- Agricultural commodities — especially beef, palm oil, soy, and pulp and paper — have become an increasingly important driver of deforestation over the past couple decades, particularly in the tropics.
- While there’s a lot of work left to be done, WEF and TFA 2020 see momentum building toward a sea change in the global supply chain for these much-in-demand commodities.
- Overcoming the barriers to sustainable production of the big four commodities and supporting the transition to deforestation-free supply chains represents an investment opportunity that will “roughly total US$ 200 billion annually” by 2020, per the report.
It’s estimated that about 10 percent of global emissions comes from deforestation — meaning we could make considerable progress toward halting climate change simply by keeping what remains of the world’s forests standing.
Agricultural commodities — especially beef, palm oil, soy, and pulp and paper — have become an increasingly important driver of deforestation over the past couple decades, particularly in the tropics.
A December 2015 study found that the production of those four commodities in just seven countries (Argentina, Bolivia, Brazil, Paraguay, Indonesia, Malaysia, and Papua New Guinea) led to an average deforestation area of 3.8 million hectares (9.4 million acres) and land use change emissions of 1.6 gigatonnes CO2 equivalent (GtCO2) per year between 2000 and 2011. That’s 40 percent of total tropical deforestation and 44 percent of associated carbon emissions, due to the production of just four commodities in seven countries.
The production of these commodities in the tropical forest regions of Latin America, Southeast Asia, and Sub-Saharan Africa is worth roughly $180 billion every year, according to a new report by the World Economic Forum (WEF) and Tropical Forest Alliance 2020 (TFA 2020). But transforming the global supply chains for beef, palm oil, soy, and pulp and paper so that they are truly sustainable “is an investment opportunity to the tune of roughly $200 billion a year,” Marco Albani, the director of TFA 2020 and a member of the executive committee at WEF, wrote in a blog post accompanying the release of the report.
This is an opportunity that the financial sector can capitalize on “by scaling up emerging models of deforestation-free finance,” Albani adds.
Since the adoption of the New York Declaration on Forests (NYDF) in 2014, the number of deforestation-related pledges made by the private sector has continually increased. A progress report on the NYDF released last year by Climate Focus found that the number of companies making commitments to protect forests had jumped to 415, up from 307 the previous year.
Of the deforestation commitments made by companies active in the trade of the four major agricultural commodities, which can cover more than one commodity, the majority address palm oil (59 percent) and wood products like pulp and paper (53 percent). Despite representing a much larger share of global deforestation, the soy and cattle supply chains are the subject of significantly fewer commitments — 21 and 12 percent, respectively.
Another major hurdle is the fact that, based on recent research, companies that rely on agricultural commodities like beef, palm oil, soy, and pulp and paper have underestimated the risk of deforestation in their supply chains and are unlikely to achieve their time-bound goals for cutting the ties between their operations and forest destruction.
While there’s a lot of work left to be done, WEF and TFA 2020 see momentum building toward a sea change in the global supply chain for these much-in-demand commodities: “Although challenges remain, the extent and pace with which commitments have been made suggest a potential tipping point, with deforestation-free standards becoming the norm,” the authors of the report write.
In perhaps a sign of this building momentum, seven oil palm-growing tropical African nations pledged last November to work with TFA 2020 and others to protect their forests by shifting entirely to sustainable palm oil production.
Investments in sustainable production can lead to a boost in productivity per hectare and therefore significantly higher overall profitability, reduced input costs, and improved worker productivity, the report states. “In addition, it could bring ‘price advantages’ in the form of a small market price premium from conscientious consumers and the potential monetization of ecosystem services (e.g. carbon sequestration) through private or public payment systems,” the authors add.
Overcoming the barriers to sustainable production of the big four commodities and supporting the transition to deforestation-free supply chains represents an investment opportunity that will “roughly total US$ 200 billion annually” by 2020, per the report.
“The commercial case for sustainable production points to a virtuous cycle of attractive returns, reduced risk and greater access to cheaper capital,” the authors conclude, noting that “Leading investors can better prepare to capture this opportunity through enhanced knowledge of the types of investments that provide strong returns, and through improved risk assessment.”
The report, Albani writes in his blog post, focuses on six models for promoting deforestation-free finance, “none of which is mutually exclusive and which are, indeed, often deployed in combination.” They are: “Compliance requirements applied by financial institutions”; “Compliance requirements applied by integrated or midstream players”; “Revision of financial institution’s risk-assessment methods to incorporate the benefits of deforestation-free supply chains”; “Innovative and green-labelled instruments that reduce the cost or increase the pool of finance”; “Sustainability-linked offtake agreements tied to finance”; and “Publicly funded facilities to provide long-term capital, enhance returns or off-take risk.”
However, in order to unlock the many benefits of achieving sustainability in the global commodities supply chain, the financial sector “needs to step up its involvement in this agenda,” Albani writes: “Cooperation between the financial industry, governments, producers and supply-chain partners can help identify opportunities for deforestation-free investments, develop a pipeline of projects and design scalable financing models.”
CITATION
- Henders, S., Persson, U. M., & Kastner, T. (2015). Trading forests: land-use change and carbon emissions embodied in production and exports of forest-risk commodities. Environmental Research Letters, 10(12), 125012. doi:10.1088/1748-9326/10/12/125012
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