Food without Destruction
Eight Strategies to Overcome the Environmental Impacts
of Global Agricultural Commodity Productio...
2
Table of Contents
Executive Summary 3
SECTION I: Introduction 5
SECTION II: Profiles of Value Chain Strategies 7
1. Cons...
3
Executive Summary
The United Nations predicts that to feed the 9 billion people on the planet in 2050, we will have to
i...
4
pilot emissions trading systems. There are also growing efforts to connect the forest finance
mechanism Reducing Emissio...
5
SECTION I
Introduction
How can we successfully feed a growing population without destroying our planet in the process?
T...
6
Drawing on a literature review of reports, academic research, as well as interviews with 30 experts in
academia, environ...
7
SECTION II
Profiles of Value Chain Strategies
1. Consumer Campaigns
A. Overview of strategy and dynamics among actors
De...
8
by taking action, which McDonald’s promptly did, in this way catalyzing the creation of the Soy
Moratorium.b
Other cases...
9
has allowed campaigns to become more effective at getting consumers to act, as they no longer ask
them to change their c...
10
Amazon.29 Greenpeace’s report “Eating Up the Amazon” called attention to the exponential
expansion of soy production in...
11
Development (IIED) reports that “from 1996 to 2006, over 400 major corporations had phased out
commodity sourcing from ...
12
2. Voluntary Commitments
A. Overview of strategy and dynamics among actors
Companies can make voluntary commitments thr...
13
• Life-cycle assessment results: Some agri-businesses and retailers have also made
commitments in response to the resul...
14
A recent trend in sustainable sourcing are the commitments numerous companies have made in the
past year on ridding the...
15
groups,72 while in roundtables, civil society groups typically have full membership and voting rights,
and several roun...
16
3. Commodity Roundtables and Certification
A. Overview of strategy and dynamics among actors
Commodity roundtables are ...
17
To strengthen their credibility, certifications can join accreditation bodies such as the ISEAL
Alliance, the global as...
18
FSC members. WWF also promotes certifications and campaigns against companies that are not
active in roundtables. For e...
19
B. Effectiveness of commodity roundtables and certification
Commodity roundtables are still relatively new and under de...
20
are not consumer-facing. Several experts interviewed referred to coffee as example of a successful
transition from nich...
21
4. Commodity Moratoria
A. Overview of strategy and dynamics among actors
Over the past decade, pressure from civil soci...
22
brought together a group of retailers to pressure Cargill and the other major soy traders to stop
sourcing soy directly...
23
land deforested after 2006 in the Brazilian Amazon forest biome.141 This is widely considered as
being an insignificant...
24
meatpackers, representing about 25 percent of the market, agreed to buy only from ranches in the
Brazilian Amazon demon...
25
Some point out that the Moratorium did not flourish all by itself, but depended on upon certain state
and market enabli...
26
facilitate prosecution of illegal deforestation by allowing the government to better grasp where illegal
deforestation ...
27
5. Improved Agricultural Management Practices
A. Overview of strategy and dynamics among actors
Improved agricultural m...
28
Fertilizer optimization on US commodity grain production
It is estimated that 60 percent of nitrogen fertilizer applied...
29
These ranging views are echoed in the specific case of Brazilian soy. One study expressed skepticism
of the potential b...
30
B. Effectiveness of improved agricultural management practices
The practices outlined in this section to reduce both di...
31
6. Investor Actions
A. Overview of strategy and dynamics among actors
There is broad agreement that for the world to me...
32
• The Equator Principles Financial Institutions (EPFI) requires that International
Finance Corporation (IFC) clients in...
33
with certain environmental criteria can receive from the government attractive credit options (e.g.,
low-interest rate ...
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This white paper offers a survey of eight strategies businesses along agricultural supply chains, civil-society organizations, investors, and nations are implementing to promote sustainable agricultural commodity production and ease pressures on tropical forests with some promising results, including a 70 percent reduction of deforestation over the past decade in the Brazilian Amazon, one of the largest deforestation hotspots on the planet.

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  1. 1. Food without Destruction Eight Strategies to Overcome the Environmental Impacts of Global Agricultural Commodity Production June 2014 Authors Alexandra Deprez, Research Associate-Princeton Fellow Corporate Partnerships, Environmental Defense Fund Dana Miller, Terrestrial Carbon Policy Fellow International Climate Team, Environmental Defense Fund
  2. 2. 2 Table of Contents Executive Summary 3 SECTION I: Introduction 5 SECTION II: Profiles of Value Chain Strategies 7 1. Consumer Campaigns 7 2. Voluntary Commitments 12 3. Commodity Roundtables and Certification 16 4. Commodity Moratoria 21 5. Improved Agricultural Management Practices 27 6. Investor Actions 31 7. Government Regulations and Policies 36 8. Carbon Markets, REDD+, and Agriculture 41 SECTION III: Conclusion 45
  3. 3. 3 Executive Summary The United Nations predicts that to feed the 9 billion people on the planet in 2050, we will have to increase food production by 70 percent. 1 We should be concerned about such a forecast: agricultural production today already uses 70 percent of total water withdrawn, 2 and emits about 25 percent of global greenhouse gas (GHG) emissions, directly, or indirectly through deforestation. 3 Furthermore, a rising middle class in developing countries is fueling a shift to diets richer in animal products and fats, which in turn creates pressures on farmers to expand agriculture into forests. Agriculture is already responsible for 85 percent of global deforestation, and cattle ranching, soy (the vast majority of which is used as animal feed), and palm oil are the three major commodities that make up most of this deforestation.4 The challenges are daunting. That being said, many actors—supply chain agricultural businesses, civil society, investors, and governments—have, especially over the past decade, started to act to address several environmental impacts of agriculture. In recent years, an increasing number of businesses along agricultural commodity supply chains— and especially consumer-facing brands—have committed to sustainable sourcing policies, participated in commodity roundtables, agreed to moratoria on purchasing unsustainably sourced commodities, and implemented better management practices at the farm level. A major driver for private sector voluntary action has been the relentless pressure of civil society organizations, especially through consumer campaigns that publically target consumer-facing brands, threatening to tarnish their reputations. Civil society organizations have also played an active role as participants (and often founding members) of commodity roundtables, watchdogs of compliance with industry moratoria and individual companies’ voluntary sustainable sourcing commitments, partners in the scaling of improved farming practices and linking of agricultural offsets with carbon markets, and educators on the risks of investing in unsustainable commodity supply chains. As financial actors start to impose environmental criteria on their agricultural investments, some investors are communicating a preference for financing commodities that are certified as sustainable, or are in the process of becoming so. In 2013, the largest pension fund in the world divested from palm oil processing companies whose product was directly causing deforestation, and several shareholder resolutions filed against major consumer goods companies convinced the latter to take on zero-deforestation palm oil sourcing policies. In this way the investment sphere has recently emerged as a new arena for action on sustainable agricultural commodity production. Consumer nation governments have in recent years implemented some regulations and policies that support the import of sustainable commodities. Some producer nation governments have advanced promising forest legislation and policies, yet in some cases they conflict with national expansionary agricultural policies, and enforcement may be difficult and at times lacking. Linkages between low-carbon agriculture and carbon markets are also slowly emerging, especially at a regional level. Examples include California’s cap-and-trade system and China’s city and province
  4. 4. 4 pilot emissions trading systems. There are also growing efforts to connect the forest finance mechanism Reducing Emissions from Deforestation and Forest Degradation (REDD+) to sustainable agriculture. While the strategies profiled in this paper have led to much progress, we are also starting to see some of the limits of these approaches, which together currently form a fragmented set of strategies for halting further environmental impacts such as deforestation. We hope this paper will inspire all readers to work to create an agricultural system that sustains the natural environment on which all life in this world depends, while feeding a world with a growing population and shifting diets.
  5. 5. 5 SECTION I Introduction How can we successfully feed a growing population without destroying our planet in the process? The United Nations predicts that to feed the 9 to 10 billion people projected to live on this planet by 2050, food supply will have to increase by 70 percent.5 With over 40 percent of arable land already used for agriculture, cropland infringing upon forests and other fragile ecosystems, and crop yields projected to increasingly suffer from extreme events driven by climate change, growing enough food for future populations while maintaining healthy ecosystems upon which all life depends will be a mammoth challenge. Yet we don’t need to look ahead to 2050 to be concerned—our current agricultural system already has major impacts on the global environment. While all stages of the food chain—from agricultural production, to transport, food consumption, and waste disposal—have environmental footprints, the greatest impacts are concentrated at the agricultural production stage. Agricultural production is the largest driver of global deforestation, responsible for 85 percent of total forest loss (with forestry accounting for an additional 10 percent), and consequently also the largest driver of biodiversity loss.6 It is also responsible for approximately 25 percent of global greenhouse gas (GHG) emissions, both directly (from rice, livestock production, fertilizer application), and indirectly from deforestation.7,8 Furthermore, 70 percent of water withdrawn is used for agricultural irrigation.9 China and India’s increasing demand for major agricultural commodities such as soy, which is overwhelmingly used as animal feed, and palm oil demonstrates that a shift in global diets is already in motion, spelling rising further pressures on forests. This paper profiles eight strategies that businesses along the agricultural supply chain, civil-society organizations, governments, and investors are implementing to address environmental impacts of global agricultural commodity production (Figure 1 shows these strategies’ position in the value chain, and major flows of influence): 1. Consumer campaigns that publically pressure companies to rid their supply chains of deforestation and other environmental impacts 2. Voluntary commitments by companies to source agricultural commodities in their supply chains more sustainably 3. Commodity roundtables and certification—multi-stakeholder platforms where supply chain actors and civil-society groups discuss how to make a commodity more sustainable 4. Commodity moratoria—agreements by an entire industry to stop sourcing commodities produced in an unsustainable manner 5. Improved agricultural management practices to reduce direct GHG emissions from agriculture and ease pressure on forests 6. Investor actions, such as sustainable investment criteria, preferential financing, divestment, and shareholder advocacy 7. Governmental regulations and policies, including producer country regulations, consumer country regulations, and sustainable procurement policies 8. Carbon markets and REDD+ (Reducing Emissions from Deforestation and Forest Degradation)
  6. 6. 6 Drawing on a literature review of reports, academic research, as well as interviews with 30 experts in academia, environmental non-profits, industry, intergovernmental organizations, and the finance sector, the paper provides an overview of the strategies’ implementation, the dynamics among participating actors, and the strategies’ effectiveness. Many of the strategies profiled in this paper aim to halt deforestation in the Brazilian Amazon, driven by soy cultivation and cattle ranching, and in South East Asia, driven by palm oil production and timber harvesting. These two regions currently stand as the two largest hotspots for deforestation worldwide, together responsible for over 40 percent of global deforestation.10 The right combination of policies, pressure and action can go far toward ensuring that we can feed the world’s growing population in a manner that respects essential natural systems. This paper aims to present the literature in a non-biased and non-prescriptive manner, without endorsing any particular course of action. We hope this paper will inspire readers to pursue agricultural strategies that sustain the natural environment on which all life in this world depends. Figure 1: Value chain strategies to address the environmental impacts of agricultural commodity production11
  7. 7. 7 SECTION II Profiles of Value Chain Strategies 1. Consumer Campaigns A. Overview of strategy and dynamics among actors Demand side campaigns, also known in the literature as consumer campaigns, are a strategy environmental non-profit organizations like Greenpeace, Rainforest Action Network (RAN), and the World Wildlife Fund (WWF) use to shift demand away from commodity production linked to deforestation. Grounded in evidence often uncovered through the organizations’ own investigative efforts, these campaigns trace unsustainably grown soy, cattle, palm oil, and timber down commodity supply chains to specific traders, manufacturers, or retailers. The non-profits then target these actors through tactics that raise the visibility of the issue and encourage consumers to pressure companies to change their sourcing practices. Some consumer campaigns have additional aims of changing policy and consumer behavior. The success and effectiveness of this strategy varies. Some campaigns are successful beyond their initial goals, as was the case with Greenpeace’s 2006 campaign against soy-related deforestation in the Brazilian Amazon, which brought about the widely praised industry-wide Brazilian Soy Moratorium. More often, campaigns reach their immediate desired outcome of modifying company procurement practices, but the impact of these commitments on reducing or halting deforestation is yet unclear.a Campaigns against timber-driven deforestation in Indonesia, for example, have driven changes in retailers and other companies’ sourcing policies, but have failed to effect widespread and concrete changes in production to halt deforestation. The literature and experts characterize campaigns’ impacts on policy and consumer behavior as being even more limited. Based on our research, successful campaigns typically share the following three elements. They are: (1) based on rigorous research, (2) harness media visibility to influence supply chain actors, and (3) pressure key leverage points in supply chain to shift away from unsustainable practices. 1. Research serves as foundation for campaigns’ successes Campaigns are often grounded in extensive research,12 drawing from sources like satellite imagery, previously unreleased government documents, and undercover reporting.13 Research is then typically compiled into reports that assess the current state of deforestation and other land use practices. The reports usually highlight illegal deforestation and link unsustainable practices down agricultural supply chains to specific actors, including well known consumer-facing brands.14 The indispensable role such research plays in campaigns’ successes is underscored in a comment Karen Van Bergen, Vice President of Corporate Relations for McDonald’s Europe, made in 2006 after meeting with Greenpeace activists who accused the company of sourcing soy from recently deforested areas in the Brazilian Amazon. Van Bergen acknowledged that Greenpeace “had so much information and brought concrete facts, [that] there was only one way to address [the situation]”15— a For more information, see Section 2 on Voluntary Sustainability Commitments.
  8. 8. 8 by taking action, which McDonald’s promptly did, in this way catalyzing the creation of the Soy Moratorium.b Other cases of companies changing their sourcing policies in response to civil-society campaigns have reinforced the role research plays, if not in convincing targeted companies of the truth of incriminating claims, at least in convincing them that the public will believe the allegations, placing their public image at risk. Likewise, companies that refuse to comply with the non-profits’ demands often back their decision by dismissing the allegations against them.16 NGO research may sometimes yield impacts beyond the original campaign’s goals. One academic we consulted noted that Greenpeace, drawing on its network of on-the-ground activists, was the first to demonstrate the link between soy and beef production and deforestation in the Brazilian Amazon, and to then link these product to specific supply chain actors—a challenge that had previously eluded academics who had attempted it. She described Greenpeace’s research and campaigns as “opening the floodgates” validating the academic research that also highlights this connection. 2. Media visibility and public opinion influence supply chain actors Armed with evidence uncovered by research, campaigns harness their global networks of activists to raise the visibility of issues in mainstream and social online media, and call on consumers to pressure companies to change their practices. In the 1980s and 1990s, non-profits typically asked consumers to boycott specific products or brands. While there are several examples of successful consumer boycotts—such as a 1987 RAN boycott against Burger King, which triggered a 12 percent drop in the company’s sales and led the company to halt sourcing beef from rainforest regions17—the literature highlights many challenges boycotts face that make it difficult for them to achieve lasting results.18 One critic characterized the boycott strategy as a “war of attrition.”19 The last decade has seen a shift in strategy, captured well by a Greenpeace activist’s comment on the group’s 2008 campaign against companies implicated in palm oil deforestation in Indonesia: “We believe environmentalists and Greenpeace supporters can be more effective if we pressure Unilever to change, by exposing the truth about palm oil and showing that we care. Like a negative restaurant review is more damaging than no review at all - Unilever is more sensitive to public exposure and debate than a consumer boycott.”20 Recent consumer campaigns aim to affect corporate practices not by attempting to temporarily affect sales, but by attacking a company’s reputation as a law-upholding and ethical player. While such a strategy might eventually affect sales, most companies that have responded to campaigns have chosen to respond preemptively to avoid damage to their image. Social media has been a key driver of this transformation in campaign tactics. Online platforms such as Twitter, Facebook, and YouTube have allowed campaigns to exponentially expand their visibility, as well as directly and instantaneously reach out to consumers and target companies. Social media b For additional information, see Section 4 on Commodity Moratoria.
  9. 9. 9 has allowed campaigns to become more effective at getting consumers to act, as they no longer ask them to change their consumption practices21 but instead to express their support online.22 Greenpeace’s 2011 campaign against Kit Kat—detailed below—for its use of palm oil linked to deforestation in Indonesia, illustrates the role social media can play. The social media components of this campaign included a video, which garnered over 1.5 million views on YouTube,23 and Twitter and Facebook portals that facilitated sending over 200,000 messages to Nestle to demand change. In response to this outpouring of online activism, Nestlé announced a policy to eliminate all deforestation from its palm oil supply chain.24 Following are three examples of tactics campaigns have used to create media visibility and gain public support for their demands: • Disseminate catchy online campaign materials: These materials, including videos, repackage the reports’ findings and demands in a compelling and easily accessible way. One example is a video Greenpeace created for its campaign against Nestle, which replaces the bars of chocolate in a Kit Kat bar with bloody orangutan fingers.25 By subverting the brand’s motto and visuals, Greenpeace compellingly exposes the link between the targeted consumer products and deforestation. • Stage in-person protests: Greenpeace in particular has used in person protests both in Europe, South America and South East Asia to highlight the link between consumer products sold in Europe and deforestation occurring across the globe. A protest that gained widespread media attention in Europe was led by Greenpeace in 2006 at Cargill’s port at Santarem, in the Brazilian Amazon, to contest the company’s role in driving deforestation linked to soy expansion in the region.26 • Reinforce grassroots campaigns: In 2010, RAN led a solidarity campaign to support two Girl Scouts’ grassroots efforts to rid Girl Scout cookies of palm oil sourced from Indonesia. With RAN’s help, the teenagers’ campaign gained national media coverage, including a front-page article in the Wall Street Journal, and led to 70,000 messages to Girl Scouts USA.27 This campaign has been described as having contributed to the pressure that led Kellogg’s to establish, in February 2014, a zero-deforestation palm oil policy for palm oil sourcing in February 2014.28 3. Consumer-facing leverage points pressure producers to shift away from unsustainable practices Directly targeting upstream actors (i.e. traders and agricultural producers) has been less effective in effecting change than indirectly pressuring them through their consumer-facing clients, such as large retailers, manufacturers, and food service companies. Consumer-facing companies may be less willing than upstream players to expose themselves to reputational risk. Experts we consulted believe that some campaigns’ practice of targeting specific companies instead of the industry at large has been a critical component of successful campaigns. This dynamic worked particularly well in a 2006 Greenpeace campaign against multinational soy traders implicated in deforestation linked to the expansion of soy production in the Brazilian
  10. 10. 10 Amazon.29 Greenpeace’s report “Eating Up the Amazon” called attention to the exponential expansion of soy production in thi region, and the trading companies it viewed as being responsible for driving this dynamic.30 Greenpeace singled out Cargill as the worst offender, pointing to the export port Cargill had set up several years earlier in Santarem, Para, which was the point of origination for most of the soy produced in the Amazon exported to Europe.31 Furthermore, the legality of the port’s establishment and operation was being contested in two Brazilian courts.32 Seeing the port as a key leverage point in the Amazonian soy supply chain, Greenpeace targeted it for a protest.33 Although the protest yielded widespread media coverage in Europe, it did not prompt Cargill to take action. In fact, the company reacted defensively to Greenpeace’s claims and criticism from locals, conservationists, and other NGOs, and outright denied any involvement in Amazonian deforestation.34 In light of this impasse, Greenpeace redirected its efforts towards McDonald’s, which it identified as a key leverage point on Cargill, because of the companies’ longstanding and strong business relations, and McDonald’s highly visible brand.35 McDonald’s met with Greenpeace representatives, and when presented with evidence linking the soy it sourced from Brazil to Amazonian deforestation, decided to take prompt action. It convened a group of UK retailers to pressure Cargill and other major traders (including ADM, Bunge, Dreyfus, and the world’s largest soy producer, Grupo Maggi) to stop sourcing soy from the Amazon. This led, several months later, to the creation of a two-year Soy Moratorium, under which the traders agreed not to purchase soy grown in areas deforested after the agreement.36 The Soy Moratorium has been of the most successful supply chain interventions helping to halt agricultural commodity driven tropical deforestation, experts we interviewed widely agreed.c A similar dynamic played out in Greenpeace’s 2009 campaign against deforestation in Indonesia linked to the expansion of palm oil plantations. When directly targeting the Roundtable on Sustainable Palm Oil (RSPO) failed to produce results, Greenpeace targeted Unilever, accusing it of positioning itself internationally as a sustainability leader while simultaneously sourcing palm oil from producers aggressively expanding their operations in Borneo’s rainforests.37 In response, Unilever agreed to support a moratorium, and adopt new sustainability certification in the RSPO. The company also committed to sourcing 100 percent of its palm oil sustainably by 2015, which was the first sustainable sourcing commitment of its kind.38 Other companies—including Nestlé, as previously noted—followed suit with similar sustainable sourcing policies.d B. Effectiveness of consumer campaigns At their most effective, consumer campaigns have led to the creation of highly praised industry and region-wide corporate measures such as the Soy Moratorium.39 More often, consumer campaigns have raised awareness among corporate players of the deforestation associated with their supply chains. Many companies have also come to see consumer campaigns as both a legitimate threat to their brand, but also an opportunity.40 As a result of consumer campaigns, many companies have made changes in their procurement policies. The International Institute for Environment and c For additional information, see Section 4 on Commodity Moratoria. d For additional information, see Section 2 on Voluntary Sustainability Commitments.
  11. 11. 11 Development (IIED) reports that “from 1996 to 2006, over 400 major corporations had phased out commodity sourcing from old-growth forests, or agreed to purchase only certified products.”41 The IIED also asserts that in aggregate, these changes can create markets for certified products, or products that meet specific environmental standards.42Several experts agreed that raising awareness among corporate players, and leading some to take action, can be seen as a positive development even if the campaigns’ end goal of halting deforestation is not reached. 43 However, several elements may limit campaigns’ effectiveness in bringing about change. IIED notes that the well-known, international consumer-facing companies targeted by non-profits- may not always be the largest buyers or worst offenders,44 arguably possibly letting those players off the hook. Furthermore, the literature and experts we consulted agree that the sourcing changes of a few companies, while representing a positive change in the industry, may not result in net forest conservation, since the products sourced from deforested areas can simply be sold to other buyers who are not facing sustainability demands from consumers (e.g., China, or other developing nations).45 While there are several examples of campaigns playing a role in prompting action by governmental and intergovernmental actors,46 overall, campaigns have not had a very significant impact in this area.47 Current campaigns may, like boycotts, be ineffective at producing lasting consumer behavior change in much of the population. Two additional challenges identified in the literature are the limits to how long a topic can sustain media attention during a campaign, and consumer fatigue with recurring campaign demands. Campaigns are described as ultimately an unreliable source of demand generation, especially in the long term.48 Despite this, recent campaigns—like Greenpeace’s 2013 and 2014 campaigns against Proctor & Gamble and other corporations pressuring them to commit to source palm oil that is not contributing to clear-cutting in South East Asia—appear to have received a boost from the more direct pressure that shareholder advocates are effecting on corporations through shareholder resolutions. Several major companies like Kellogg’s, Proctor & Gamble, and Wilmar have recently acceded to this pressure and taken on deforestation-free sourcing commitments.e e For additional information, see Section 2 on Voluntary Sustainability Commitments, and Section 6 on Finance Sector Actions.
  12. 12. 12 2. Voluntary Commitments A. Overview of strategy and dynamics among actors Companies can make voluntary commitments through press releases, public policies on their website, or letters, announcing their sustainability goals and their plans to implement them to the public. This section will focus exclusively on voluntary commitments companies have made to sustainably source agricultural commodities, and reduce the environmental impacts associated with their agricultural supply chain (it will not go into the efficacy of voluntary private sector commitments across sectors, which is the topic of a vast literature49). 1. Companies adopt sustainable sourcing policies in response to various drivers Within agricultural supply chains, retailers and consumer goods manufacturers are leading the adoption of sustainable sourcing commitments. Several palm oil trading companies have also taken on sustainability commitments in 2013 and 2014. Drivers for voluntary commodity commitments include: • Civil society pressure: Civil society pressure, and more specifically, consumer campaigns, has been one of the most powerful drivers for getting retailers and consumer facing companies to take on commitments. Indeed, between 1996 and 2006 such campaigns drove over 400 companies to change their sourcing policies to avoid deforestation, or other environmental impacts.f,50 Another type of civil society pressure, more difficult to document, may be non-publically disclosed pressure or influence of non-profit organizations on corporations. • Shareholder activism: Several companies that have made deforestation-free commitments around palm oil sourcing in recent months have been influenced by shareholder pressure under the form of shareholder resolutions. This is notably the case of Kellogg’s and Proctor & Gamble.g • Pressure from consumer-facing customers: Upstream supply chain actors, such as traders, are often driven toward sustainability commitments by pressure from consumer- facing corporate clients.51 One example is Cargill, which, through pressure from McDonald’s and other retailers and consumer goods companies, committed to not purchase soy from areas linked to deforestation in the Amazon.h Another example is Wilmar International, a major palm oil processor, which announced a deforestation-free, peat-free, and exploitation- free commitment in response notably to pressure by its major client Kellogg’s.52 • Industry platforms: Some companies have taken on commitments through industry platforms such as the Consumer Goods Forum (CGF) (see below). f For additional information and examples, see Section 1 on Consumer Campaigns. g For additional information on shareholder activism, see Section 6 on Investor Actions. h For additional information and examples, see Section 1 on Consumer Campaigns.
  13. 13. 13 • Life-cycle assessment results: Some agri-businesses and retailers have also made commitments in response to the results of life-cycle assessments on their company’s entire operations. Those assessments often reveal that a large portion of the company’s carbon footprint is situated in its supply chain, and is linked to the sourcing of commodity inputs. For example, PepsiCo UK committed to reducing the GHG emissions from its agricultural commodities sourcing after one of its brands found that half of its carbon footprint was connected to the sourcing of raw materials.53 A recent report highlights three top reasons retailers and product manufacturers say they take on sustainable sourcing commitments: to minimize operational risk, to maintain a strong brand, and to ensure the sustainability of their supply chains.54 2. Sustainable sourcing commitments vary widely in scope, ambition, and follow through Sustainable sourcing commitments vary widely in scope and focus. Commitments range from those limited to a specific commodity or set of commodities, to those which focus more widely on zero-net deforestation or overall carbon emissions. Examples include Tesco’s goal of reducing the carbon impact of the products in its supply chain by 30 percent, by 2020,55 or the CGF’s zero-net deforestation goal by 2020.56 Commitments also range widely in terms of timeline, with some being set for the short term—such as Walmart’s goal to reduce 20 MMT of GHG emissions by 2015, set in 201057—and others set for further in the future—such as Tesco’s goal to be a zero-carbon business by 2050 without purchasing offsets.58 There is currently no one definition of “zero-deforestation” or “deforestation-free” used across all sourcing commitments aiming to halt deforestation. Actors’ commitments to “zero-gross deforestation” (e.g., the government of Brazil’s commitment in the Legal Amazon) or “zero-net deforestation” (e.g., CGF’s commitment), can very different meanings in terms of carbon storage, biodiversity and feasibility.59 “Zero net deforestation” could include replacing primary forests with equal areas of reforested land, negatively affecting carbon and biodiversity. On the other hand, some companies and NGOs have found that “zero net deforestation” or “zero net emissions” from deforestation are more feasible targets in the short-term than zero gross deforestation.60 Civil-society and supply chain actors have not yet agreed on a common definition. There is a discrepancy between the number of companies who make sustainable sourcing commitments, and companies that are truly viewed as leaders on sustainable sourcing. While between 1996 and 2006, over 400 companies made commitments to source some of their raw materials sustainably,61 the Forest Footprint Disclosure Project calculates that there are only approximately 50 companies who truly know “their supply chain, [can] make sourcing commitments and alter their purchasing.”62 Furthermore, the gap between those 50 or so progressive companies and the rest is large. One report identified two key indicators demonstrating leadership on sustainable sourcing commitments as being (1) that commitments be “aggressive time-bound targets and goals for their sourcing and supply arrangements,” and (2) that companies actually follow through on commitments taken.63 Additional key indicators include that companies identify high- risk agricultural raw materials in their supply chain, and explicitly focus on reducing emissions at the production level. 64
  14. 14. 14 A recent trend in sustainable sourcing are the commitments numerous companies have made in the past year on ridding the palm oil in their supply chains of any connection to deforestation. Major consumer goods companies like Procter & Gamble, Kellogg’s, and processor Wilmar have put in place internal policies that they will not purchase palm oil proceeding from areas deforested. Greenpeace and other organizations have praised Wilmar’s “deforestation-free, peat-free, and exploitation-free” commitment for being ambitious—although Greenpeace has said it will be monitoring closely to see if the company follows up through its word.65 3. Industry-led platforms have the potential to create positive aggregation effect Industry-wide platforms such as the Consumer Goods Forum (CGF) emerged in our research as having a strong potential role to play in getting lagging companies to make and implement commitments, and catalyze industry and supply chain-wide transformations. The Dutch Task Force on Sustainable Palm Oil and the Belgian Task Force on Sustainable Palm Oil are additional examples of commodity specific industry platforms that have made commitments to source sustainable palm oil for their members, which in this case represent major Belgian and Dutch end-users of palm oil. These groups and their deforestation commitments have often been spearheaded by companies that are already viewed as sustainability leaders. Scale is credited as the most attractive element that these industry platforms and groups can offer. For example, the CGF, with 400 member companies and combined sales of around $3.5 trillion, pledged that its member companies would “mobilize resources within their respective businesses to help achieve zero net deforestation by 2020.”66 This has been widely hailed as a promising and ambitious goal, which would have great impact if the commitment is acted upon. The CGF has taken several actions to encourage their members to implement this commitment, which include launching the Tropical Forest Alliance 2020 with the US Government creating guidelines for the sourcing of paper goods, and publishing a toolkit in 2013 that provides advice on how to reach the commitment.i,67 Yet beyond these steps, there is little publically available information assessing the progress of this commitment in the four years since it was made. Greenpeace, on its part, has demanded the CGF be clear that its commitment “is about stopping deforestation in natural forests, not about “net” reductions that leave the door open to replace forests with plantations.”68 In addition to industry platforms, there are groups that focus on specific aspects of enabling sustainability throughout the supply chain. The Sustainability Consortium (TSC), for example, with over members among universities, government agencies, civil society organizations, and over 100 members from across the supply chain—which together have combined revenues over $2.4 trillion— creates and implements “scalable, science-based measurement and reporting systems,” to improve consumer product sustainability. Wal-Mart and other members of TSC and CGF then use TSC’s “Sustainability Toolkit” to measure sustainability throughout their supply chain.69,70 TSC focuses on improving the sustainability of several agricultural commodities, including beef, cocoa, seed oils, soy, and coffee.71 Another set of platforms companies can engage in agricultural supply chain sustainability are commodity roundtables.j Most industry-led groups consult on a more ad hoc basis with civil society i For additional information, see Section 7 on Government Regulations and Policies. j For additional information, see Section 3 on Commodity Roundtables and Certification.
  15. 15. 15 groups,72 while in roundtables, civil society groups typically have full membership and voting rights, and several roundtables were co-founded by civil society organizations.73 An additional distinction between these industry groups and roundtables is that roundtables focus on one commodity or practice (e.g., organic food). An overlap exists between roundtables, and industry groups or individual corporate commitments. Companies that make voluntary commitments and participate in industry groups may also be involved in roundtables, as is the case with Unilever, a founding member of roundtables for palm oil and soy. And even if companies do not actively engage in roundtables, they might use the certification schemes advanced by roundtables to guide their commitments. For example, the CGF recommends that its members who want to achieve zero-deforestation in palm oil, soy, and beef, participate in the corresponding roundtables.74 B. Effectiveness of voluntary corporate commitments The private sector has an important role to play in addressing the environmental impacts of agricultural production, such as deforestation. We encountered a range of experts’ opinions, however, about how effective and significant their efforts have been. Some thought that the current engagement of companies in soft commodity supply chain sustainability was promising, and presented an enormous contrast with the lack of corporate awareness 15 years ago. Other experts, however, were more skeptical about corporate engagement, and specifically about voluntary corporate commitments. Several experts saw a lack of follow through on commitments that companies voluntarily make. The impression that CGF member companies are waiting until much closer to 2020 to actually work on the zero-deforestation commitments they agreed to in 2010 was the most substantial case cited. Several experts also singled out palm oil as a commodity where there has been (at least until present) a lack of follow through, and confusion between whether there is undersupply or under-demand for sustainable palm oil. Several reasons were advanced to explain the discrepancy between sustainable sourcing policies and action, including a lack of motivation and accountability on the part of the company, and a use of commitments as a public relations tool. Other experts, however, believed that companies make sourcing commitments in good faith, but face serious challenges when it comes time to implementing the commitments. These challenges include difficulties in tracing sustainable commodity back to the farm, in engaging upstream traders, and in actually effecting behavioral change at the plantation level. In addition, some experts believe that considerations like cost are still taking precedence over sustainability. An additional sentiment that emerged from our conversations with experts is that even if individual companies were to follow through and implement the sustainable sourcing policies they had agreed to, the overall impact of such actions might still be insufficient to counterbalance the rising demand for commodities from emerging markets such as China, which have not demonstrated an interest in sustainable sourcing.
  16. 16. 16 3. Commodity Roundtables and Certification A. Overview of strategy and dynamics among actors Commodity roundtables are voluntary, multi-stakeholder, market-based strategies designed to improve the environmental and socio-economic impacts of agricultural products throughout their supply chains. Roundtables bring together businesses across the value chain (including producers, traders, manufacturers, and retailers), financial institutions and investors, and environmental and social non-governmental organizations. Some roundtables create certifications their members must abide by, while others solely discuss best management practices.75 For example, while the Global Roundtable for Sustainable Beef (GRSB) is working on principles and criteria, there is “no plan to develop a seal, certification, or comparable standard.”76 Roundtables have made positive strides towards mainstreaming issues around sustainable sourcing,77 improving on-farm practices, tracking commodities throughout their supply chains, and meeting company commitments for sustainably-sourced commodities. Their long-term, large scale effectiveness remains unclear, however. 1. Roundtables aim to transcend niche markets and attain industry-wide transformation The first roundtables, founded in the 1990s, focused on issues, such as labor rights for the Fair Trade Federation, or sectors, such as forestry for the Forest Stewardship Council (FSC). They created niche markets for consumers who were willing to pay price premiums for sustainable products. The past several years has seen the creation of roundtables that focus on agricultural commodities, such as soy (Round Table on Responsible Soy (RTRS)), palm oil (Roundtable on Sustainable Palm Oil (RSPO)), sugar (Bonsucro), or biofuels (Roundtable on Sustainable Biomaterials (RSB)). This new generation of roundtables strives for market transformation, setting pre-competitive standards that all companies must fulfill before they can access markets of countries and retailers, instead of filling a niche for environmentally conscious consumers.78 Roundtables have evolved to become less “prescriptive” and more “performance-based,” assessing the end result while remaining neutral to technology and methods, and seek greater industry engagement.79 2. Roundtables create credible, traceable, and verifiable standards Certifications create principles and criteria (P&C’s) that their members must follow, covering environmental categories such as deforestation, biodiversity, water management and chemical use, and social categories such as labor rights, operational health and safety, and local and indigenous people rights. Certifications also require that members comply with all applicable local, national and international laws, and allow countries to submit national interpretations of the P&C’s. Internal and external third party audits are also required in most certifications to ensure compliance. Corrective actions must be completed if violations are found. Certification standards also must have sanctioning mechanisms that provide consequences for non-compliance, usually categorized as major and minor non-conformities, which can result in demands for corrective actions, or suspension or expulsion from certifications.80
  17. 17. 17 To strengthen their credibility, certifications can join accreditation bodies such as the ISEAL Alliance, the global association for sustainability standards, and create and review their criteria according to ISEAL’s Codes of Good Practice.81 Commodities must also be traced to validate that they are certified. Full traceability can be expensive, so many certifications offer different supply chain systems with different levels of traceability. At the highest level of traceability, companies must trace commodities throughout the entire supply chain (termed “Chain of Custody” or “Identity Preserved”). Some supply chain strategies allow companies to mix certified commodities with a certain amount of uncertified commodities (e.g., FSC-mixed, or Mass Balance for RSPO) while others allow companies to buy certificates that represent a certain volume of sustainable product and can offset unsustainable sourcing (e.g., Green Palm Book and Claim certifications for RSPO). One report found that newer, more mainstream certifications increasingly use low-cost traceability systems, book and claim and mass balance, and fewer identity preserved systems than older certifications.82 3. Roundtables engage with companies: common principles or lowest common denominators? Certifications are voluntary and rely on consensus among companies, NGOs and other stakeholders. Therefore, certifications must strike a balance between engaging a wide range of stakeholders and maintaining the rigor of their standards. Sometimes consensus cannot be reached, which can result in the loss of members or even fragmentation into new certification bodies. For example, the criterion around deforestation for RTRS was so controversial that no consensus was found, and the members resorted to majority voting. Producers argued that they should be compensated for the opportunity cost of forgoing deforestation on their farms, and when this was not approved, the Mato Grosso’s State Association of Soybean Producers (APROSOJA) withdrew from RTRS.83 In the case of forestry, many producers opposed the stringency and control of FSC standards, and broke off to form alternative, producer-backed schemes such as the Sustainable Forestry Initiative (SFI) created by the American Forest and Paper Association (AF&PA).84 Government-mandated certifications, such as Indonesian Sustainable Palm Oil (ISPO), have also been created to compete with international standards.85 Some argue that certifications benefit certain companies over others. Small landowners are more constrained by the costs of certifications and fluctuations in premiums than large companies that have achieved economies of scale.86,87,88 Producers feel that they bear most of the costs of certification, while downstream companies receive the largest portion of price premiums.89,90 Companies from developing countries are also disadvantaged, lacking strong national forest policies, management capacities, domestic demand for sustainable products, and local certification bodies, requiring them to pay travel costs for auditors. Although roundtables have attempted to address these issues, creating step-wise approaches and group certifications to reduce upfront payments, costs remain a substantial barrier for many companies.91 4. Roundtables engage with NGOs: reinforcement and obstruction NGOs have different strategies for engaging with roundtables. Some NGOs, such as WWF and Rainforest Alliance, take an active role from within, helping create and shape certifications. FSC accredited The Rainforest Alliance to provide capacity building and auditing services and certify new
  18. 18. 18 FSC members. WWF also promotes certifications and campaigns against companies that are not active in roundtables. For example, WWF’s “Palm Oil Buyer’s Scorecard” commends companies for making commitments to RSPO, while exposing others for not buying enough certified products.92 NGOs also create buyers groups, like WWF’s Global Forest Trade Network, which brings together FSC producers and sourcing companies to link supply and demand. Other NGOs prefer to remain on the outside of roundtables, campaigning against certification systems and their members whom they believe are committing “green-washing,” or leading consumers to believe that their products are sustainable without real actions behind their labels. Greenpeace published various papers criticizing RSPO for “having standards that are not only too weak to begin with, but are habitually ignored by its members, who continue to destroy rainforests and peatlands for palm oil.”93 More than 250 large and small sustainable farming, social justice, and rainforest preservation groups worldwide signed a Letter of Critical Opposition to RTRS in 2009, arguing that RTRS principles and criteria are too weak.94 Campaigns against roundtables can have very different results. Opposition to RSPO appears to have strengthened the roundtable’s environmental criteria and the accountability of actors,95 while pressuring companies to go beyond certification. The Palm Oil Innovation Group (POIG) was created by Greenpeace, WWF, and producers such as Golden Agri-Resources in June of 2013, and discusses ways to exceed the ambition of RSPO principles and criteria.96 In the case of RTRS, many NGOs are opposed to the standard itself because they believe it promotes genetically modified soy monocultures and large agro-businesses, and they organize to obstruct the progress of RTRS.97,98 5. Roundtables engage with government: a nascent relation Although certification systems have been promoted as “private sector regulations,”99,100 governments can play a direct or indirect role. Governments can create legal foundations for certifications, since certifications require members to follow international, national and local laws. Governments also protect property rights and prevent illegal activity, which is fundamental to certifications. Governments can also play a more active role in certifications. They can provide funding and create trade incentives for certifications. Some governments, including Denmark, Japan, and New Zealand, have also established their own procurement policies that favor or require certified products. Governments can also create their own certification systems, some of which are mandatory (e.g., the Indonesia Sustainable Palm Oil certification (ISPO)). USDA standardized the criteria for organic products by requiring producers to be certified under their label. Although government involvement has strengthened certifications and increased uptake in some cases, it can also weaken certifications by offering less stringent criteria.101 Recently, efforts have been made to further integrate public and private initiatives that have been working separately to reduce deforestation.102 The RT-REDD consortium brings together four NGOs (IPAM, Solidaridad, WWF-US, and Forest Trends), three roundtables (RTRS, RSPO and Bonsucro) and the private company Unilever to discuss synergies between roundtables, domestic policies, and the jurisdictional market mechanism Reducing Emissions from Deforestation and Forest Degradation (REDD+).k,103 k For additional information, see Section 8 on Carbon Markets and REDD+.
  19. 19. 19 B. Effectiveness of commodity roundtables and certification Commodity roundtables are still relatively new and under development, so there is still a limited amount of data to quantify their impacts on the environment and society.104 In addition, many certification systems don’t yet have adequate monitoring and evaluation systems in place to quantify impacts.105 One report identified the need for new cost-effective assessment tools that can be easily applied by auditors and verifiers.106 Most studies that do exist lack counterfactual evidence—they are only able to determine correlation and not causation because they do not establish a baseline for environmental effects before and after certification at one location, instead comparing uncertified and certified plantations.107 Therefore, more research should be collected to assess the real impact of certifications. Certifications can have substantial impacts at the management unit, prompting members to protect forests and biodiversity on their property and correct practices to comply with certification.108,109 As one example, Rainforest Alliance found that standards had positive, measurable impacts on biodiversity, water protection, and economic gains for workers. 110 Therefore, if standards are strong, they can drive improvements in their members operations. However, some certification schemes do not have criteria that directly address deforestation or carbon emissions, and others only prohibit clearing of primary and high conservation value forests, while allowing expansion into secondary forests and shallow peat forests.111 The State of Sustainability Initiatives Review 2014 found that criteria of new standards had reduced depth and breadth compared to older certifications in order increase market uptake.112 In addition, the impact of certifications at the landscape scale and in the long-term is unclear due to a lack of data and low market shares. 1. Although roundtables have not yet transcended low market share and consumer demand, there are reasons for optimism Lack of data on the impact of roundtables often means market share—or the percent of the total commodity on the market that is certified—is used as a proxy, following the reasoning that certifications can only have an effect if they are adopted. The theory, championed by WWF, is that because markets are ultimately controlled by a “handful” of companies, only a small percentage of the market needs to be certified to cause a market transformation, sending feedbacks throughout the supply chain.113 The total annual growth rate of certified commodities was 41 percent in 2012, compared to 2 percent growth for conventional commodities, exemplifying rapid growth of new markets.114 Still, most roundtables comprise a small share of the market for a specific commodity. Even FSC, an older certification established in 1994, only had a market share of 10 percent for wood and 5.6 percent for fiber as of July 2012.115 More recent certifications have had a faster rate of implementation—RSPO certified 14 percent of palm oil after 5 years, while Bonsucro certified 2 percent after 3 years and RTRS certified 0.2 percent after 2 years116—but their production scale is still too small to cause a market transformation. In addition, there is a gap between supply and demand. Across all commodities, only an average of 44 percent of standard compliant production was taken up by the market, while the rest was sold as unlabeled commodities without a price premium.117 Certification may face a lack of demand for various reasons. First, many of the commodities, such as soy, palm oil, sugar, and paper used for packaging, are small ingredients in complex products, and
  20. 20. 20 are not consumer-facing. Several experts interviewed referred to coffee as example of a successful transition from niche to mainstream (at 40 percent of global production certified in 2012118), but it is a single ingredient and is more of a “luxury product.” In addition, there is an attitude-behavior gap, where consumers claim that they would buy environmentally friendly products at a price premium, but in practice, price is the most important aspect of consumer decisions. Even in environmentally sensitive European markets, consumers are more concerned about health risks from GMOs and mad cow disease than environmental issues such as deforestation.119 Finally, the multitude of certifications can form an “alphabet soup” that confuses consumers. Ecolabel Index tracks almost 450 ecolabels, or sustainability labeling systems, which include the certification schemes mentioned here.120 An increase in demand for certified product could occur as companies make public commitments to source 100 percent certified products. For example, 92 companies have committed to source certified palm oil by 2015 or sooner,121 so demand for certification should increase as corporations finish planning and start living up to their commitments. 2. Niche voluntary markets could let outsiders off the hook Because roundtables cover only a small segment of the market for a specific commodity, there is potential to excuse “bad actors” for unsustainable practices. Roundtables focus on international, environmentally conscious markets, while much of production is for domestic consumption or export to China and India to meet these developing countries’ rapid consumption growth rates.122 The only disadvantage to not being certified is an inability to access niche markets and price premiums, and in many cases significant price premiums have not materialized.123 As a result, farmers who are close to complying with deforestation regulations are more likely to get certified, as opposed to farmers who are causing more damage and have a higher opportunity cost from changing their behavior. Certifications could even have unintended negative impacts. For FSC, experts have argued that market exclusion of non-certified forest products could reduce the value of standing forests, leading to intensification of unsustainable practices or conversion of natural forests to agriculture.124 In the case of seafood, the role of certification bodies in marketing could deflect attention away from the key solution of reducing consumption,125 an argument that could also be applied to beef. 3. Assessing long-term, landscape-scale impacts on the environment While certifications can have substantial impacts at the farm level,126 they may not be as effective at addressing landscape level issues such as deforestation, biodiversity and water quality.127,128 Some certifications don’t have criteria that directly address deforestation. In addition, low participation in certifications makes it difficult for these schemes to conserve continuous forest habitats. WWF has identified the need for certifications to move “from niche to norm,” increasing uptake of certified products.129 One assessment suggested that even if farm-level approaches were aggregated across an entire region, they would not be as cost-efficient or effective at addressing risks beyond the farm- level as coordinated, landscape-scale approaches.130 Roundtables were originally designed to fill a gap in governance of natural resources. In order to reach the landscape scale, roundtables need to be accompanied by and integrated with strong government policies and company commitments.131, 132
  21. 21. 21 4. Commodity Moratoria A. Overview of strategy and dynamics among actors Over the past decade, pressure from civil society has led to the implementation of several sustainable commodity moratoria, through which a significant proportion of an industry agrees to halt purchasing agricultural commodities linked to deforestation in a specific area.133, 134 Moratoria have occurred on different points along the agricultural supply chain. Dutch end-user companies of palm oil have agreed to a moratorium through the Dutch Task Forces on Sustainable Palm Oil (launched in 2010), while the Brazilian Soy Moratorium (launched in 2006) and the Brazilian Beef Moratorium (or G4 Agreement) (launched in 2009) were taken on by soy trading companies and slaughterhouses, respectively. Moratoria can contribute to improved sustainability in two ways: “directly, by affecting producer and processor behavior in the long term (e.g., by shifting production onto low-carbon land), or indirectly, by buying time for alternative governance mechanisms (e.g., financial incentives) to be implemented.”135 This section will focus primarily on the Soy Moratorium (hereafter referred to as ‘the Moratorium’), the longest standing and arguably most successful moratorium—and, in the opinion of many experts we interviewed, the most successful voluntary measure to address the environmental impact of any commodity. It has won extensive praise, as well as study and scrutiny. The Soy Moratorium also offers an opportunity to discuss questions critical to moratoria and the other strategies analyzed in this paper: the long-term durability and replicability of strategies, and the interaction between voluntary and regulatory strategies. 1. An unlikely and innovative partnership joins environmentalists and industry The Soy Moratorium is a pledge by Brazil soybean industry groups ABIOVE (Brazilian Association of Vegetable Oil Industries) and ANEC (National Association of Cereal Exporters) to not purchase soy grown in the Brazilian Amazon Biome on land deforested after July 2006. ABIOVE and ANEC’s members purchase over 90 percent of soy in Brazil, and include the largest global soy traders—ADM, Bunge, Cargill, and Dreyfus Commodities. The Moratorium was initially put in place for two years. It has since been renewed at annual or biennial intervals, at first due to its success, and in more recent years in response to hikes in deforestation, and as a safeguard during the implementation of Brazil’s new Forest Code (passed in 2012). The Soy Moratorium was established in response to growing civil society pressure in the early 2000s to stop the rampant rise in deforestation in the Brazilian Amazon driven by soy production. Although cattle ranching has been the main driver of deforestation in the Brazilian Amazon since the 1990s,136 from 2001 to 2005 soy planting tripled in this region, catapulting this crop into becoming a significant driver of deforestation. At its peak in 2003, soy was responsible for 18.5 percent of deforestation in the Brazilian Amazon.137 The Moratorium was specifically catalyzed by a campaign Greenpeace targeted McDonald’s with in 2006. Greenpeace publicly accused the company of being complicit in deforestation by purchasing soy from Cargill, which sourced part of its product from the Brazilian Amazon. McDonald’s promptly
  22. 22. 22 brought together a group of retailers to pressure Cargill and the other major soy traders to stop sourcing soy directly linked to deforestation.l In response, Cargill joined ANEC and ABIOVE’s other members to form the Soy Working Group (SWG), along with international and Brazilian NGOs: The Nature Conservancy (TNC), World Wildlife Fund (WWF), Conservation International (CI), Greenpeace, the Institute for Amazonian Research, and the Amazonia Defense Front. The SWG launched the Soy Moratorium in December 2006. The Soy Moratorium is a highly innovative and unlikely partnership between global agri-business and environmental groups. Three additional groups also participate in some form or another in the Moratorium: • The Brazilian State: Although the Moratorium is a voluntary, non-governmental initiative, the satellite monitoring activities integral to tracking compliance and progress depend on the Institute of Geography and the Brazilian government’s Space Agency’s (INPE) high quality, frequently updated remote sensing imagery. This data is used to determine which areas have been deforested prior to 2006, and which areas have been planted with soy after this date. This information is subsequently validated by fly-over analysis and fieldwork.138 The Brazilian State became an official partner of the Moratorium in 2008. • Global retailers and consumer goods companies: As described above, McDonald’s played a critical role in catalyzing the Moratorium. Other retailers and industry groups such as Walmart, Carrefour, Marks & Spencer, Sainsbury’s, Kraft, and the Consumer Goods Forum have consistently and publically expressed support for the Moratorium. While not official partners in the Moratorium, they benefit from it, as it offers a means to meet their sustainable sourcing commitments and the demands of their European customers for zero-deforestation soy in a way that is credible, rigorous, and without a cost to them in the way certifications do. • Brazilian soybean farmers: While no SWG partner directly represents soy farmers in the Brazilian Amazon, satellite data indicates farmers have overwhelmingly complied with the Moratorium.139 Under the Moratorium, if found non-compliant (that is, if found to be growing soy on land deforested after 2006), farmers lose their buyers, as well as the credit and fertilizer large trading companies provide them, more rapidly and at a lower cost than the Brazilian government.140 2. The Soy Moratorium earns extensive praise The Moratorium has been heralded as the most successful intervention in reducing the deforestation linked to soy in the Brazilian Amazon, and one of the most—if not the most—effective voluntary initiative implemented to address the environmental impacts of agriculture, across any commodity by many experts interviewed for this report. Many credit the drastic decline of soy as a driver of deforestation in the Brazilian Amazon after 2006 to the Moratorium. An annual assessment by INPE in 2012 found soy planted on only 0.41 percent of l For a more detailed account of this campaign, see Section 1 on Consumer Campaigns.
  23. 23. 23 land deforested after 2006 in the Brazilian Amazon forest biome.141 This is widely considered as being an insignificant level, especially compared to the 18.5 percent of deforestation that the expansion of soy cultivation caused in 2003.142 Similar monitoring results led Brazil’s Minister of the Environment to declare in 2009 that soy was no longer a major driver of Amazonian deforestation.143 The Moratorium has also been praised for producing these results without stifling soybean production in Brazil—in fact, the country’s soy exports have increased by 230 percent since 2006.144 A study of the Southern Brazilian Amazon indicates that “decoupling” of soy production and deforestation took place after 2005. Starting at this time, soy production expanded primarily onto pasture, and also experienced significant yield increases.145 While experts interviewed see the Soy Moratorium as a complimentary measure to other voluntary and governmental efforts to halt deforestation, many believe the Moratorium has been more effective than other strategies. A major reason is that unlike the Roundtable on Responsible Soy (RTRS), the Moratorium is an industry-wide initiative. As traders responsible for over 90 percent of total market share agreed to the Moratorium, this has helped avoid the “leakage” that could occur if farmers who did not want to comply with anti-deforestation requirements sold their crops to other buyers. The Soy Moratorium is also considered to have helped effectively and rapidly fulfill the Brazilian government’s objective to halt deforestation, a goal outlined in Brazil’s Forest Code. The Forest Code, which has been in place since 1965, mandates that farmers in the Amazon Biome conserve under forest cover 80 percent of their land. Enforcement of this progressive law has been lacking, however, in part because extensive resources are needed to enforce it over a vast territory like the Amazon basin.146 One study argued that by making the cost of non-compliance for farmers high, the Soy Moratorium transformed what was legal under Brazil’s Forest Code (deforesting 20 percent of a plot in the Brazilian Amazon) into something de facto illegal, thus supporting the government’s deforestation reduction goals, and demonstrating the power a “soft” (or voluntary) governance mechanism can have on transforming the environmental impacts of agricultural commodity production.147 Environmental groups, including Greenpeace and the Union of Concerned Scientists, have spoken of the Moratorium in particularly enthusiastic terms.148 Beyond the obvious results of deforestation reduction, the Moratorium can also be viewed as a symbolic success for green groups. The Moratorium is a testament to environmental NGOs’ power to successfully influence powerful agri- businesses to change. This has been accomplished through grassroots consumer-driven campaigns that attack global companies’ public image, and by working closely with these companies to achieve transformational change, in this case the elimination of soy as a major driver of deforestation in the Brazilian Amazon.m While environmental groups work with many individual companies and industry platforms to improve environmental outcomes around global agricultural production, the Soy Moratorium is a remarkable partnership in that environmental groups succeeded in getting an entire industry to comply with an aggressive zero-deforestation sourcing measure. The apparent success of the Soy Moratorium has resulted in green groups championing the replication of the strategy for other commodities and in other areas. In 2009 Greenpeace successfully campaigned for the Brazilian Beef Moratorium or G-4 Agreement, under which Brazil’s four largest m For additional information, see Section 1 on Consumer Campaigns.
  24. 24. 24 meatpackers, representing about 25 percent of the market, agreed to buy only from ranches in the Brazilian Amazon demonstrating no deforestation after 2009.149 Greenpeace unsuccessfully pushed for a deforestation moratorium from the palm-industry in Indonesia, although the Indonesian government established a country-wide deforestation moratorium in 2011.150 3. The Soy Moratorium sheds light on indirect land use change and leakage Enthusiasm for the Soy Moratorium it is largely due to the large territory it covers, the Brazilian Amazon biome, which allows it to avoid leakage within its boundaries. Several experts we interviewed were concerned, however, that the Soy Moratorium may have led to leakage outside of its boundaries—that in response to the restrictions imposed within the Brazilian Amazon, some soy production may shift to adjacent territories not covered by the Moratorium, including the rest of the Amazon and Brazil’s Cerrado region. If this is true, the Moratorium’s effectiveness may be overstated. One study conducted in the Brazilian state of Mato Grosso, which straddles the Amazon and Cerrado biomes, found no evidence of substantial direct leakage of soy production within that state, nor from the state to other regions in the short term. The researchers emphasized, however, the possibility that leakage may occur in a lagged manner, and/or in more distant geographies.151 While the literature on leakage is inconclusive, and larger-scale studies do not yet exist, one expert consulted believes it probable that due in part to the Soy Moratorium, soy cultivation has increased in the Amazon outside of Brazil, where the regulatory environment is weaker.152 Experts also believed that the Soy Moratorium—being a single-commodity focused initiative—does not account for the indirect land use change (ILUC) it may be driving. After 2006 the expansion of soy cultivation in the Brazilian Amazon took place primarily on cattle pasture, which experts argue may have resulted in pushing expansion of cattle production elsewhere in the Amazon biome, or into the adjacent Cerrado region.153 B. Effectiveness of commodity moratoria As described above, the Soy Moratorium is widely praised as playing a major role in the decline of soy as a driver of deforestation in the Brazilian Amazon in the past decade, even while its impact beyond this region remains an open question. Some argue, however, that the apparent success of the Soy Moratorium is the result of specific state and market conditions, and caution against the replication of moratoria without taking into account the existence of the necessary enabling conditions. Furthermore, the Brazilian industry’s decision to terminate the Soy Moratorium in December 2014 highlights its fragility as a strategy to protect forests in the long term. 1. Moratoria may fail in absence of critical enabling conditions A team of remote sensing experts recently emphasized the difficulties of correctly quantifying the importance of the Soy Moratorium to declining deforestation due to soy crop expansion in the mid- 2000s, relative to the role played by governmental, other voluntary efforts such as roundtables,154 and the market conditions at the time.155
  25. 25. 25 Some point out that the Moratorium did not flourish all by itself, but depended on upon certain state and market enabling conditions that formed a specific historical context. One expert interviewed insisted that the Brazilian government’s crackdown on deforestation in the early 2000s was likely a powerful motivating force to get trading companies to participate in the Moratorium. As described previously, the satellite monitoring of farmers’ compliance with the Moratorium—which underpinned the venture’s successful implementation—depended on the advanced spatial mapping capabilities developed by the Brazilian State since the 1970s with the different objective of territorial planning.156 Experts have cautioned against replicating moratoria without the necessary infrastructure to ensure their success. One study found that all tropical forest countries had weaker regulatory frameworks than Brazil to protect forests, and less than 40 percent had monitoring capacity similar to Brazil. Only two countries—Costa Rica and Malaysia—had both governance capacity and monitoring capability similar to Brazil.157 In addition to the above state conditions, several market conditions also played a role in convincing traders to participate in the Soy Moratorium. These include strong consumer demand for zero- deforestation soy, a low world price of soy in 2006, the relatively low crop-productivity levels for soy grown in the Brazilian Amazon, and the limited quantity of soy grown in the Amazon compared to other regions in Brazil. Additionally, the high concentration in the soy industry—with ABIOVE and ANEC’s member forming over 90 percent of the market—allowed the Moratorium to be rapidly established.158 One expert interviewed believes the Soy Moratorium’s dependence on market conditions that can easily shift underlines its overall fragility as a sustainable long-term solution.159 2. Uncertainty over deforestation after the Soy Moratorium’s termination in December 2014 Recent events have highlighted the Moratorium’s fragility. Over the past few years deforestation in the Brazilian Amazon linked to soy has increased—2011 data from INPE shows a near doubling of the number of soybean plantations within newly deforested areas in the states of Mato Grosso, Pará, and Rondônia in 2010.160 Such deforestation may reflect planting cycles (soy is typically only planted on deforested land as a second crop, after several rice rotations increase), and may also reflect the uncertainty surrounding the new Forest Code debated in Brazil’ s Congress in 2011 (and passed in 2012).161 This rise in deforestation was one reason ABIOVE agreed to extend the Soy Moratorium in January 2013.162 Traders’ support for the Moratorium started waning by 2011, Greenpeace reported.163 The Moratorium was renewed in January 2013 and early 2014 only with great difficulty and pressure from environmental groups.164 In February 2014, ABIOVE announced the Moratorium will not be renewed after December 2014, on the premise that provisions in the new Forest Code—including the Rural Environmental Registry (CAR), which mandates that farmers register the outline of their property with the government—will protect forests from deforestation, and render the Moratorium unnecessary.165 Some environmental groups believe this is incorrect, for several reasons. First, the Forest Code does not offer full protection, since it allows farmers to legally deforest 20 percent of their land, and furthermore, historically the Forest Code’s enforcement has been lax. While the CAR will in theory
  26. 26. 26 facilitate prosecution of illegal deforestation by allowing the government to better grasp where illegal deforestation is taking place, it will be ineffectual in the short term, since registering Brazil’s 5 million farmers will take several years. Some Brazilian NGOs are critical of the way in which the government is operationalizing the CAR licensing process. Farmers will be able to prepare CARs without a forest engineer, as well as go through the process of getting Environmental Adjustment Plans (PRA)—which are meant to regularize areas that were deforested in non-compliance with the Forest Code—based on information they declare, without having to get it verified by the government as correct.166 Uncertainty over the extent to which the Brazilian government will impose the new Forest Code has raised concern about the possibility of a resulting legal vacuum, in which farmers would deforest illegally and sell the soy grown on this land to China, who has not demonstrated the environmental reservations as Europeans. The Brazilian soy industry has not demonstrated extensive concern about deforestation after the Moratorium’s end. ABIOVE admits that soy-related deforestation is likely to increase after the Moratorium is lifted, but doubts that soy will be responsible for over 2 percent of new deforestation.167 ANEC has suggested that were soy production to become once again a major driver of deforestation, the Moratorium could be re-instituted.168 Greenpeace—which, as described earlier, has been deeply involved in the Moratorium and is one of its signatories—remains concerned about the Moratorium’s termination. "In the context of deforestation showing signs of growth and new infrastructure projects consolidating in the heart of the Amazon to transport soybeans, the challenges continue to be enormous,” affirms Greenpeace’s Amazon Campaign Director Paulo Adario.169
  27. 27. 27 5. Improved Agricultural Management Practices A. Overview of strategy and dynamics among actors Improved agricultural management practices across various commodity crops can reduce the environmental impacts of agricultural production, including impacts on water quality and quantity, air quality, GHG emissions, and biodiversity. These practices vary between geographies—most noticeably between industrialized systems in developed countries, and labor intensive and smallholder farming in developing countries—as well as between their different current stages of adoption. It is important to acknowledge that agricultural management practices often fit within a specific world-view of how to create a sustainable global food system. One study described three perspectives as emerging in this debate: efficiency oriented, demand restraint, and food system transformation.170 The first perspective holds that technological innovation and management improvements will help reach rising and changing global food demand, while decreasing impacts on the environment. The “demand restraint” perspective places an emphasis on challenging what it considers to be unsustainable consumption patterns (i.e. meat-intensive diets), and the “food system transformation” view “considers both production and consumption in terms of the relationships among actors in the food system, interpreting the problem as one of inequality or imbalance.”171 Practices profiled in this section sit primarily within the first approach, which emphasizes efficiency. More specifically, these practices focus on reducing GHG emissions, from both direct sources (e.g., methane from rice production, and fertilizer application) and indirect sources (e.g., the deforestation associated with the expansion of soy production and cattle ranching in the Brazilian Amazon). 1. Various strategies address direct GHG impacts of agriculture Low-carbon rice farming Rice production has a significant climate impact. Worldwide, it is responsible for 10 percent of anthropogenic methane emissions, or about 1.4 percent of global GHG emissions.172 Field water management techniques have the greatest impact of all low-methane farming practices currently identified. Some such practices, such as field flooding reduction practices, also have the co-benefit of reducing water consumption by rice.173 Rice is the most water-intensive crop in the world, accounting for about 35 to 45 percent of total water withdrawals for irrigation.174 These GHG-emissions reduction practices are different when applied to the industrialized rice production in the US, than to the labor-intensive and smallholder dominated production in Asia. In both geographies, EDF is working to help scale the implementation of practices by making them financially viable, and thus more attractive to farmers. To do this, EDF is working to link US rice farmers to the California carbon markets,n and is also involved in early-stage “low-carbon” rice pilot projects in India and Vietnam.175 n For additional information see Section 8 on Carbon Markets, REDD+, and Agriculture.
  28. 28. 28 Fertilizer optimization on US commodity grain production It is estimated that 60 percent of nitrogen fertilizer applied on commodity grain production (primarily corn and wheat) in the US isn’t absorbed by crops.176 This excess nitrogen runs into waterways or escapes in the atmosphere as nitrous oxide, a GHG 300 times more potent than CO2. This makes over-fertilization the largest source of GHG emissions of US agricultural production, and contributes significantly to water quality problems across the nation. The literature consulted indicates that efficient fertilizer use has the highest potential for immediately reducing GHG emissions associated with commodity grain production while also reducing costs while maintaining or even increasing yields. It also has the co-benefit of reducing impacts on water quality.177 EDF is currently working on several proving projects that engage actors across commodity grain supply chains—retailers like Walmart, food companies, grain processors and suppliers, and farmers—to develop and implement initiatives that engage each level of the supply chain and expand access to a suite of effective options that grain growers can use to optimize their fertilizer use and improve soil health. This includes getting farmers to adopt conservation practices (e.g., cover crops and reduced tillage), as well as join networks and use data-focused tools for evaluating and improving nutrient use efficiency. In the case of corn, for example, fertilizer accounts, on average, for 45 percent of a US corn farmer’s total costs, so cost savings is a key incentive for farmers to join these networks and use effective tools for improving management.178 Other groups conducting fertilizer optimization work include the non-profit Conservation Technology Information Center, many major land grant universities such as University of Missouri, Cornell University, and Purdue University, and grower organizations such as the Indiana Corn Growers Association/Indiana Soybean Association and the Iowa Soybean Association.179 2. Practices like soy yield improvement, cattle intensification, and degraded land rehabilitation can alleviate agriculture’s indirect GHG impacts Soy yield improvement and land sparing Several experts touted increasing soy yields as a method to curtail the expansion of this crop in forested lands in the Amazon and surrounding regions, in this way “sparing land” and helping reduce deforestation. Others, however, warned of the potential negative effects of yield improvement. These contradicting views fall within a broader debate taking place for many years around the merits or drawbacks of yield improvement on agricultural sustainability. One report by the Union of Concerned Scientists provides a synthesis of the varying opinions we heard from experts: “Studies have argued that increasing agricultural yields has prevented global cropland area from more than doubling, with some experts considering yield improvement as absolutely necessary to serve the projected future demand. Others have detailed a more complex picture, with yield increases’ impact on deforestation varying widely with other factors such as governance, policy, and incentives. They suggest the effect may even be the reverse–that increasing yields can make agriculture more profitable and thus promote its expansion into forest–so that higher yields alone may not mean decreased deforestation.” 180
  29. 29. 29 These ranging views are echoed in the specific case of Brazilian soy. One study expressed skepticism of the potential benefits of land sparing at the local level, finding evidence pointing to “a strong positive relationship between soy yields and planted area, implying that policies intending to spare land through technological yield improvements [such as better cultivars] could actually lead to land expansion in the absence of strong land use regulations.”181 Another study demonstrated greater optimism for land sparing, suggesting that agricultural yield increases could result in to reduced deforestation in “frontier” regions, given the conditions that land is available and that policies are in place to promote efficient use of already cleared land. The authors insist, however, that it is uncertain whether governments and industry would be capable of containing deforestation in the Brazilian Amazon, were market pressure for agricultural expansion to rise significantly.182 “Intensification” of livestock production in the Brazilian Amazon Research points to livestock intensification as one of the least-cost and largest-scale strategy for mitigating GHG emissions from beef in Brazil.183 Thus, policy interventions that intensify livestock by reducing pasture area in Brazil could help mitigate GHG emissions in that country.184 Projections estimate that intensification practices could lead to three or four fold productivity gains in the Brazilian Amazon, and by increasing pasture intensification by 50 percent, Brazil could increase production of meat for export, and thus reach its export goals without further deforestation.185 A major barrier to widespread adoption of pasture intensification is high costs. Upfront investment in pasture management (which includes planting of pasture, machinery, and fertilizer) is approximately double the cost of deforesting (and even more if one considers the earnings from the sale of timber that comes with clear-cutting).186 An additional hurdle for making cattle ranching intensification a viable strategy to reduce deforestation is the lack of rigorous scientific studies that measure the outcomes of intensification interventions. The measurement of intensification policies is complicated by the fact that it is only one of many factors influencing land use.187 Rehabilitation of degraded lands Rehabilitating degraded land is another important strategy for easing the pressure on critical ecosystems, including rainforests. Such a practice can be more profitable than converting forest. One promising example is the 10 million hectares that have already been rehabilitated in Brazil, and the additional 25 million hectares are planned to be rehabilitated by 2020.188 A major barrier to scaling this practice, however, remains the lack of tenure regularization for farmers, which often results in the clearing of forest land being a more straightforward solution. This is notably the case with palm oil plantation expansion in Peru, where developers prefer to avoid previously cleared land because land tenure is often unclear, and it is easier to establish tenure over State owned forests.189 In Indonesia, clearing land also benefits palm oil plantation with timber sales.190 To date, legal and technical barriers have prevented implementation of programs attempting to transition agriculture onto degraded lands.191
  30. 30. 30 B. Effectiveness of improved agricultural management practices The practices outlined in this section to reduce both direct and indirect GHG emissions from agriculture, are in their early stages, making it difficult to assess their actual effectiveness. Only on soy yield improvement, however, did we find contrary views, between whether such a practice would result in land sparing and reduce deforestation, or would instead bolster expanded production. While it is premature and difficult to assess the success of this strategy, the literature consulted highlights several broad barriers, as well as enabling conditions that may increase adoption of practices. • Land tenure regularization: Poorly defined land tenure is a major barrier to more sustainable agricultural practices. Clear land tenure is typically a prerequisite to participate in payment for ecosystem services programs, as well as certifications of sustainable production. It is common for poorer farmers in developing countries to have less secure tenure and formal land title, or none at all. Additionally, land tenure clarification programs have a history of being politically difficult and costly.192 • Government policy: Government policies can have a significant impact on agricultural practices. For example, the Brazilian state’s policy in the 1960s-1980s was a main driver of expansion of cattle and soy production in the Amazon. More recently, legal incentives put in place by the Peruvian government to promote palm oil production have contributed to deforestation from palm oil in the Peruvian Amazon, as much of the expansion has taken place in forests.o193 • Finance: Lack of access to finance is a big barrier for smallholders, and other farmers, to implement sustainable practices. p • Greater agricultural innovation: The concerns around mitigating and adapting to climate change are reigniting a focus on the importance of investment in agricultural innovation, for example to continue improving yields, advance plant breeding, and help crops adapt to the negative impacts climate change will have on agriculture, including a greater risk of crop failure. Some have notably called to enhance the complementarity of between public and private agricultural research.194 The difficulty of assessing the effectiveness of farming practices and techniques underscores the obstacles to evaluating the ultimate success of the other strategies in different areas across the value chain. The strategy of implementing sustainable practices on the ground, however, is a critical element in a whole suite of strategies, as many of the other strategies profiled in this paper focus on changing production practices on the ground. o For additional information on government policy, see Section 7 on Government Regulations and Policies. p For additional information on the role of the finance sector in halting the environmental impacts of agricultural commodities, see Section 6 on Investor Sector Actions.
  31. 31. 31 6. Investor Actions A. Overview of strategy and dynamics among actors There is broad agreement that for the world to meet future demand for food in a sustainable way there is a need for significant investment in agriculture.195 Many argue that in light of the significant decrease of public investment in agriculture of recent years, private investors have an increasingly important leadership role to play.196 In light of this trend, this section will focus on “private” finance, rather than on public sector finance. There is also growing acknowledgement that new investments in agriculture need to be “climate smart”—a phrase recently coined by the World Bank referring to practices that “seek to increase sustainable productivity, strengthen farmers’ resilience, reduce agriculture’s greenhouse gas emissions, and increase carbon sequestration.”197 Many in the environmental community believe that financial players in both debt and equity markets have an important role to play in addressing the environmental impacts of agricultural commodities, and helping to drive uptake of sustainable agricultural production practices. The financial sector is a relatively new arena for action addressing environmental impacts from agricultural commodities. Here we highlight a few emerging actions in debt and equity markets, and look at what role civil society organizations have played in promoting and scaling these trends. 1. While environmental criteria platforms are a good step toward sustainable agriculture investments, rigor and implementation can be increased Recent years have seen a growing trend in financial actors acknowledging the importance of incorporating Environment, Social, and Governance (ESG) criteria when evaluating investments, notably as a way to manage systemic and reputational risks related to environmental and social issues. This has led financial institutions such as banks and institutional investors around the world to come together and form voluntary platform through which they agree to public environmental commitments. Several such platforms have a specific focus on agricultural commodities. Those include the following: • The Banking Environment Initiative (BEI), a group of 10 leading banks and other stakeholders that announced in 2010 a “Collaboratory on Soft Commodities” with the Consumer Goods Forum (CGF). This group has committed to eliminating net deforestation and degradation from the majority of portfolios and business activities, with a focus on the commodities that are the main drivers of deforestation—palm oil, beef, soy, timber.198 • The United Nations Principles for Responsible Investment (UNPRI), with over 1000 signatories representing over $32 trillion in assets under management, created the Farmland Working Group and Palm Oil Working Group, and the Principles for Responsible Investment in Farmland. The Working Group supports signatories to integrate ESG criteria through the development of tools and guidance, while the Principles cover identified systemic and reputational risks in the area of soft commodities, including environmental sustainability, labor and human rights, and resource rights.199
  32. 32. 32 • The Equator Principles Financial Institutions (EPFI) requires that International Finance Corporation (IFC) clients in agricultural commodity sectors commit to credible voluntary standards as a prerequisite for financing.200 In the report “The 2050 Criteria: Guide to Responsible Investment in Agriculture, Forest, and Seafood Commodities,” the World Wildlife Fund (WWF) characterizes pre-competitive environmental platforms, such as those listed above, as the finance sector’s most notable area of leadership in combatting the environmental impacts of agricultural commodities. WWF tempers this praise, however, noting that “public compacts have not always translated into action, many sector policies lack sufficient strength or scope, and existing policies do not always translate into implementation, leaving signatories open to persistent risks and reputational attacks.”201 2. Debt market actors have several options to help finance sustainable agricultural production Applying sustainable criteria to lending The WWF 2050 report urges financial institutions to apply thoughtful and scientific sustainability criteria to their lending around agricultural commodities.202 WWF insists that certification schemes can be important tools for investors to gauge the sustainability of the production they are financing.203 The report notes that for some commodities, such as soy, it is becoming increasingly common for financial institutions to provide financing only if certain sustainable production criteria are met.204 Helping producers adopt sustainable practices The WWF report recommends financiers not only fund agricultural activities that already meet specific certification criteria, but also support the transition efforts of producers whose crops are not yet certified. Financial institutions can do this by engaging their clients in “stepwise improvement plans,” under which companies agree on an action plan to transform their production to meet credible performance standards and certifications by a certain date.205 Several formalized programs like these already exist—such as Soy Fast Track Fund, a fund established in 2011 by the Sustainable Trade Initiative (IDH), an organization which deploys a $175 million co-funding grant from the Dutch, Swiss, and Danish Governments, to finance public-private precompetitive market transformation programs for various commodities.206 The Soy Fast Track Fund helps farmers cover the costs and investments needed to transition to responsible soy agricultural practices, such as Integrated Pest Management (IPM) and achieving Round Table for Responsible Soy (RTRS) certification.207 Providing preferential financing for sustainable production Preferential financing is an emerging practice that aims to provide incentives that encourage farmers to comply with specific environmental performance criteria, including certification standards developed by commodity roundtables.q One example of preferential financing is the Low-Carbon Agriculture Program (ABC) in Brazil. Farmers that invest in GHG mitigation options and comply q For additional information , see Section 3 on Commodity Roundtables and Certification.
  33. 33. 33 with certain environmental criteria can receive from the government attractive credit options (e.g., low-interest rate loans and longer repayment period). Cattle ranchers have been the main beneficiaries so far of these loans, with “recovery of degraded pastures” the most common practice funded.208 One report praised the ABC program’s rapid adoption—between its founding in 2010, and 2013, $ 2.3 billion were disbursed. Yet it also highlighted how it is still a marginal practice compared to the $ 64 billion the Brazilian government committed to disburse in 2013 and 2014 to the agriculture and livestock sector with no specific sustainability requirements, and at similar or slightly higher interest rates.209 Finance experts we interviewed saw some opportunity for international banks to provide preferential financing to incentivize and facilitate suppliers’ transition to more sustainable agricultural practices and achieve certain certifications. They also emphasized, however, the difficulties the sector faces in promoting sustainable production. For example, in the case of palm oil in South East Asia, they believed there is too little demand for a large financial institution to provide supply chain financing.210 Restricting access to finance While the financial approaches described so far focus on supporting sustainable production through positive incentives, financial actors can also use negative incentives to address the environmental impacts of agricultural commodities and guide the transition toward sustainable production. Restricting access to finance is one example. Financial restrictions have, to some extent, already been implemented in Brazil for both soy and beef. The Soy Moratorium has de facto threatened access to finance for farmers—indeed, those farmers who do not comply with the Moratorium risk losing traders’ financial support for buying seeds and fertilizer, which represents a primary sources of credit Brazilian farmers have access to.211 Another example of a restrictive role is the World Bank’s withdrawal in 2009 of a 90 million dollar loan to Brazilian beef slaughterhouse Bertin to expand its operations in the Brazilian Amazon. The World Bank revoked the loan following a report by Greenpeace linking the company to illegal deforestation in that region.212 3. Equity market players are using shareholder resolutions and divestment to help shift companies toward sustainable production Two types of actions currently used by actors in equity markets include promoting investment in sustainable production through shareholder resolutions and discouraging unsustainable production through divestment. Shareholder resolutions Equity investors can file shareholder resolutions, demanding that companies in agricultural supply chains take on specific policies and/or targets to increase procurement of sustainably produced commodities and halt support of destructive practices, emphasizing the systemic and reputational risk the corporation faces otherwise.213 Several sustainable investment and mutual funds, and institutional investors such as the New York State Pension Fund, have in the past several years filed shareholder resolutions against companies who use palm oil in their supply chain, asking them to

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