12 January 2021 – The transition to a net zero, nature-positive world requires focused collaboration between business, government and finance institutions, writes Simon Connell, Head of Sustainability Strategy, Standard Chartered and Chair of the BEI.
Sustainable development, in aggregate or in its component parts, is not easy. If it were, we would be living on a planet with less than 1.5 degrees of global warming, and have ways of meeting all of society’s needs within the planetary boundaries.
In that regard, what I value so highly about the University of Cambridge Banking Environment Initiative and its member banks is their continued willingness to take on challenges in the full faith that they will be solved – and solved in partnership with equally ambitious and foresighted organisations.
It doesn’t always work out the way we plan!
I am often drawn back to the example of Project Trado; utilising distributed ledger and supply chain financing to aid and incentivise the flow of sustainability information up the supply chain from smallholder farmers. While we didn’t succeed in changing the economics enough to make the ‘incentivise’ part work, those participating took away insight well beyond the resources invested into the initiative, with knowledge gained about how trade finance could grow the supply of sustainability data, as shared in the Trado report.
So it was, with that context, that I have been participating in the concluding phases of the Soft Commodities Compact. There is no doubt that the participating banks are leaders in tackling issues of deforestation, all being in the top quartile of the Global Canopy Forest 500. But there is also no doubt that we didn’t achieve all that we hoped six years ago when we set out on this journey, even if we have learnt a lot along the way.
We have learnt, through our work on this project, that accelerating the transition to a net zero, nature-positive world requires focused collaboration between business, government and finance institutions.
In the case of soft commodities, one of the challenges was the issue of scale. Although the Consumer Goods Forum represents over 400 companies, there are limits to scalability of solutions when being applied by a dozen global banks when in some geographies around three-quarters of finance for soft commodity producers comes from local banks.
There are also practical impediments to solutions, including the availability of trustworthy data for due diligence. Opportunities exist by working together as banks and with those along supply chains to improve the data, enabling the policies set by Compact banks to continue to improve and for the wider industry to be better equipped to follow.
And to be clear, no Compact bank is claiming to have eradicated deforestation – recognising that perhaps the only way to achieve that goal with certainty would be to withdraw financing from large parts of the economy which rely on forest products in their supply chains. That is not, and cannot be, a viable solution; back to the issue of scale, it would leave financing to those without appropriate policies and with no impetus to change.
It’s in that context that I retain my faith we must, and will, find solutions. The Banking Beyond Deforestation paper published today by CISL summarises all that we have learned from the Soft Commodities Compact, hopefully allowing a much wider range of financiers and companies to benefit from our experiences. And reflecting that it may take a range of approaches, including focuses on risk, opportunity, policy and corporate action, the Banking Environment Initiative and Investment Leadership Group members have another active project on the financial materiality of biodiversity loss and land degradation, seeking to support mainstreaming of approaches across all financial institutions.
