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The Banking Environment Initiative (BEI) and Consumer Goods Forum (CGF)’s 'Soft Commodities' Compact

The 'Soft Commodities' Compact is a unique, company-led initiative that works with the banking industry to help transform soft commodity supply chains and help the banks’ clients (companies) achieve zero net deforestation by 2020.

 

Jointly launched by the Consumer Goods Forum and the Banking Environment Initiative in 2014, the ‘Soft Commodities’ Compact focuses on the four food and timber commodities that have a very significant impact upon deforestation and biodiversity.

Since its launch, a dozen major global banks adopted the ‘Soft Commodities’ Compact (henceforth the Compact) to help achieve zero net deforestation in the four commodities of soy, palm oil, beef and PP&T (paper, pulp and timber).

 

How the Compact works 


Soft Commodities Compact Infographic

The Compact aligns bank practice with the Consumer Goods Forum Board’s resolution on deforestation, which supports global efforts to reach Sustainable Development Goal 15.

The Compact complies with competition law and therefore cannot be prescriptive. Rather, the intention is to lead the banking industry to identify and implement measures that support practices that reduce deforestation in the supply chains of their client base.

The Compact has two overarching strategies to achieve its zero net deforestation goals for four soft commodities:

  1. Develop banking practices that support finance for initiatives that shift commodity production to sustainable practices.
  2. Raise standards used by the banking industry in their relationships with clients that are involved in these commodities (see the Technical Guidance for more details).

Individual Compact Banks can then make their own decisions on if and how to incorporate the Compact’s solutions into their own business practices. This flexibility allows banks to prioritise the actions most relevant to their own particular business contexts. Importantly, this also respects the regulatory requirements of Competition Law.

Download the infographic

 

 

Update


Whilst progress has been made, practical experience gained in the implementation of the Compact has helped adopters further appreciate the complex challenge of tackling deforestation.

Creating lasting change on this deeply 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 lessons drawn from the Compact, as well as five specific action points that every bank can do next to halt and reverse deforestation. We expect 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.

 

In 2018, a seminar was held that was attended by stakeholders in soft commodities markets. The group consisted of production, trading, processing and financing professionals, as well as a select group of representatives from NGOs and academia. It covered the current state of global deforestation and the actions against it by the consumer goods sector and banking sector.

The seminar identified several issues that need to be tackled for finance to contribute effectively to the countering of deforestation. These included land rights, poverty of rural populations, lack of demand globally for sustainable produce, ‘silo-isation’ within and between functions, firms and sectors, adverse effects of top-down/centralised strategies, supply chain intransparency and access to finance.

The challenge of scaling finance to remove deforestation risk from soft commodity supply chains was front of mind. Discussion focused on how to define the new financial toolkit that could deliver such scale and the types of stakeholders that would need to be involved to reach scale effectively.

CISL’s work on the Sustainable Shipment Letter of Credit, the BEI’s Fintech Taskforce and Project Trado, which culminated in the financing of sustainable tea from Malawi, are all examples of collaborative attempts by financial institutions and other stakeholders to better understand what could be in such a financial toolkit.

BEI member Compact adopters

BEI signatories

Non-member banks that have adopted the Compact

Non BEI signatories

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