Business unusual: align government, finance and corporate actions

9 Jun 2017

 

Many seemingly conflicting issues are factored into the 17 Sustainable Development Goals. On one side are environmental issues. Some 13 million hectares of forest were lost every year between 2000 and 2010 and greenhouse gas emissions from agriculture, forestry and other land use are between 20-24% per annum of total global manmade emissions. On the other side are social and developmental issues. For example, about 800 million people go hungry today. To address food insecurity and feed the expected growing population of 9 billion people by 2050, food production will have to increase by 60% by 2050.

 

Without a different way in which land is used for both production and to protect ecosystems, it will be difficult, if not impossible to meet the Global Goals. The solution needs to include a more efficient use of existing agricultural land (especially smallholder farms) and restoration of degraded areas to stimulate rural economic development and reduce pressure to convert more forests.

 

The magnitude of private finance invested in the production of commodities that drive most deforestation around the globe is huge, in the order of US$1.7 trillion, and annual trade in soft commodities related to palm oil, beef, soy and timber is around US$137 billion of which around half originates from illegally cleared land. Given that around 70% of deforestation is caused by the production of palm oil, soy, beef and timber, there is an urgent need for companies across the agricultural value chain – producers, processors, traders and retailers – to decouple production of such commodities from forest impacts. And their main motivations are not carbon-related, but rather from a need to maintain (or regain) reputational capital and consumer confidence, and to meet more stringent requirements by importing countries.

 

In this sense the following elements are especially relevant:

 

  • Remove deforestation from agriculture

The majority of agribusinesses still lacks zero (net) deforestation commitments. Most companies upstream in the agribusiness supply chain do not have forest policies that detail how to decouple production of beef, soy, palm oil and other commodities from forest impact. Retailers ‘downstream’ in the supply chain can also take concrete action by requiring suppliers to buy products only from farms and areas that are committed to zero deforestation.

 

  • Decouple deforestation from finance

Finance institutions need to step up efforts to require clients and investee companies to adhere to zero (net) deforestation commitments and require reporting to track progress. Financial institutions can take immediate concrete efforts, such as: pledging that a certain percentage of loan and investment portfolios in agriculture, infrastructure and extractive sectors do not contribute to deforestation; and developing new loan and investment products that decouple forest impacts from the production of causal commodities (crops, metals, minerals). An excellent example is the Tropical Forest and Agriculture Fund that aims to trigger private investments in deforestation-free agriculture in countries by requiring strict targets on forest protection or restoration on and off concession.

 

  • Align agricultural fiscal policies

The magnitude of agricultural subsidies often vastly outweighs funding for forest conservation. Brazil and Indonesia together provided over US$40 billion in subsidies to palm oil, timber, soy, and biofuel sectors between 2009 and 2012, which is more than a hundred times the US$346 million these countries received through REDD+ to reduce emissions from deforestation and forest degradation, stimulate conservation and sustainable forest management, and enhance forest carbon stocks. Governments, including Indonesia, have started to reform the US$200 billion conventional agricultural subsidies in order to require farmers to obtain sustainability certifications for soy, palm oil, timber, etc., and stimulate yield increase on existing land or use degraded land.

 

  • Step up public funding for REDD+

Land use-related climate finance was in the order of US$ 5.8 billion in 2012/2013 whereas the International Resource Panel of UN Environment estimated in 2014 that around US$30 billion in annual funding is needed to support developing countries to significantly reduce deforestation. It is crucial for governments to step up financial support to less developed nations to ensure they will achieve their Nationally Determined Contributions under the Paris climate agreement.

 

The post is based on an article with the same title in ETFRN NEWS #58 ’ZERO DEFORESTATION: A COMMITMENT TO CHANGE’, which can be downloaded here.

 

 

Ivo Mulder is Finance and Private Sector Coordinator with UN Environment’s Terrestrial Ecosystem Unit and can be reached under ivo.mulder@unenvironment.org

 

 

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