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The Business Case for Reduced Deforestation: Palm Oil in Indonesia, Looking Through a Palm Oil Grower's Eyes – UNEP FI
The document discusses the business case for adopting 'no deforestation' practices in palm oil production in Indonesia, emphasizing the financial implications for growers and the need for investment to maintain performance. It highlights the various risks associated with deforestation, including biophysical, legal, and social factors, while presenting strategies for avoiding deforestation. The necessity for policy change and the unequal distribution of cost burdens among stakeholders are key points addressed.
The Business Case for Reduced Deforestation: Palm Oil in Indonesia, Looking Through a Palm Oil Grower's Eyes – UNEP FI
- 1. !!!! www.unepfi.org! The Business Casefor Reduced Deforestation Palm Oil In Indonesia Looking through a palm oil growers’ eyes GLF Cluster, London,Weds 10 June 2015!
- 2. Attracting investment requiresa credible business case! • Many companies have pledged “no deforestation” in their products – particularly western market facing downstream companies! • However, delivering the change needed on the ground has significant implications for palm oil growers! • Absent new regulations, they will only be motivated to invest in this change if their financial performance is maintained or enhanced. If not, the speed of change will be slow and naturally limited ! ! ! "#$%!&'#!()*+,**)'-!'-./! 0!
- 3. 12! 13242224222! 10242224222! 15242224222! 16242224222! 17242224222! 18242224222! 19242224222! 1:242224222! 1;242224222! Understanding impacts onfinancial performance! "#$%!&'#!()*+,**)'-!'-./! 5! Business as usual! “No deforestation” activities! BaU ! Revenue! Potential losses from deforestation! Risk Adjusted Revenue! Risk mitigation / Net Impact! Projected Net Revenue! $! Value created!
- 4. ! Part1! Risks from deforestationto companies in palm oil supply chains! ! ! "#$%!&'#!()*+,**)'-!'-./! 6!
- 5. Deforestation-related risk factorsaffecting palm oil production ! Biophysical risks! Stranded Assets risks (climate change)! Social risks! Legal risks! Commercial and Market risks (reputation)! frequency! intensity! Biophysical! Commercial ! & ! Market! Legal! risks! Social! risks! Stranded! Assets! risks! Health risks! Health! risks! These results are based on our assumptions and need to be validated through a comprehensive review process! "#$%!&'#!()*+,**)'-!'-./! 7!
- 6. !"#$ %& '()#%"* +,-%"* !($ $ . %/0, 1#/,* 2,3&* 2,%&* 4,%"&5* !($ 6# Translating the riskfactors into financial impacts! Stranded! Assets! risks! Social! risks! Legal! risks! Commercial! risks! Market! risks! Fire! risks! Pest! risks! Peat! risks! Health! risks! Combined! factors! Total! Impacts ($)! "#$%!&'#!()*+,**)'-!'-./! 8!
- 7. ! Part 2! Strategies forAvoiding Deforestation:! ! ! "#$%!&'#!()*+,**)'-!'-./! 9!
- 8. Delivery strategies! • Setaside forest land! • No fire to clear land! • Exclude non-compliant suppliers! "#$%!&'#!()*+,**)'-!'-./! :! </!-,+.=,*! >.'-?!*,@@./! +A$)-! • Certification! • Self verification! B'!#=(,+=!(=&'#=*C$D'-! B'!@#'E=!)F@$+C!B'!+'F@=-*$C=! • Segmentation! • via dual supply chains! • via catchment area! • Mass balance! • Book and claim ! • Land swap! • GAP & intensification! • Bundled revenue !
- 9. Assessment of theseactions (from point of view of the nucleus)! Set aside! Land swap! Carbon income! Certification! Segmentation! GAP & intensificat’n! "#$%!&'#!()*+,**)'-!'-./! Potentially! n/a! n/a! No! Yes! n/a! Yes! No! No! Challenging! Challenging! Challenging! Implementable!Mitigates deforest’n risk! Exclude suppliers! Yes! Yes! Legal, social & biophysical! Reputation?! Social, commercial! New risks! High cost! High net gain! Small net gain! Low cost! High! Net gain! Variable cost! Cost!
- 10. ! Part 3! Is therean investment case for “no deforestation” palm oil?! ! ! "#$%!&'#!()*+,**)'-!'-./! 32!
- 11. !"# !$"%"""%"""# !&"%"""%"""# !'"%"""%"""# !("%"""%"""# !)"%"""%"""# !*"%"""%"""# !+"%"""%"""# !,"%"""%"""# !-"%"""%"""# A hypothetical investmentcase! Stranded! Assets ! costs! Social! costs! Legal! costs! Commercial! costs! Market! costs! Biophysical! costs! Combined! factors! HCV risk reduction potential! HCS risk reduction potential! Forgone profits and extra costs! Legal costs! Social costs! Costs related to business as usual deforestation! HCV/HCS risk reduction! HCV/HCS costs of implementation! Other compensatory measures! Land swapping! Carbon payments! Yield improvement! "#$%!&'#!()*+,**)'-!'-./! 33! Value created!
- 12. Discussion questions! For anindividual company! ! • What are the key risks and opportunities that are or can drive private sector investment in no deforestation palm oil? ! • Which of these can they not mitigate or cover themselves?! • With this in mind, can an investment case currently be articulated and quantified?! ! Looking across the industry, given the strategies being pursued, the known costs, challenges and risks, and anticipating how this might play out:! ! • Who is currently bearing the cost burden? Who should bear it? ! • Are we at risk of a split market? How to we invest to avoid that? What is required beyond individual company objectives?! • Who has influence to change investment landscape? What policy change needed? What, if any, leverage do lenders have? ! ! "#$%!&'#!()*+,**)'-!'-./! 30!
- 13. Key points! • Delivering“no deforestation” is costly, and creates additional risks for companies! • Cost burden is not falling equally – who is bearing and who should? ! • Policy change is needed to remove some of these barriers and risks associated with ! • Trade off here – risk social conflict as seek to reduce environmental impact ! ! ! ! "#$%!&'#!()*+,**)'-!'-./! 35!