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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 upon the four food and timber commodities that have the largest impact upon deforestation and biodiversity.

Since its launch a dozen major global banks have championed the Soft Commodities Compact to help achieve net zero deforestation in the four commodities of soy, palm oil, beef and PP&T (paper, pulp and timber).

 

How the Compact works – the Compact Implementation Group


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 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 has two overarching strategies to achieve its net zero 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.

The Compact Implementation Group (CIG) is made up of representatives of the Compact banks. The purpose of the CIG is to develop a framework for new policies and services for the banking industry. Individual Compact Banks can then make their own decisions on if and how to incorporate the Compact’s solutions into their own business practice. This flexible approach is pragmatic given that all banks are different in terms of their mixture of banking services, markets and client base. The flexibility allows banks to prioritise the actions most relevant to their own particular business context. Importantly, this also takes into account the various regulatory requirements of Competition Law.

 

Progress


Whilst progress has been made, practical experience gained in the implementation of the Compact has revealed that this is a complex challenge. To take one example of this complexity, consider the number of people and organisations involved in the supply chain for palm oil – from the tens of thousands of smallholders in the forests of Malaysia, to the thousands of major food manufacturers and then the hundreds of major retailers. Each of these bodies is involved in their own system of relationships – financial and personal – with many other businesses. Changing just one part of that system can cause unintended outcomes. Consequently, implementing changes to achieve a positive outcome has to be carefully managed and monitored so that it matches intentions.

 

Good intentions, poor outcomes – change in a complex system 

One difference between ‘complicated systems’ and a ‘complex system’ is, respectively, the presence or absence of predictable cause and effect. In a complicated system, like a car engine, actions tend to lead to expected results. For example, turning the key or pushing a button starts the car engine. If something does not work then it is relatively easy to track the cause because the parts of the system, and how they relate to one another, are known and predictable. 

On the other hand, the numerous moving parts of complex systems are, in addition, part of complex networks of relationships. These relationships are not all known or understood. How the parts of the network interact with one another, and the results of those interactions and reactions, are also often unknown. This means that complex systems can descend into chaos if something new is introduced. Shifting the way things work in such intricate systems introduces the risk of creating unintended consequences. Strategies to facilitate positive change therefore need to be cautious, controlled and gradual and utilise “test-review-improve” methodologies. This makes managing or creating positive change in a complex system hard to achieve, but not impossible. Each step taken deserves careful assessment to ensure it is producing the intended positive outcome.  

Such a stepped approach is reflected in the key performance indicators of the Compact’s Technical Guidance.

 

 

 

 

 

 

 

 

 

 

 

BEI member Compact adopters

BEI signatories

Non-member banks that have adopted the Compact

Non BEI signatories

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