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FAQs on the 'Soft Commodities' Compact

Context of the ‘Soft Commodities’ Compact

What is the ‘Soft Commodities’ Compact?

The 'Soft Commodities' Compact focuses upon the four food and timber commodities that have a very significant impact upon deforestation and biodiversity. The commodities are soy, palm oil, beef and pulp, paper and timber (PP&T).

The goal of the ‘Soft Commodities’ Compact is to achieve zero net deforestation in the soft commodities supply chains of Consumer Goods Forum members by 2020.

It is a unique, company-led initiative that aims to mobilise the banking industry as a whole to contribute to transforming soft commodity supply chains. It is one of the key workstreams of the BEI.

How was the Compact founded?

The ‘Soft Commodities’ Compact was developed by the Consumer Goods Forum (CGF) and the Banking Environment Initiative (BEI) with the support and advice of the WWF.

In 2010, the Chief Executives of the CGF Board of Directors resolved that, with its combined procurement power of over $3 trillion, the CGF would help to achieve zero net deforestation by 2020.

The Compact was adopted by the Banking Environment Initiative in 2012 and endorsed by the CGF Board in late 2013.

Why was WWF involved as a civil society actor in the development of the ‘Soft Commodities’ Compact?

Both BEI and CGF members invited the WWF’s participation because of its knowledge of market-based approaches to achieving sustainability in agricultural supply chains.

Supporters and stakeholders

Why is the Consumer Goods Forum important to the Banking Environment Initiative?

Collaboration with groups and major corporate bank clients that share similar ambitions is central to the BEI’s overall strategy for change. Achieving sustainability goals within complex systems is challenging and cannot be achieved by one organisation or group alone.

Change in one part of the system, such as banking, can be far more effective if aligned with change in another part of the system, such as the buying practices of major manufacturing companies that use large quantities of the soft commodities.

The CGF brings together the Chief Executives of some 400 retailers, manufacturers, service providers and stakeholders across 70 countries. A full list of CGF members can be found here.

The CGF’s combined influence and expertise is considered a good match to enable the BEI to deliver on its mission to direct capital towards environmentally and socially sustainable economic development.

Why is the Banking Environment Initiative important to the CGF?

The CGF recognises that its chances of achieving its deforestation goal will be significantly increased if it can collaborate with other actors that have material influence over the functioning of soft commodity production and supply chains. The CGF has therefore adopted a multi-stakeholder approach to the challenges.

The provision of finance is vital to the production and trade of soft commodities. This is why the CGF welcomed an alliance with the BEI, given the Initiative’s ambition to lead the banking industry in identifying ways to collectively direct capital towards environmentally and socially sustainable economic development.

Who can get involved in the 'Soft Commodities' Compact?

The CGF and BEI are actively encouraging all international and regional banks to adopt the ‘Soft Commodities’ Compact.

In addition, the BEI and CGF welcome comment and input from all interested parties, and in particular relevant banking institutions, international bodies, governments and civil society organisations. The Compact process is an evolving one and can benefit from constructive contributions from other stakeholders.

Implementing change

What does ‘zero net deforestation’ mean?

“Zero net deforestation” can be distinguished from "zero deforestation", which means no deforestation anywhere.

“Zero net deforestation" acknowledges that some forest loss could be offset by forest restoration. “Zero net deforestation” is not synonymous with a total prohibition on forest clearing. Rather, it leaves room for change in the configuration of the land-use mosaic, provided the net quantity, quality and carbon density of forests is maintained. It recognises that, in some circumstances, conversion of forests in one site may contribute to the sustainable development and conservation of the wider landscape (e.g. reducing livestock grazing in a protected area may require conversion of forest areas in the buffer zone to provide farmland to local communities).

However, “zero net deforestation” is not achieved through the conversion of primary or natural forests into fast growing plantations. Such conversion would count as deforestation in assessing progress against the target.

Approaches to implementing a “zero net deforestation” policy should prioritise avoiding the conversion of forests with a High Conservation Value (HCV)1 or that are considered to be High Carbon Stocks (HCS)2.

1 Please see http://www.hcvnetwork.org/ for a working definition of HCV

2 While efforts to agree one methodology, with multi-stakeholder backing, for identifying HCS forests continue, this is aspirational. As an example, please see https://www.greenpeace.org/southeastasia/press/631/high-carbon-stock-approach-steering-group-launches-toolkit-for-deforestation-free-plantations/ and http://highcarbonstock.org/the-hcs-approach-toolkit/ for a working definition of HCS.

What does the ‘Soft Commodities’ Compact mean for banks?

Banks adopting the ‘Soft Commodities’ Compact commit to helping to achieve zero net deforestation by 2020 through their financing of soft commodity supply chains.

Compact banks commit to:

  1. Work on the supply chains with companies who are members of the Consumer Goods Forum to find appropriate ways to finance the growth of markets producing palm oil, timber products, soy or beef without contributing to deforestation.
  2. Confirming that their corporate and investment banking customers whose operations include significant production or processing of palm oil, timber products or soy in markets at high risk of tropical deforestation can verify that these operations are consistent with zero net deforestation by 2020.

These strategies are designed to facilitate the soft commodity industry to transition at scale to sustainable production practices which are decoupled from deforestation.

How will banks’ commitments to the Compact help CGF companies deliver their deforestation goal?

Producers wishing to adopt more sustainable practices often cite a lack of access to appropriate forms of finance as a barrier to making the transition. The commitments of the banks supporting the Compact can help address this.

  1. New solutions - The provision of finance to producers is not straightforward and may require the creation of new financing solutions, including the involvement of buyers or off-takers to reduce the risks involved, to be commercially viable.
  2. Acceleration - By working with CGF member-company supply chains to find supply chain finance solutions, Compact banks hope to accelerate this transition. Without this active collaboration, proactive efforts to finance the transition will not meet the scale of demand.

How are CGF members helping to transition to zero net deforestation supply chains?

Consumer Goods Forum companies are trying to lead supply chain transformation by making public commitments to procure commodities produced to defined standards. This is intended to create a clear demand signal for greater sustainability standards from their suppliers.

The Compact banks’ commitment to raise industry-wide banking standards is intended to reinforce and support this demand signal by committing banks to work with their customers to confirm that they meet the CGF’s standards.

Will Compact banks stop doing business with customers who cannot prove their operations are consistent with zero net deforestation and report on their progress?

The ‘Soft Commodities’ Compact is intended to align banking services with the CGF’s strategy to deliver its deforestation goal, so that banks help to achieve zero net deforestation through their financing of soft commodity supply chains.

To ensure compliance with Competition Law, the ‘Soft Commodities’ Compact is not intended to result in Compact banks taking collective decisions beyond their commitment to align their banking services with the CGF’s resolution to help achieve zero net deforestation by 2020. Compact banks will therefore continue to assess business opportunities and decisions individually and unilaterally and this will include decisions about who they will and will not do business with.

The work of the group has produced Technical Guidance that banks have used to develop their own policies and processes that deal with existing and new corporate clients consistent with the goals of the Compact.

Moving forward

Are there challenges facing the work of the ‘Soft Commodities’ Compact?

The work takes place within a complex, inter-woven system of growers, manufacturers and retailers under varied jurisdictions and regulatory regimes. A challenge has been that top down change imposed by a small number of banks runs the risk of creating unexpected and unwelcome outcomes.

The strategy of the Compact, both by the banks and the CGF members, remains focused upon collective action and the use of market dynamics to effect lasting and large scale change.

What has been achieved?

Each of the compact banks has published the steps taken to implement the Compact. These are different for each bank and reflect the fact that different banks are involved in varying ways, as reflected in their client base, in each of the commodity supply chains.

A common challenge faced by all banks is to manage their relationship with a client that may be engaged in activities that are not in line with the zero net deforestation goal. Rather than automatically withdrawing from such a relationship – leaving a gap that might simply be filled by another entity that has not committed to the Compact or that may have negative unintended consequences for the wider local economy or smallholders – Compact banks tend to put in place a way to manage the relationship for a positive outcome.

Will the 2020 target be achieved?

Creating lasting change on this complex problem has proven hard, but not impossible. Progress has been made but the reality is that the goal of the ‘Soft Commodities’ Compact will not be achieved by the 2020 deadline. Nonetheless, the banks supporting the Compact remain dedicated to achieving zero net deforestation across the soft commodity sectors. They will continue to work beyond 2020, building upon what has been learnt and achieved to date.

To this end, the Cambridge Institute for Sustainability Leadership (CISL) is producing a paper on the learnings from the Compact, as well as five specific action points that every bank can do next to halt and reverse deforestation. We expect for this to be published in December 2020. During the preparation of this, we will be scoping how CISL can best support the continued mission of achieving zero net deforestation through the financial system and are working to align with other initiatives in the space.

What next for banks not yet involved in this initiative?

Clients are facing increasing calls from civil society and consumers to adopt increasingly sustainable sourcing practices. Banks can be a part of the solution to provide the financial mechanisms to accelerate this transition and service this emerging market need.

The challenges for the environment remain. Deforestation poses an immediate threat to the local forests and their biodiversity, which can have significant knock-on effects to local and regional markets. In addition, deforestation contributes to global trends in climate change and resultant habitat degradation (e.g. desertification and weather extremes that impact agricultural capacity and other business activities).The World Economic Forum recognises that climate change and environmental degradation are significant factors contributing to social and economic risk in the immediate future. Subsequently, there remains a strong risk management argument for supporting the ‘Soft Commodities’ Compact.

Governance

How is the ‘Soft Commodities’ Compact governed?

The ‘Soft Commodities’ Compact is the product of the alliance between the BEI and the CGF, so its governance draws on the procedures of these two groups.

For the CGF, changes to the ‘Soft Commodities’ Compact are overseen by the CGF’s Sustainability Steering Group and, as required, approved by the CGF Board. This process is managed by the CGF Secretariat in Paris.

For the BEI, non-BEI member views will be taken actively into consideration and any changes to the ‘Soft Commodities’ Compact are overseen by the BEI Working Group. As required, such decisions will be approved by the BEI working group. This process is managed by the BEI Secretariat at CISL.

Does the 'Soft Commodities’ Compact represent a position by CISL or the wider University of Cambridge?

The ‘Soft Commodities’ Compact is the result of extensive collaboration between the BEI and the CGF, with advice from the WWF. CISL has the role of secretariat. Decisions and positions stemming from this collaboration do not represent the policies or positions of CISL or the wider University of Cambridge.

Is the ‘Soft Commodities’ Compact linked to any other commodity or sustainability initiatives?

The BEI and CGF are not aiming to set their own, new sustainability standards.

The ‘Soft Commodities’ Compact prioritises and aims to build on existing initiatives and standards that have been, or are being, developed by players within these industry sectors.

Examples being used as the starting points are the Roundtable on Sustainable Palm Oil (RSPO), Forest Stewardship Council (FSC), Programme for the Endorsement of Forest Certification (PEFC) and the Roundtable on Responsible Soy (RTRS).

Why should banks adopt the ‘Soft Commodities’ Compact?

The challenge of achieving zero net deforestation is not one that any individual bank can overcome. Together, Compact banks are better placed to showcase practice that has the capacity to facilitate change – to lead the banking industry to identify and implement measures that support practices that reduce deforestation in supply chains.

Adopting the Compact also provides banks with the opportunity to:

Connect risk management practices with client approaches to drive market transformation – As the global population continues to multiply, driving further growth in consumer demand, reconciling the competing human and environmental demands on agricultural value chains will only become more critical. The CGF is a progressive group of globally influential buyers, already working with suppliers and governments from around the world to raise standards.

For banks seeking to track changing market expectations and manage their own business risks, while strengthening client relationships, the ‘Soft Commodities’ Compact offers a mechanism for efficient collective engagement with the buyers raising sustainability standards in corporate value chains.

Develop financing solutions at a scale that offers material commercial rewards – In order to achieve their goal, CGF companies require nothing less than a complete transformation of the supply chains on which they depend. Bilateral financing solutions alone will not achieve this.

Enhance client relationships by catalysing a truly industry-wide approach – Some banks have already adopted individual policies which address deforestation. On occasion, acting alone has created challenges in engaging with clients and ensuring adherence to these policies, especially while alternative sources of finance have been readily available. The ‘Soft Commodities’ Compact seeks to address this challenge directly; it is client-led and aims to secure the support of a critical mass of the banking industry. This reduces implementation risks and offers the opportunity to strengthen client relationships, while also preparing banks should CGF companies seek to favour relationships with banks whose policies are aligned with their sustainability objectives.

BEI member Compact adopters

BEI signatories

Non-member banks that have adopted the Compact

Non BEI signatories

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