in and smoke can inhibit rainfall, whichmeasure for monitoring purposes, it regardless of how emissions evolve, tropical forest to seasonal forest how to minimise impacts and improve exacerbates the heightened fire risk.is scientifically valuable in testing the making adaptation necessary. If or savanna by the end of the 21st resilience.response to changing greenhouse emissions continue, greater global century driven by regional climate In tropical forests, mitigation andgases (GHGs) and has been a focal warming may be expected. There change – increases in temperature Land use change adaptation strategies can bepoint for policy makers engaged in is strong impetus to understand and decreases in rainfall – in the If the threat to forests by climate unified. Reducing deforestation willmitigation negotiations, but it remains how climates around the world may absence of direct deforestation7. change is uncertain and distant help to maintain a more resilienta somewhat abstract quantity. respond to this, what impacts may However, it is important to note then the threat by land use change forest under drought conditions, beWhile the global average response be felt and how human action may that there are large uncertainties is far more immediate and certain. they associated with a graduallyto increased concentrations of modify both the concentrations in these projections of climate The magnitude of land use change warming and drying climate, climategreenhouse gases in the atmosphere of GHGs and their impacts. change, particularly in rainfall. Some is unknown, but detailed scenarios variability, or local changes broughtis a rise in temperature, regional and Increasingly, these questions are Dr Gillian Kay models produce smaller reductions of land use change have been about by land use change.local responses to the warming are being explored at local to regional Met Office Hadley Centre, UKlikely to be much more complex. scales, or in relation to specific For a complete list of references, sectors such as agriculture “The most pessimistic of these scenarios bring please see page 60.Recent extreme events such as or industry. global anthropogenic emissions4.droughts, severe storms and heat Moreover, less forest equates reductions in forest cover of around 40% by thewaves have focused attentionon some of the profound and far Forests in the climate system As the recent droughts have shown, to a reduced carbon sink, thus further enhancing atmospheric middle of this century.”reaching impacts that weather and climate has influence over forest concentrations of GHGs.climate can have upon natural and health and ecosystem functioning. in the region, while others project developed, based on factors suchhuman systems. For example, However, this is not a unidirectional Forests also interact with the increases8. In addition, processes as plans for road building andthe heat wave in Russia in 2010 process and it is well established atmosphere to influence the regional such as CO2 fertilization may be very adherence to limits set throughhad severe impacts on mortality that forests affect the climate water cycle. In Amazonia, the important but are not well enough policy decisions. The mostrates and reduced crop yield by system through direct and indirect moisture is transported in from the understood, particularly for tropical pessimistic of these scenarios bring~25%1, with consequences for the mechanisms. Atlantic Ocean, where it rains and regions. Some experiments have reductions in forest cover of aroundRussian economy and global grain then is returned to the air by the shown that increasing concentrations 40% by the middle of this century13.prices. The droughts in Amazonia in At the largest, global scale is the role forest through evapotranspiration. of atmospheric CO2 are beneficial2005/2010, among other impacts, they play in the terrestrial carbon As much as 50% of the basin’s to forest productivity, but these Deforestation, climate and firedegraded the forest, facilitated the cycle through the sequestration rainfall is recycled by the forests5. benefits are eventually overridden The effects of land use changespread of fire and dried up rivers – and storage of carbon3. The Some research has suggested that by the negative effects of the climate may be compounded because athe transport network of the region clearing of forests and associated if around 40% of the Amazon is changes9. broken forest is more vulnerable cleared, it will be unable to generate to ‘edge effects’ such as strong enough rainfall to sustain itself, Climate varies naturally on a number winds, and especially forest fires14.“Recent extreme events such as droughts, severe storms leading to a positive feedback loop of more forest loss and less rainfall6. of time scales and so ‘extremes’ are naturally occurring events. However, Climate change or variability acting on a region already fragmented and heat waves have focused attention on some of the a growing body of research has found by deforestation could have larger There is a range of drivers of that the risk of extremes has already effects than on continuous forest. profound and far reaching impacts that weather and change acting upon the tropical been increased by climate change10, climate can have upon natural and human systems.” forest ecosystems and hence upon the ecosystem services they and is likely to continue in the future11. Droughts in Amazonia tend Forest fragmentation opens up the forest to points of ignition, the generate. Climate and land use to be related to tropical Pacific and majority of which are supplied by change place stress upon the Atlantic Ocean temperatures. One human activity. If the conditions in– which had many implications land use change emits GHGs forests, and synergies between study estimated that the probability of these regions become more suitablefor populations and businesses into the atmosphere, and recent these stressors have the potential to an Atlantic-related drought like that of for fire ignition and spread, then firesupported by the functioning of the estimates are that deforestation drive greater changes. 2005 will increase from a 1-in-20 year has the potential to play a potentforest ecosystem2. accounts for approximately 15% of event to a 9-in-10 year event by the role in further deforestation and6 7
  5. 5. Food SecurityProf Richard Tiffin and Dr Adam WebbThe increased attention that is quantities of food are available on the route to ensuring food security. Investment in a range of areas, fromgiven to food security is commonly a consistent basis, food access is This demands a careful appraisal smart agriculture to land restorationattributed to the dramatic increases delivered when individuals have of the available options in order to systems and new methods ofin food commodity prices which sufficient resources to obtain identify those where the benefits of food production, is required towere experienced in 2008: appropriate foods for a nutritious increased food production are not meet these challenges in theaccording to the FAO food price diet, and food use recognises that achieved at a greater cost in terms future. However, such investmentsindex, in 2008, commodity prices ensuring energy and nutrient intakes of the delivery of other must draw upon expertise fromwere more than double their are adequate depends in part on ecosystem services. a range of backgrounds rangingaverage level over the period from factors such as feeding and cooking from biology to social sciences.2002-2004. Whilst prices reverted practices as well as the way in which While GHG emissions and loss of Structures to pull together suchto lower levels in 2009, subsequent food is allocated between individuals ecosystem services are key things expertise and make it available toincreases have seen them return in a household. to address for food security, there other organisations are currentlyto 2008 levels. The reasons behindthese increases are debated and The fact that the world’s populationinclude factors such as stocks is predicted to exceed nine billion “Investment in a range of areas from smart agriculture,being at historically low levels and in 2050 is well known, but it isdrought in major grain producing important to recognise this growth Prof Richard Tiffin Dr Adam Webb to land restoration systems and new methods ofareas. Whilst the debate around thefactors which cause particular food is not uniform across regions or between the urban and rural sectors. Director Centre for Food Security Research and Enterprise Manager Centre for Food Security food production, is required to meetprice spikes might be unresolved, The most significant demographic University of Reading University of Reading these challenges in the future.”what is now widely accepted is change over the next forty years isthat the “perfect storm” famously predicted to be a major shift fromidentified by the UK government rural to urban populations in the less feed for livestock. As land is already drawbacks. While deforestation is a are also other areas that need to be being developed and should bechief scientist, John Beddington, developed countries. As populations scarce - in areas where agriculture key component of GHG emissions considered. As has been discussed, commended. This will ensure thatwill threaten the ability of the planet become more urbanised the is a realistic proposition, the rate of related to food security, it is not food security is not only about food the latest and most comprehensiveto feed its population as we move composition of the diet is expected land use is at least 70% - this can the sole emitter of GHGs in this availability but also food access information is accessible whenthrough the twenty first century. to change. Evidence of this is lead to deforestation, the loss of area; agricultural production itself and ensuring that people’s diet is making investments, and will furtherThe perfect storm describes already becoming apparent in FAO natural habitats, and an increase in contributes to the emissions of healthy and nutritious. The tendency help to guarantee that the economicthe combination of increasing food supply data for China, which greenhouse gas (GHG) emissions, greenhouse gases (GHG). For for societies to become more and social considerations for foodpopulation, increasing competition indicate that cereal consumption has currently estimated to be more than example, the Intergovernmental urbanised is generally associated security are met at the same timefor energy and water resources and been more-or-less static since the one billion tonnes annually from land Panel on Climate Change (IPCC) with a change in diet that has been as the science and technologyclimate change. (2009) estimate that agriculture termed ‘the nutrition transition’. This considerations. accounts for 10-12% of total global highlights the fact that guaranteeingWhilst increasing food production “[Food security is] when all people at all times have anthropogenic GHG emissions. nutritious food for a healthy life isneeds to be part of the response tothe perfect storm, modern definitions access to sufficient, healthy safe, nutritious food These include nitrous oxide (45%), which stems largely from the not confined to avoiding malnutrition but in some cases will increasinglyof food security rightly emphasise to maintain a healthy and active life.” application of synthetic fertiliser, be concerned with what might bethat simply producing enough food methane (54%), from enteric termed over-nutrition. When it is alsofor everyone is only part of the fermentation and manure and recognised that many of the healthchallenge. The definition which has early nineties but at the same time use changes. This fact, together carbon dioxide (0.6%) from energy related problems in the developingbeen most widely accepted since meat consumption has increased, with the increasing pressure from use. As a result it is increasingly world are already associated withit was proposed at the World Food rising from 30.2 kg/capita/yr in 1992 alternative land uses, means that recognised that traditional methods the quality of the diet, for exampleSummit in 1996 is: to 58.2 kg/capita/yr in 2009. While a there is little or no prospect of to increase food production from vitamin A deficiency is widespread “when all people at all times shift towards an urbanised diet is not increasing the amount of land that is existing land may not be ideal in many parts of the world, the have access to sufficient, healthy necessarily detrimental, increased available for food production. This in in the future. This conclusion is complexity of ensuring the fact that safe, nutritious food to maintain a meat consumption can lead to turn means that we will only be able strengthened when it is recognised food security extends way beyond healthy and active life” several negative consequences that to feed the growing population by that a lot of the intensification in food just providing sufficient foodwhich leads to the identification must be addressed. Increases in using the existing agricultural land production that has occurred in the is apparent.of the three dimensions of food beef consumption have resulted in more intensively. past has come at the expense of thesecurity: food availability, food an increased need for more grazing wider ecosystem. This has led to the It is therefore clear that addressingaccess and food use. Food land, as well as more land for the However, intensive use of existing concept of sustainable intensification the food security challenge isavailability requires that sufficient production of soy, a widespread agricultural land also has its being increasingly emphasised as a multifaceted undertaking.8 9
  6. 6. If we halt deforestation, will the world starve?Dr Sonja VermeulenMaking sure that we will continue to yet another 5%, meaning that food does not have much impact either in worldwide GDP over the samehave enough to eat is at the heart production releases as much as on how much people eat or on period. For wealthier households,of our shared ambitions to mitigate 29% of our global emissions. Plainly the balance of plant and animal this translates into a falling share ofclimate change. The United Nations we cannot make any serious dent in products in their diets. income spent on food. But poorerFramework Convention on Climate our emissions without the agriculture households in poorer regions doChange (UNFCCC), the convention and food sectors doing their share. The second study, by Alla Golub and not reap the benefits. For them,that has guided us through the highs And much of that share must be colleagues, paints a slightly more food expenditure takes up an everand lows of 18 rounds of annual through reducing deforestation. complex picture. These authors greater portion of household income.negotiations, states upfront that model the impacts of a globalthe reasons to stabilise emissions What does that mean for food carbon tax, roughly equivalent What conclusions can we draw fromare threefold: “to allow ecosystems security, both now and for the future to a universal carbon market, as these studies about how reducingto adapt naturally”, “to enable nine billion? Let’s dub this the Kyoto payments go to providers of the deforestation might affect hunger?economic development to proceed conundrum: if we don’t mitigate inin a sustainable manner” and “to the agricultural sector, including “We cannot make any serious dent inensure that food production is putting a brake on agriculture’snot threatened”. At the same time huge contribution to deforestation, our emissions without the agriculture and foodwe hear again and again that no then future food production will Dr Sonja Vermeulenreductions in emissions can possibly be threatened and there will be Head of Research sectors doing their share.”be expected from agriculture – massive food price hikes; but if we CGIAR Research Program on Climateotherwise how could we grow do mitigate in the agricultural sector, Change, Agriculture and Food Security carbon credits. They investigate Models are only as good as theirenough to feed nine billion agricultural production will become different scenarios that allow assumptions, so we should look forpeople in 2050? much more expensive and there will exemptions or rebates for poorer qualitative generalisations rather be massive food price hikes. There causality in the other direction: if countries. The first message is than firm numerical predictions. AllScience tells us that agricultural are no wins here. It is a lose-lose we avoid deforestation, are there that exemptions lead to leakage: three point to a minimal impact onpractices directly emit 5,100 to conundrum, and one in which poor impacts on food prices? For a start, deforestation that would have the affordability of food for more6,100 megatonnes of carbon people, who are most susceptible to the soy moratorium in Brazil offers happened in one country is simply affluent consumers. Those whodioxide equivalent (Mt CO2e) per deficiencies in calories and nutrition, a real-life example of how reduced shifted elsewhere. If there is a truly are likely to feel the pinch are theyear – which is 10-12% of total and who spend the greatest deforestation is not correlated with global carbon tax at a price high consumers at the “bottom of theglobal emissions. But agriculture proportions of their incomes on food, commodity prices. Some further enough to eliminate deforestation, pyramid”, who already struggle inalso drives deforestation; current lose the most. interesting insights come from the impacts on incomes and food many cases to eat well, in terms ofestimates are that about 80% of three recent studies that tackle this consumption are generally positive both nutrition and pleasure.deforestation is due to agriculture. But does this doomed Catch-22 question via thought experiments, for land-owning households, whoThe size of these indirect stand up to closer scientific scrutiny? using computer models to play out can gain both from carbon prices This is by no means a valid excuseagricultural emissions is uncertain, More specifically, what do we know different policy scenarios at the and from farm product prices. On for arguing that deforestation global level. the other hand, food consumption should continue unabated in “The reasons to stabilise emissions are threefold: among the large and growing order to reduce food prices for the The first, by Uwe Schneider number of landless, unskilled labour poor. The solution must be found to allow ecosystems to adapt naturally, and colleagues, looks at four households of the world deteriorates. rather in providing the economic to enable economic development to proceed different future scenarios for global development, which include The third thought experiment is opportunities for poorer consumers to achieve better incomes and in a sustainable manner, and to ensure that restrictions on deforestation. The the most troubling at first sight. By access better diets. Both the public main finding here is that constraints John Reilly and colleagues, it again and private sectors have abundant food production is not threatened.” on deforestation drive up the considers multiple scenarios, one of scope to act positively, from creating prices of water resources and land, which is the same as Golub’s global job opportunities at decent wagesbut may well be as much again about the relationships between but actually have little impact on carbon tax on all sectors, including to providing “safety nets” suchas direct emissions, doubling deforestation and food security? global food production, or on food both energy and land-use. Food as health insurance and incomeagricultural emissions to a total of Historically, experience shows prices. This is because changes prices under this scenario rise by support for the needy. Hand in hand,12,700 Mt CO2e, or 24% of total that rising prices of agricultural in land use, land management 80% by 2100 compared to a “no social and environmental innovationglobal emissions annually. The food commodities do in general and international trade are able to policy” world, due both to the direct can provide a world with forests –chain – processing, refrigeration, increase rates of deforestation, by compensate for the price effects costs of mitigating emissions and and without hunger.transport, retail, use of food in the magnifying incentives for expansion of avoided deforestation. In this to the rising costs of land. This badhome and waste disposal – adds of farmland. The trickier question is thought experiment, deforestation news is offset by a fivefold increase10 11
  7. 7. How are governments addressing deforestation at the international level?Dr Nathalie WalkerThe growing global population, diet set up. At its 2007 meeting in Bali,shifts and economic development the UNFCCC Conference of theare increasing demand for Parties (COP) agreed on the “Baliproducts sourced from forests, Action Plan”, which calls for “policyand for agricultural products which approaches and positive incentivesare driving forest clearance1. on issues relating to reducingExport markets are becoming emissions from deforestation andincreasingly important as drivers of forest degradation in developingdeforestation2. Successfully tackling countries” to be addressed4.these drivers, while encouragingdeforestation-free production, Since 2007, there has been aneeds action from both the private plan of work to design technicalsector, which produces and trades rules through which “Reducingforest risk commodities, and from Emissions from Deforestationgovernments of producer and and Forest Degradation” (REDD) forests that results in greenhouse which are supporting “REDD-consumer countries3. Multinational can be incorporated into a new gas emissions, including actions to readiness” among many forest-richcompanies are well placed to international climate treaty under Dr Nathalie Walker address drivers of deforestation”, nations. Individual countries haveact at the international level, but the UNFCCC. Subsidiary bodies Forest Footprint Disclosure but no details were provided on also provided support, most notablyfor governments, international hold meetings throughout the year how to do this5. In early 2012, Norway, which has pledged oneagreements are proving more to tackle the scientific, technical and Parties and Observers to the billion dollars to both Brazil andchallenging and consensus can take implementation issues that will form because there was no agreement Convention were requested to Indonesia to reduce their nationalyears to reach. the basis for such a treaty, which is on the issues under negotiation - submit guidance on how to address deforestation rates and is also planned to be agreed in 2015. forest monitoring and verification drivers of deforestation. A number supporting other countriesThere are several international of emissions reductions - and of countries, including Costa Rica, including Guyana.forums which address forests The REDD negotiations have made more time will be given to them in the Democratic Republic of Congo,and forest risk commodities, steady progress each year since upcoming sessions. Norway, Papua New Guinea, A number of governments havemost notably the United Nations 2007 on many technical aspects. Switzerland and the United States announced their intention to workFramework Convention on Climate The COP and its subsidiary bodies One of the ongoing issues pointed to the role that the private with the private sector to addressChange (UNFCCC). The UNFCCC, operate on consensus, which means being considered under the sector can play in addressing the drivers of deforestation. Inwhich currently has 195 participating that, despite negotiations that often UNFCCC concerns the drivers key drivers6. Suggestions include June 2012 at the Rio+20 Earthcountries, is one of three Rio run throughout the night during the of deforestation. In the Cancun making links with private sector Summit, the US Government andConventions established following two-week long COP, they can run Agreements negotiated at the initiatives to address deforestation Consumer Goods Forum announcedthe 1992 Rio Earth Summit. The out of time to reach agreement. COP in 2010, all countries were (such as the Consumer Goods that they would work together torole that protecting forests plays 2012 was the first year in which encouraged “to find effective ways Forum’s Zero Net Deforestation reduce deforestation by promotingin mitigating climate change is there was no progress on REDD, to reduce the human pressure on commitment), promoting certification sustainable supply chains7. Inexplained by Dr Gillian Kay on systems and inviting the private November 2012, the governmentspage 6 and the UNFCCC is a key sector to attend workshops. There of Australia, Germany, Norway, themechanism that offers opportunities are concerns that measures to United Kingdom and United Statesto catalyse increased financing, and address the international drivers of released a joint statement on thecollaborative actions to deforestation could impact trade in urgency of tackling deforestationreduce deforestation. timber and agricultural commodities. and resolved to “support efforts These concerns and the above to transform the supply chains ofIn 2005, the governments of several recommendations will be considered the commodities that put pressureforest-rich countries, including over the coming year. on the forest”, stating that theyPapua New Guinea and Costa Rica, “welcome the commitments andformally requested that, for the first While a new international climate initiative of the Consumer Goodstime, the UNFCCC incorporate treaty which incorporates REDD Forum in this regard, and standways to stimulate action to reduce is years away, many countries are ready to contribute in variousemissions from deforestation. With taking action now. There are already ways”8. The challenge now is how tobroad recognition that deforestation international mechanisms which turn this support into effective action,is a major source of greenhouse currently provide funds for REDD, so that public and private initiativesgas emissions, a working group was including the UN-REDD Programme, can work together synergistically.12 13
  8. 8. The JourneyChristoph HarwoodAs the planet comes under intense access to medicine debate was the economic drivers behind the of its journey. Whilst NGOs are vocal CDP has demonstrated thatpressure from the ever-increasing game changing. commodities taken from the forests: and have had success with moving reporting on CO2 is not a burdendemand of mankind, from time to • Impact of the “lending” banks - timber, including pulp and paper, companies towards using paper and and adds value, so much so that thetime an area of concern is identified. the finance sector does try to be UK government has now mandatedInitially a scientist or NGO tries ahead of regulation, often led it for all listed companies. One dayto share their concerns. Later by SRI teams. However, it is the “It is clear that deforestation is still at an early stage companies will also be mandatedsomebody in the finance sector - an lending banks that have more on reporting how they manage theiranalyst, investor or fund manager impact than the asset owners of its journey. Whilst NGOs are vocal and have had exposure to deforestation and other- might recognise that there arefinancial implications. Finally, and managers. success with moving companies towards using natural capital risks. FFD disclosers will demonstrate that this is not alegislation leads to the problem All this can take a long time. Climate paper and other commodities from sustainable heavy burden. In the meantime,being removed or correctly priced. change was first raised as an issue raising the need for resilience asThis is when the “externality” has in the 1950s, the IPCC was set up sources, the opportunity for regulation is resisted by well as sustainability in the supplybecome “internalised”, movingfrom a theoretical P&L to directly in 1988 and here we are in 2013 wondering whether Kyoto companies on the ground and recognition of material chain, working with buyers of forest risk commodities and helping theimpacting company valuations. That will survive. impact seems to be further down the road.” lending banks reduce their exposureprocess - from identification of an Christoph Harwood to deforestation, can all help in Theenvironmental issue to financial A lot has to happen for The Journey Partner at Marksman Consulting and Journey ahead.impact - is what we are calling to be complete and very few have Investment Relations for FFD (2009-2013) biomass and charcoal for steel other commodities from sustainableThe Journey. made it to the end. We identified making, or commodities produced sources, the opportunity for seven stages: on purposely deforested land: soy, regulation is resisted by companiesTo understand this in detail, we palm oil and cattle. It is a complex on the ground and recognition oflooked at four case studies - CO2 1. An issue is identified by a Different parts of the finance sector world requiring international material impact seems to be furtheremissions, REACH chemicals, scientist or NGO. will take an interest in these issues agreements, where there is no down the road.access to medicine, and mountain 2. A large NGO takes up the issue, at different stages. The SRI world one international body focusing ontop removal - to understand their perhaps taking it on from a usually identifies issues early on, forests and so they have to come The research into the Journey,Journeys and what this means for smaller specialist NGO. whilst the mainstream requires under the umbrella of other bodies however, did open up some newdeforestation. Out of this work came 3. Industry pushes back, although more certainty on valuation impacts. such as UNFCCC or CBD. ideas into how FFD might increasefour key lessons: some, well placed for changes, There might be some interest the pace. encourage the new ideas. during the lobbying stages, but it There are a few areas for optimism.• Expect the unexpected – 4. Government begins to draw up is only when regulation is enforced FLEGT and the Lacey Act make it Firstly, FFD can help investors industry experts and finance policy. It can formulate this in that valuations are affected. With illegal to import timber into the EU understand the resilience of analysts reviewed the carbon a number of ways: by putting less than 10% of funds invested and USA respectively if it has been commodity supply chains. Secondly, price and the European a price on the externality or sustainably and with nearly 40% Emission Trading System rationing its availability so that of the UK market in passive when it was introduced, but it the market sets the price, by investments, there is only so “FFD can help investors understand the was actually regulations and subsidies that had more impact. supporting alternatives, by changing the market’s buying much that can be done by asset managers. resilience of commodity supply chains.” The growth in renewables has requirements, or by just been more important than the regulating. It is clear that corporates see a illegally produced in another country. as part of CDP, FFD can use their trading price of CO2. 5. Industry at this stage intensifies limited role for the finance sector Dutch and British governments are supply chain experience to influence• Don’t expect consistency from its lobbying, publicly and behind in their progress to becoming pushing for the use of sustainable CO2 usage, working with existing the affected industries - they doors. Some support the more sustainable. Nike positions palm oil and the SRI finance sector and new disclosing corporates so tell governments that the costs changes, others do not. the sector in its “Road to Zero is taking increased interest, with they demand that sustainable forest will undermine their ability to 6. Regulation is applied which can System Map” as merely a provider broker reports beginning to touch risk commodities are integrated into operate, but tell investors not be locally driven or catalysed by of capital. Companies trying to on deforestation. Proxy resolutions their supply chains. Finally, FFD to worry. Some, ahead of the international agreement. deliver sustainability strategies in the USA are encouraging can encourage banks to recognise game, welcome the change 7. Regulations are enforced, or echo this, advising that they do not companies to improve their policies their risks in lending to companies whilst those caught out resist not. One of the interesting get questions from analysts on the and disclose to FFD. involved in deforestation and the change. developments is the creation sustainability of their operations. damage that they are doing.• Politics matters – Nelson and enforcement of regulations So where are we in the deforestation However, it is clear that Mandela’s intervention in the in one country on another. journey? It is complex, given deforestation is still at an early stage14 15
  9. 9. 2012 TimelinesIntroductionExtreme weather events across the announcements were made by soybean production has increasedworld in 2012 resulted in the worst global corporations, for example while annual deforestation in theglobal harvest in years, depleting Unilever, who reached its target of Amazon has fallen to record lows.food reserves and contributing to 100% certified sustainable palma hike in global food prices and oil ahead of schedule (covered by The palm oil industry’s growingprompting renewed debate over the GreenPalm Certificates) and set a demand for large tracts of land‘food vs. fuel’ dilemma. In August, new target for 2020 to buy all their – notably forest areas in Africanthe UN Food and Agriculture palm oil from traceable sources. countries – has led to rising concernOrganization (FAO) called for the Despite criticism over the strength over the environmental impacts ofsuspension of US ethanol quotas in of the agreements coming out of unsustainable production and theresponse to the impact of the worst Rio+20 and the UNCCC in Doha, social impacts resulting fromUS droughts in more than half a number of corporate pledges land grabs.a century. and strategic partnerships were announced. The governments of 2012 also saw the formation of theLegislative progress continued in Australia, Germany, Norway, the Global Roundtable on Sustainable2012 with the Australian Senate UK and the US resolved to support Beef (GRSB).passing the Illegal Logging efforts to tackle deforestationProhibition Bill, joining the United of supply chains of forest risk Overall, 2012 has seen someStates and European Union in commodities. Although there has progress towards sustainable andaction against the global trade in been some significant progress traceable forest risk commodities.illegal timber. In Europe, application on the corporate sustainability Despite this, the demand forof the EU Timber Regulation begins landscape in 2012, some companies many of the certified sustainablein March 2013 and companies found themselves at the centre commodities has as yet failed toinvolved in the trade of timber of negative NGO campaigns, keep pace with production. FFDproducts are gearing up for the especially in the pulp and hopes that 2013 will see the uptake2013 deadline. paper sector. of more certified sustainable product in companies’ supply chains and theCertification, while not the endgame Commodity news highlights beginning of a real shift from futurein itself for preventing deforestation, in 2012 targets to immediate action on thedoes play an important role in issue of deforestation risk.the journey towards sustainably For biofuels, the big news storyproduced commodities and 2012 of 2012 was the Europeansaw some advances in this area. For Commission’s proposed changesexample, sustainability standards for to the EU’s Renewable Energycattle products – beef and leather, Directive (RED), which will limit thewhich have traditionally lagged use of crop-based biofuels to 5% ofbehind the other commodities total EU transport energy by 2020,- advanced in 2012 with the reflecting significant and growingcertification of the first ranches concerns from scientific evidenceunder the Sustainable Agriculture which indicates that emissions fromNetwork (SAN) standards in indirect land-use change can varythe Brazilian Amazon. In the substantially between feedstocksbiofuels sector, the Roundtable and can negate the greenhouse gasfor Sustainable Biofuels (RSB) savings of biofuels compared to theagreed to recognise farm operations fossil fuels they replace.certified by the SAN standards andFSC-certified biomass. The Soy Moratorium on deforestation in soybean productionCorporate activity to combat in the Brazilian Amazon biome,deforestation continued in was extended until January 1st2012. A number of sustainability 2014. Since its introduction in 2006, 17
  10. 10. 2012 TimelineCattle ProductsJANUARY APRIL Greenpeace published the ‘JBS SEPTEMBER OCTOBER Scorecard Failed’ report, claimingAnalysts reported that JBS was on A high-level consultation for a that JBS continues to purchase Richard Sheane of Best The GRSB Executive Boardthe takeover trail, with rumours of Global Livestock Agenda for cattle from Brazilian ranches that Foot Forward challenged the meeting was held in Florida tointerest in Goias Verde Alimentos. 2020, co-hosted by the World clear rainforest areas, occupy environmental benefits of banning further develop understandingThe company denied the rumours, Bank and International Livestock indigenous lands and use slave the use of leather by Puma of sustainable practices in thestating its ambitions to increase its Research Institute (ILRI), was labour, in spite of earlier agreements and substitution by non-natural beef industry though interaction,presence in Brazil’s dairy market held in Nairobi, Kenya. The main not to do so. materials, given the leather industry discussion and observation ofinstead, which it sees as offering outcome was a joint communiqué is generally a by-product of the in-field projects. Beef producers,significant new opportunities. by eight international and regional JUNE meat industry. With leather de processors, retailers and others in organisations to form an alliance facto an agricultural by-product, he the beef industry attended the event,FEBRUARY to develop and implement a global Tesco confirmed it had cancelled argued it is better to use leather which showcased the ability of agenda to improve environmental its contract with JBS in response than to waste materials, water and cattle ranchers in central Florida toThe Global Roundtable for protection, human health and social to earlier Greenpeace claims that energy elsewhere if we are going to partner with public water agencies inSustainable Beef (GRSB) was equity in the livestock sector. beef sold in the supermarket could continue to eat meat globally in such developing sustainable practices.formed. Founding members be traced back to cattle raised on large quantities.include AllFlex, Aliança da Terra, MAY illegally deforested areas of theCargill, Elanco, GTPS (Grupo de Amazon. Meanwhile, GreenpeaceTrabalho da Pecuaria Sustentavel), Four ranches in Mato Grosso, Brazil removed the ‘JBS Scorecard’ reportJBS, McDonald’s, Merck became the first globally to earn from its website after JBS took outAnimal Health, National Wildlife Rainforest Alliance certification a legal injunction, but the NGOFederation, Rainforest Alliance, for sustainable cattle production. stated it was standing by the originalRoundtable for Sustainable Beef The ranches, which all belong to conclusions of the report.Australia, Solidaridad, The Nature the group Fazendas São MarceloConservancy, Wal-Mart and WWF. Ltda., cover a total area of 32,000 JULY hectares, including a 13,000The Dutch Ministry of Foreign hectare reserve in the Amazon. Chief executive of sportswear brandAffairs committed two million Euros About 60,000 cattle graze on the Puma, Jochen Zeitz, announcedin financial support to GRSB. ranches’ sustainably managed that future plans will includeThe funding will support producer pastures. The standards, developed stopping using leather in its footwearsustainability initiatives in the beef by the Sustainable Agriculture and football boots because it issupply chain, and it will be focused Network (SAN) in response to so damaging to the environment.on activity in developing countries. rainforest destruction resulting Speaking to the Financial Times from cattle farming, promote the at the UN Rio+20 earth summit,MARCH humane treatment of livestock, the Jochen Zeitz said that the company conservation of natural resources would have to look at alternativeA new academic study from and the rights and well-being of materials to meet its environmentalBowman et al. (2012), suggested workers. IMAFLORA, the SAN policy commitments.that pro-intensification policies representative in Brazil, carriedin the Brazilian livestock sector out the certification. IMAFLORAwill only halt deforestation if they promotes the cattle certificationare accompanied by actions to programme in Brazil in collaborationremove the incentives to clear with other local NGOs (includingforest for pasture, which discourage Amigos de Terra), governmentland speculation and increase agencies and international NGOs,accountability for land including the US-based Nationalmanagement practices. Wildlife Federation (NWF).18 19
  11. 11. 2012 TimelineSoyJANUARY MAY It was argued that the outcomes supply chain will benefit from reduced AUGUST OCTOBER of soy and oil palm expansion are costs and the possibility of multipleIn late December 2011, NGOs The seventh annual international still under debate, and the authors certifications, although the Chain of Soy prices reached a record high of The Brazilian Soy Moratorium, anand all Dutch trade sectors in conference of the RTRS (RT7) was recommended a more detailed Custody implications need $622/ton, following a drought in the agreement between the Brazilianthe value chain for soy created a held in London, UK, the first to take analysis to devise pathways that can further work. US Midwest. Association of Vegetable OilSoy Initiative to transition toward place in a European country. The improve distribution of social and Industries (ABIOVE), the Brazilianresponsible soy, supported by seven conference, themed ‘Next Steps economic benefits while at the same In Curuguaty, Paraguay, six police Solidaridad announced their intention National Association of Grainmillion Euros of investment shared for Responsible Soy’, was aimed time reducing carbon emissions. officers and 11 farmers were killed to start working with large soy farms Exporters (ANEC), Greenpeace50:50 by industry and the Dutch at emphasising the need for RTRS when clashes broke out during in China towards the first responsibly and other civil society organisationsgovernment-funded Sustainable to evolve into the mainstream A Nature Conservancy Report on the forced eviction of peasants produced soy in China. The project, to eliminate deforestation in theTrade Initiative (IDH). This money standard for responsible soy. Brazilian sustainable soy, “Soybeans: occupying a disputed soy farm. One approved under the Farmer Support production chain, was extendedwill be invested to enable growers Commitments were made by EU and good agricultural practices and socio- week later, the Paraguayan Senate Programme, aims to demonstrate until January 1st 2014. In 2006,in South America, as well as other UK supermarkets, including Marks & environmental certification – Towards ousted President Fernando Lugo for the benefits of responsible soy to these industry groups agreed notsupply chain parties, to implement the Spencer, Waitrose, Sainsbury’s, Asda, Sustainability”, outlined 35 separate “mismanagement” of the land conflict. the industry, relevant ministries, soy to buy soy from any farms with newnecessary improvements for achieving Co-operative Food, Ahold, Coop and initiatives and projects as examples processing companies and industry deforestation in the Brazilian AmazonRoundtable on Responsible Soy Migros to source certified responsible of progress, most of which were JULY farmers. It will start working with two biome. Throughout these years(RTRS) certification. soy for own brand products. The instigated by Brazilian companies. large soy farms that cover a total area soybean production increased, and is state-linked Chinese Soybean The first Indian smallholders to be of 50,000 ha of soy and employ still rising, while annual deforestationAn academic study by Macedo et al. Industry Association (CSIA) also JUNE certified for Responsible Soy by the 3,000 workers. in the Amazon fell by record numbers,(2012) found that between 2006 and announced its intention to work with RTRS were announced, a result highlighting the importance of the2010, while agricultural production, its 750 member organisations towards KPMG stated that there is a business of investments made by the Dutch SEPTEMBER agreement. The identification of soyincluding soy, was higher than ever, meeting the RTRS standards. It was case for soy producers in Brazil Cheese maker, CONO, and the dairy on newly cleared land in the Amazonthere was a decline in Amazon confirmed that almost 300,000 tonnes and Argentina to comply with the cooperative, Friesland Campina. A European Soy event “Challenges biome and a change in Brazil’s Forestdeforestation in the Brazilian state of RTRS certified soy have been RTRS criteria for responsible soy Friesland Campina support a number and opportunities for supermarkets” Code were cited as reasons for theof Mato Grosso. This appears to sold since June 2011, when RTRS farming. Commissioned by IDH, in of soy farm programmes in Brazil was hosted in Zurich, Switzerland by need to extend the moratorium fordemonstrate that strong market announced an annual target of five collaboration with the International and India, and CONO participated in the Soy Network Switzerland. Led by another year.and government policies to prevent million tonnes of responsible soy to be Finance Corporation (IFC), WWF the Soy Producer Support Initiative supermarkets Coop and Migros anddeforestation do not need to negatively produced and sold by 2015. and the Netherlands Development (SOYPSI), an international program supported by the Swiss government DECEMBERimpact agricultural productivity. Institution FMO, their report showed for environmentally friendly institution for international cooperationThe impact of the expansion of The first 10 audit reports of soy that medium and large producers soy cultivation. (SECO), the event was attended by More than twice the volume and areaneighbouring areas is hotly debated. companies certified by the RTRS can expect a positive return on a variety of participants from sectors of RTRS certified soy was produced were reviewed by GM Freeze, their compliance investments after A report ‘Factory-Fed Fish’, from involved in soy. One of the main in 2012 compared with 2011, andAPRIL Friends of the Earth and Corporate three years. Concerns were raised, US-based Food and Water Watch, conclusions of the meeting was the the number of certified producers Europe Observatory who claimed however, that the initial investment highlighted the use of soy in fish feed need for a joint action plan in order to increased from 10 to 19.Soybean yields are particularly that the certification standards have was too high for small producers and stocks and links to the American transform the market.vulnerable to weather. In Latin failed to achieve any significant external investment may be required. Soy Association and agribusinessAmerican countries, all of whom social or environmental benefit, with giants Cargill and Monsanto in thedepend on commodity exports no evidence of protection against Independent body GMP+ International development of offshore fishfor significant parts of their export deforestation, reduced use of and RTRS agreed on the main farming legislation.earnings, extreme weather conditions pesticides, or any benefits being felt points of co-operation regarding thewere experienced throughout by small farmers in the areas certified. certification of the supply chain of2012, which upset crop production responsible soy. RTRS will link toand depressed potential yields. In A report by Pacheco (2012) an already internationally operatingArgentina, heavy rains delayed of the trends associated with GMP+ Feed Safety Assurancesoybean planting, raising concerns commercial agricultural expansion Scheme, with over 11,800 certifiedfor future production. In contrast, Rio in South America by the Centre for companies in 65 countries, makingGrande de Sul in Brazil suffered from International Forestry Research it easier to distribute RTRS soy toa lack of rain which impacted soybean (CIFOR) highlighted the association consumers through a controlledproduction. In a season marked by of soybean and palm oil expansion supply chain, while GMP+ will gaincrop losses, drought conditions were with food, feed and biofuel markets, links to an international scheme basedreflected in the low productivity of focusing on their economic, social on multi-stakeholder support. Mostsoybean crops. and environmental implications. importantly, feed companies in the20 21
  12. 12. 2012 TimelinePalm OilJANUARY APRIL OCTOBER NOVEMBER are around development on peat and Unilever, the world’s largest single clearance of high carbon forestedThe President of Liberia, Ellen The Roundtable on Sustainable purchaser of palm oil, announced it An academic study by Kimberly et The French Senate approved a areas. A group of leading scientistsJohnson Sirleaf, intervened to end Palm Oil (RSPO) signed a is ahead of schedule with regards to al. (2012) reported that the carbon 300% ‘fat tax’ on palm oil. The called for measures to ensure thea long standing dispute between Memorandum of Understanding its palm oil targets with 90% of the emissions impacts of the palm oil proposal was made on the grounds safety of high conservation foreststhe citizens of Grand Cape Mount with PT Perkebunan Nusantara palm oil in its products covered by industry in Indonesia alone could of health, as palm oil is high in and peatlands. These issues areCounty and the palm oil company III Persero, an Indonesian oil GreenPalm certificates, the RSPO’s reach 558 million metric tons of CO2 saturated fats, as well as the critical to the credibility of RSPOSime Darby Plantations Liberia. palm plantation company, and off-setting scheme. In light of its by 2020 – more than the national environmental issues associated if certified palm oil is to be trulyThis dispute is not isolated, as palm the Sustainable Trade Initiative progress to date, and in recognition emissions of Canada. Emissions with some of its production, including sustainable and no longer lead tooil plantations are becoming more (IDH), a Dutch initiative working that certificates are not the same arise from land conversion, both from biodiversity loss and contribution destruction of high value habitat,common in West Africa and conflict on sustainable commodities to as using physical CSPO (Certified deforestation and conversion of peat- to climate change. The aim was contributing to dangerousover FPIC (Free and Prior Informed assist independent small holders Sustainable Palm Oil), Unilever rich lands for palm oil plantations. to encourage manufacturers to climate change.Consent) is one of the challenges to increase sustainability. IDH announced that it will have 100% reformulate their products with aof expansion. will provide ‘match funding’ to the CSPO in its products by 2020. The UK Government published different vegetable oil. This initiative Herakles Farms’ 73,000 hectare investment made by the palm oil a national statement on palm oil may have unintended consequences palm oil development in CameroonFEBRUARY company and/or the RSPO. This A year since the RSPO launched its pledging to use 100% certified in the long term regarding land use, was at the centre of campaigning shows how progressive plantation own trademark, it was announced sustainable palm oil in its own food since oil palm is the highest yielding as NGOs claimed that forest hadPlantation developer Asian companies can leverage civil society that only 61 RSPO Trademark procurement by the end of 2015, vegetable oil and is the most land been cleared illegally to establishPlantations reported that it is finding interest in helping their licenses across 13 countries covering all food bought in by central efficient. Criticism followed from a the plantation in a ‘biodiversity‘quality opportunities’ increasingly smallholder hinterland. have been issued. The trademark government and catering services. number of industry groups, arguing hotspot’. The opposition to thedifficult to locate in Malaysia due to connects the production and There was criticism that this initiative that the tax is discriminatory as it will development was both local anddeclining land availability. Malaysia’s MAY distribution of sustainable palm did not go far enough in setting greatly reduce the competitiveness international. Greenpeace calledrules on forest conversion, which are oil across the value chain and, specific time-bound commitments of the tropical oil. It still requires for the Cameroon governmentstricter than other palm-producing The Belgian association of importantly, aims to raise awareness for UK industry as a whole. approval by the French to stop the forest clearance andnations, are a contributing factor compound feed manufacturers about sustainable palm oil among Nevertheless, this step does send National Assembly. end the project. It wants betterin the availability of land for new (BEMEFA) joined the Belgian consumers. This is a low take-up a positive message to producers of standards to be put in place for landplantations locally. This means Alliance for Sustainable Palm Oil. from the nearly 1000 members of palm who need clear signals that the The RSPO’s Principles & Criteria allocation and development of palmthe company will have to adjust This expands the country-wide the RSPO in 2012. Later RSPO demand for sustainable palm oil (P&Cs) opened for global plantations in order to prevent socialits timeframe to meet a target of Alliance, which has a target that by announced that six million tonnes of is increasing. consultation for the first time in their conflict, disruption of livelihoods andachieving a 45,000 hectare landbank 2015 all food containing palm oil CSPO was available to purchase. 10 years in operation. Key issues destruction of forest.promised to investors by the end intended for the Belgian market mustof 2012. meet the principles and criteria of JULY the RSPO.MARCH Retailer PT Carrefour Indonesia JUNE launched Indonesia’s first RSPO-New Britain Palm Oil announced that certified and labelled cooking oil.it is investing heavily in producing Greenpeace released its ‘Frying the Indonesia, as well as being one ofbakery products in the UK made Forest’ report which linked Indian the world’s biggest producers of palmfrom sustainable palm oil, in order to companies including Britannia, oil, is also a major consumer. Palmdramatically increase the volume and Godrej and Ruchi Soya to rainforest oil is widely used as cooking oil invariety that is available to UK food destruction in Indonesia through the Asian continent and is importantmanufacturers. A large proportion their use of palm oil. India is one of for nutrition in the region. Carrefour(25-30%) of UK palm oil is consumed the biggest consumers of palm oil announced that it is in discussionsby the baked goods sector and this globally and Greenpeace formally with other Asian countries to exportoffers an opportunity to improve the called on Indian companies to this cooking oil to other marketsUK’s profile as a whole. commit to sourcing sustainable palm including Malaysia, India and China. oil not linked to deforestation.22 23

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