DISCLOSURE INSIGHT ACTION Analysing European public and private actions to tackle imported deforestation A guide for European policymakers and companies Policy Briefing | March 2018 forests@cdp.net Executive Summary The consumption of commodities in Europe is driving deforestation abroad. Deforestation in countries that produce agricultural commodities is mainly driven by the expansion of agricultural land and cattle ranching, and a large share of the resulting products is exported to Europe for consumption. What is embodied deforestation? The concept of “embodied deforestation1” refers to the deforestation embodied in a produced, traded, or consumed product, good, commodity or service that causes deforestation in the country of origin. In this policy brief, we will focus on the deforestation embodied in products imported to Europe that is driving deforestation in other regions, with a special focus on Latin America. While there are regulations and commitments 2. European countries should adapt existing in Europe to halt illegal deforestation related to regulation on forest risk commodities such as the some specific commodities, such as timber, and EU Timber regulation to other commodities such general commitments for reducing deforestation as soy and cattle; in all sectors, little attention has been paid to deforestation embodied in soy and beef production, 3. EU and European countries’ public procurement which are the main drivers of deforestation in Latin should be used to enforce and scale up the use America. of sustainable standards; 4. The review of the EU Directive on the In order to prevent deforestation from being disclosure of Non-Financial Information (NFI) embodied in European imports, policymakers and should strengthen disclosure requirements of stakeholders need to work together to extend companies; the scope of existing European2 regulation of consumption so that there are specific regulations 5. European companies should work with and policies in place for all of the main commodities governments from exporter countries to develop that drive deforestation. They can also work to public-private partnerships for monitoring help raise the ambition, and improve the regulatory zero-deforestation commitments and to unlock framework and regulatory enforcement, of the sustainable finance for forests; producer countries. 6. European companies should work with their Our recommendations for policy measures are: suppliers to ensure that the supply chains associated with their purchases are aligned with 1. European countries should create detailed sustainability criteria, including deforestation-free sustainability criteria for commodity imports, and standards. work with governments from producing countries to implement them; 1. Cuypers et al., 2013 2. In this policy brief we will refer as European countries to all the EU 28, Norway, Switzerland, Iceland and Lichtenstein. 2 Consumption of embodied deforestation in Europe A study produced by the EU in 2013 concluded that 9 million hectares of tropical forests have been cleared between 1990 – 20083, mostly to provide crops for animal feed, for food and other uses, and livestock products consumed in the EU274. More specifically, it is estimated that the EU imports more than 30% of its soy, mostly for animal feed, from areas with high deforestation risks5. Figure 1: Cumulative deforestation embodied in EU27 consumption of crop and livestock products, 1990-2008 6 1% 1% 1% Crops for food 14% Crops for feed 25% Crops for other uses (fibre and fuel) 14% Livestock products for direct EU27 consumption Livestock products for feeing of livestock products 44% Livestock products for other uses Seed and waste In 2015, European countries imported over 23.8 million tons of soy, mostly used for animal feeding in Europe, 195 thousand tons of beef and 120 thousand tons of leather from Brazil, Argentina and Paraguay7. It is estimated that a little under 25% (by value) of all agricultural commodities from illegal deforestation in international trade are destined for import to the European Union. This includes 27% of all soy, 18% of all palm oil, 15% of all beef and 31% of all leather8 traded internationally, which was estimated to total EUR 6 billion in imports in 20129. Table 1: Volume (1000 tons) of soy, beef and leather exports to European countries in 2015 Soy Beef Leather Brazil 12,428.5 117.2 80.5 Argentina 9,666.6 75.5 6.9 Paraguay 1,709.0 2.9 33.4 Total 23,804.1 195.6 120.8 3. Cuypers et al., 2013 4. This study was produced before Croatia joined the European Union. 5. Godar et al., 2016, with data gathered from the critical deforestation list compiled by the Brazilian Ministry of the Environment in 2012 6. Cuypers et al., 2013 7. Calculated with data from trase.earth and resourcetrade.earth 8. FERN, 2015 9. ibid. 3 EU legislation recognises the risk of deforestation In some instances, national rules allowing a degree from the production of products such as palm oil of deforestation to take place can be a hindrance and timber, and relevant regulations are in place. to the development of more effective preservation However, to date there has been little regulatory of forest areas. For example, 85% of conversion of action to reduce embodied deforestation from soy native vegetation for soy in the Cerrado - the region and cattle. where most of Brazilian soy is produced - is legal under existing regulation10. Collaboration between consumer and producer countries is crucial to promote successful action on In such cases, the private sector has a particularly reducing deforestation. European countries need to important part to play in acknowledging, analysing engage with producer countries to understand what and promoting engagements and initiatives to make the capabilities and challenges are in implementing sure that the products they supply and trade are not such policies, and to create a common set of causing deforestation in the country of origin11. priorities that will allow for an effective reduction of deforestation. 10. Rausch et al. submitted, cited in http://www.mightyearth.org/wp-content/uploads/2017/10/Letter-of-business-support-for-Cerrado-Manifesto-2017.pdf 11. CDP and Global Canopy have recently launched the policy brief “Harnessing the power of global supply chains to halt deforestation driven by soy” that highlights the role of the private sector in securing the future of the Brazilian biome. 4 Action and engagement from the private sector European companies are already taking action to address embodied deforestation through initiatives such as the Consumer Goods Forum12, which is working with member companies to achieve zero net deforestation by 2020. Another example is the We Mean Business Analysis of these European companies’ disclosures coalition13, through which 53 companies have in 2017 showed that: committed to remove commodity-driven deforestation from their supply chains by 2020. In { 90% are involved in partnerships or stakeholder making this commitment, companies promise to initiatives related to the sustainability of these incentivise agricultural expansion onto degraded commodities14. lands rather than forest lands, commit to traceability in supply chains and work closely with suppliers. { 100% of companies disclosing on soy have a system in place to track and monitor the origin Companies should also disclose their deforestation of raw materials for commodities. However only impact and collaborate with different stakeholders to 60% of companies can trace more than 50% of implement innovative solutions for more transparency their soy. in supply chains. Companies that disclose to CDP’s forests programme have access to a framework { 73% made a commitment to reduce or remove to report on their progress towards addressing deforestation and forest degradation from their exposure to deforestation risks. Companies can direct operations and/or supply chain, and 41% also apply this framework to better understand the of these have committed to zero deforestation, or challenges, risks and opportunities of transiting to zero net deforestation and forest degradation, by a more sustainable business model. Currently, 294 2020 or sooner. European investors, with USD 45 trillion in assets, are signatories to CDP and ask the companies that they { 72% of companies with links to soy production invest in to disclose to CDP about their forests risks have identified sufficient sources of sustainable and impacts. materials to meet their current operational needs; however only 20% of companies reporting on In 2017, 73 European companies responded to soy look more than 6 years into the future in CDP’s forests questionnaire, including Danone, their risk assessment of deforestation risks and Nestlé and Tesco. 63 of those companies disclosed opportunities. on timber, 33 on palm oil, 22 on soy, and 22 on cattle products. 12. https://www.theconsumergoodsforum.com/ 13. https://www.wemeanbusinesscoalition.org/ 14. Initiatives mentioned by companies are: Roundtable on Sustainable Soy (RTRS), The Consumer Goods Forum (CGF), Leather Working Group (LWG), Sustainable Apparel Coalition (SAC), UN Global Compact, We Mean Business, Tropical Forest Alliance (TFA), Global Roundtable for Sustainable Beef (GRSB), Brazilian Roundtable on Sustainable Livestock (GTPS), Sustainable Agriculture Initiative (SAI), Proterra, Sustainable Luxury Working Group (BSR), WWF LiveWell, WRI Better Buying Lab, Retail Soy Group, Field to Market, RTRS Brazil Task Force, RTRS EU Task Force, Amazon Moratorium, and Retailers Soy Group. 5 European companies disclosing to CDP about It is important to note that only about half the activities linked to the risk of deforestation generally European companies who were asked to make have a sound awareness of the problems caused disclosures by their shareholders or major purchasers by sourcing timber, palm oil, soy and cattle products actually responded to the CDP forests questionnaire. from countries where deforestation occurs. The Voluntary disclosure measures are clearly not vast majority of them have put in place procurement being taken up across the board, despite clear standards against deforestation and are involved in demand. This suggests a considerable case for the multi-stakeholder initiatives to improve sustainability improvement of the legal framework for disclosure, (see note 14 for some examples). which is currently weak in Europe. A stronger set of requirements for European companies to disclose However, while companies are acting to monitor the on their operations that impact on deforestation origin of the soy they purchase and are committing would help improve their engagement and action on to zero deforestation pledges, existing initiatives need ensuring that European companies are not are not to be expanded, commitments need to be more importing embodied deforestation. ambitious, and more companies need to have a long-term risk assessment regarding deforestation, if they are to achieve material impact. Tracing sustainable soy in Brazil All soy suppliers for Carrefour in Brazil are registered through an identification number, which enables the retailer to avoid blacklisted suppliers. Additionally, suppliers for products from the Carrefour brand are required to monitor and disclose the origin of their soy. Soy Moratorium in the Brazilian Amazon Private sector commitments can help stop deforestation in producing countries. In 2006, soy traders committed to not purchase soy grown on deforested land in the Brazilian Amazon. After the Soy Moratorium was established in the region, the proportion of soybeans cropped on newly deforested land in the Amazon fell from about 30% to around 1%15. European companies that do disclose demonstrate more companies disclose on their operations on that proper corporate governance to monitor timber than on other commodities. This suggests and reduce embodied deforestation is feasible that existing regulations on timber imports to the EU and produces positive results. The importance of have a positive effect on companies’ commitment regulatory measures is supported by the fact that and likelihood to disclose on their impacts. 15. Gibbs et al., 2015 6 Action and engagement from governments and regulatory bodies In recent years, European governments have started addressing the issue of embodied deforestation and have committed to halt deforestation in some of the world’s most endangered forests. European countries are committed – both at EU level and through multilateral agreements – to halt deforestation and to cooperate with stakeholders such as governments from producing countries, the private sector and civil society. New York Declaration on Amsterdam Declaration Forests The governments of Denmark, France, As a signatory of the New York Germany, Italy, the Netherlands, Norway Declaration on Forests, the European and the United Kingdom signed a Union has committed to halve declaration “Towards Eliminating deforestation globally by 2020, and stop Deforestation from Agricultural Commodity deforestation by 2030, while also helping Chains with European Countries”17, in the private sector to achieve the goal which they declare their support for of “eliminating deforestation from the public and private initiatives of halting production of agricultural commodities deforestation by 2020. such as palm oil, soy, paper and beef products by no later than 2020, The Declaration encourages the EU to recognizing that many companies have include elimination of deforestation in their even more ambitious targets16.” trade policies and agreements, reiterates the vision of engaging all stakeholders, and most specifically recognises the role of the private sector in eliminating deforestation from global supply chains. Paris Agreement Norway Zero-Deforestation Commitment In the Article 5 of the Paris Agreement, which has been ratified at EU level, In 2016, Norway became the first country Parties commit to conserve and enhance in the world to pledge to a deforestation- reservoirs of greenhouse gases, including free supply chain through the forests18. It emphasises alternative policy government’s public procurement policy19. approaches, such as joint mitigation In practical terms, Norwegians will no and adaptation approaches, while longer grant government contracts to 16. Forests Action Statements and Action Plans, also stressing the non-carbon benefits companies that take part in deforestation United Nations, 2014 associated with sustainable management activities elsewhere. 17. Ministry of Foreign Affairs of the Netherlands, 2017 of forests. 18. Paris Agreement, United Nations, 2015 19. Rainforest Fondation Norway, 2016 7 As one of the most important markets for soy and cattle exported from Latin American countries, the EU can help to reduce deforestation in producing countries through the implementation of higher standards on the import of these commodities. European policymakers do not need to start with a blank page when creating such measures; several relevant regulations already exist for other commodities and these approaches may be able to be transferred. For example: Forest Law Enforcement, European Resolution on Governance and Trade (FLEGT) Palm Oil In 2003, the European Union established Between 2013-2014 the share of palm oil the EU’s Forest Law Enforcement, under zero-deforestation commitments Governance and Trade (FLEGT), which grew globally from 0 to 60%21, signalling ensures that no illegal timber or timber that governments and companies are products are sold in the EU. The EU quickly recognising the importance of Timber Regulation requires that EU making such commitments. operators20: The European Parliament resolution of 4 { Exercise due diligence and comply April 2017 on palm oil and deforestation with national laws and regulations, and of rainforests calls for the EU to introduce take steps to assess and minimise the minimum sustainability criteria for palm risk of importing illegal timber. oil and products containing palm oil entering the EU market22, to consider the { Traders who sell timber or timber introduction of non-discriminatory tariff products must keep a record of barriers based on the carbon footprint of buyers and sellers. palm oil, and to define sanctions for non- compliance. The international reaction { Develop their own due diligence to this resolution – which did not always system or use one developed by welcome a potential unilateral approach monitoring organisation authorised by by the EU – demonstrates the importance the EU. of working with producer nations to find common ground. 20. http://www.euflegt.efi.int/ 21. Forests Action Statements and Action Plans, United Nations, 2014 22. European Parliament resolution on palm oil and deforestation of rainforests, 2017 8 Recommendations Our recommendations for potential policy measures are as follows: 1 European countries should create detailed sustainability criteria for commodity imports, and work with governments from producing countries to implement them European countries should develop detailed should also include specific commitments related to sustainability criteria in trade agreements with deforestation. producing countries. Such criteria should guarantee that commodity production hasn’t led to ecosystem Reducing deforestation is a shared responsibility degradation and deforestation or other harmful between producers and consumer countries, and environmental impacts and has a certification system requires that all stakeholders involved work closely that is accessible to producers. together. European governments should work with governments from producing countries through The EU is currently negotiating a free trade technical cooperation for local capacity building, agreement with the Mercosur, whose four founding sharing of best practices such as intensification of members, Argentina, Brazil, Paraguay and Uruguay, production, land recovery, sustainable land use and are among the main countries where embodied land management, and technological aid to avoid deforestation comes from23. Current negotiations further forest conversion. cover issues related to sustainable development and 2 European countries should adapt existing regulation on illegal commodities such as the EU Timber Regulation to other commodities such as soy and cattle Policymakers should learn from the experiences By creating guidelines and regulations for commodity of initiatives such as FLEGT and apply such imports, policymakers would drive change not only requirements to all commodities produced in areas from the market leaders, but from all European with deforestation risk. This would likely require companies working in the sector. collaboration with producer countries for better monitoring of sourcing of raw materials. 23. Latest round reports and EU proposals for the trade agreement with Mercosur, European Commission 9 3 EU and European countries’ public procurement should be used to enforce and scale up the use of sustainable standards With public procurement and the purchasing of procurement to drive positive action on forests by services, works and supplies covering about 14% of encouraging their suppliers to manage deforestation. European gross domestic product24, governments This would also bring with it benefits such as can use supply chain disclosures to align their increased transparency in the value chain, and would procurement decisions with the Paris Agreement and enable to actively drive the objectives of safeguarding the SDGs. National, regional and local government natural resources. agencies should leverage the power of public 4 The review of the EU Directive on the disclosure of Non-Financial Information (NFI) should strengthen disclosure requirements of companies The review of the NFI in 2019, which is going entire supply chains. This would directly support through a comprehensive policy evaluation in 2018, the European Commission’s objective to manage will be the opportunity to clarify and strengthen financial risks stemming from resource depletion the disclosure requirements of large European and environmental degradation, as financial risks companies in regard to their stakeholder business occurring from deforestation in supply chains would relationships and to ensure transparency throughout be transparent to public and private investors25. 5 European companies should work with governments from producing countries to develop public private partnerships for monitoring zero-deforestation commitments and to unlock sustainable finance for forests European companies can work with governments Companies, financial institutions and investors can from producing countries to identify and certify also work with governments to create financial deforestation-free producers. For example, through mechanisms to reduce deforestation, such as the public-private partnerships using satellite monitoring Tropical Landscapes Finance Facility26, a partnership systems, companies and governments can monitor between the government of Indonesia and public and and verify producers’ compliance with zero- private organisations (including BPN Paribas), that deforestation policies. promotes green growth and livelihood improvement in Indonesia. 24. Public procurement strategy, European Commissionsame 25. The NFI Directive’s current requirement to disclose environmental impact in business relationships where relevant and proportionate is too unspecific to ensure full and comprehensive reporting throughout the supply chains of the large European corporates. 26. http://tlffindonesia.org/ 10 6 European companies should work with their suppliers to ensure that the supply chains associated with their purchases are aligned with sustainability criteria, including deforestation-free standards Companies should work closely with their suppliers expansion onto these areas rather than convert more and ensure that the commodities they purchase are native vegetation. Companies should work closely following sustainability criteria and deforestation- with their suppliers to ensure that commodities free standards. Leading European companies purchased are coming from previously cleared land. such as L’Oréal and Marks & Spencer have already committed to remove deforestation from their supply In a further step to strengthen their commitment to chains by 202027. zero-deforestation in their supply chains, companies working in and sourcing from Latin America should Market leaders acknowledge that in certain areas, commit to working towards expanding the Soy such as the Cerrado region in Brazil, there is already Moratorium beyond the Amazon and Brazil, and/or to enough clear land for producing commodities for the affected areas in neighboring countries. existing demand28, and business should incentivise 27. https://www.wemeanbusinesscoalition.org/ 28. Statement of support for the objectives of the Cerrado Manifesto 11 DISCLOSURE INSIGHT ACTION For more information please contact: CDP Forests CDP Europe Morgan Gillespy Mirjam Wolfrum Director of Forests, CDP Director Policy & Reporting, CDP Europe morgan.gillespy@cdp.net mirjam.wolfrum@cdp.net Sareh Forouzesh Paolo Mattana Manager, Forests, CDP Senior Public Affairs Officer, CDP Europe sareh.forouzesh@cdp.net paolo.mattana@cdp.net Bregje Drion CDP Policy & Public Affairs team Project Officer Forests, CDP Europe bregje.drion@cdp.net Kate Levick Global Director, Policy Engagement, CDP kate.levick@cdp.net CDP Communications Laura Jungman Charlotte Amaro Forests Policy Manager, CDP Communications Manager laura.jungman@cdp.net charlotte.amaro@cdp.net Produced with data input from Global Canopy CDP Worldwide CDP Europe Level 3 c/o WeWork 71 Queen Victoria Street Potsdamer Platz - Kemperplatz 1 London EC4V 4AY 10785 Berlin, Germany United Kingdom EU Transparency Register No.: Tel: +44 (0) 20 3818 3900 050269010212-72 www.cdp.net This project is supported by: