Deforestation: What are the challenges and ‘unintended consequences’ of government action?

By Flora Southey contact

- Last updated on GMT

In an effort to stamp out deforestation once and for all, governments are taking action. But are there unintended consequences to these regulations? GettyImages/Vaara
In an effort to stamp out deforestation once and for all, governments are taking action. But are there unintended consequences to these regulations? GettyImages/Vaara

Related tags: deforestation, Due diligence

As policymakers move to stamp out deforestation in global supply chains, experts consider: what are the hurdles and potential fallouts?

Deforestation is a key driver of biodiversity loss and climate change. While rates appear to be slowing – between 2015 and 2020 the rate of deforestation was estimated at 10m hectares per year, down from 16m per year in the 1990s – it is far from coming to a standstill.

Worldwide, the area of primary forest has decreased by over 80m hectares since 1990, according to the UN Food and Agriculture Organization (FAO).

In an effort to stamp out deforestation once and for all, governments are taking action. But enforced measures can encounter hurdles and unintended consequences, warned experts at a recent webinar hosted by the Innovation Forum.

The EU example

In Europe, the Commission has proposed anti-deforestation regulations which would see businesses penalised for having deforestation in their supply chains.

“Deforestation and forest degradation are occurring at an alarming rate, aggravating climate change and the loss of biodiversity,” ​noted the EU via the draft regulations.

“The main driver of deforestation and forest degradation is the expansion of agricultural land to produce commodities such as cattle, wood, palm oil, soy, cocoa or coffee.”

As per the draft, commodities would be classified as ‘high’, ‘standard’ or ‘low’ risk, based on, at least in part, deforestation rates in the areas they were produced.

Could the new law mean businesses opt for commodities produced in ‘low’ risk areas over ‘high’? Ruth Nussbaum, co-founder and director of third-party not-for-profit organisation Proforest, is concerned this could be a possibility.

Fallout for ‘high risk’ areas and smallholders

Nussbaum stressed she does see benefits in legislation. “We’ve seen, partly because we’ve had experience from the timber regulation in the past, that regulation is certainly a useful tool in terms of driving attention…and real focus on an issue,” ​she told delegates at the event.

“From that perspective, it’s great to see that people are thinking more, not only about deforestation, but human rights and other key issues…”

However, the ‘big concern’, for Proforest’s director, lies in ‘binary’ or ‘unsophisticated’ regulation that could have unintended consequences – essentially that businesses ‘shift away’ from ‘anywhere that is high risk’.

Nussbaum predicts businesses that source commodities from ‘low risk’ areas will be less likely to be asked to prove its supply is deforestation-free, making those suppliers a more attractive option.

Yet moving away from ‘high risk’ areas means that businesses concerned with sustainability will lose leverage. “You will tend to see that the markets that don’t care will continue to buy from high risk areas, but without seeking to drive change.”

Nussbaum believes many stakeholders, with diverse agendas, share this view. “Many of us are really trying to push the EU to say: ‘Keep buying from high risk areas, but make sure that you are being proactive in supporting change in the landscapes that are transitioning from…deforestation risk areas to become more stable production landscapes.’”

The Proforest director is also concerned that smallholder farmers may fall through the gaps and ultimately, lose business in Europe. “It’s must easier to trace back to a concession or a large producer to demonstrate that it’s deforestation-free,” ​she reasoned.

“I think there is a real risk of pushing smaller players out of supply chains into Europe.”

deforestation brazil Phototreat
GettyImages/Phototreat

Nussbaum continued: “I think lots of very positive things could come out of the regulation, that could really recognise regions and jurisdictions and companies which have worked hard to remove conversion deforestation from their supply base or from their production areas. And that would be fantastic.

“But we need to do it in a way that doesn’t drive these unintended consequences.”  

‘Complications’ in producing regions

Of course, the European Commission’s proposal is just one of many commodity-focused sustainability measures put forward at policy level.

But in some commodity-producing countries, including Brazil and Indonesia, it has been suggested government-led commitments designed to limit deforestation are either non-existent or simply not up to scratch.

Mark Wong, head of downstream sustainability at the world’s largest producer of certified sustainable palm oil, Sime Darby Plantation, suggested the private sector is working on voluntary commitments in ‘many landscapes’. These measures, designed to align with stakeholder expectations, may go above what local regulations are demanding, he explained.

This can prove challenging when, on occasion, regulations ‘go against what you’re trying to do with voluntary standards’. “That’s where it can get a little bit complicated and difficult.”

However, in other instances, the downstream sustainability chief has observed regulation ‘starting to move’ in the right direction. “That’s probably where we’re going to start to see a big step-change in terms of where things move, because at the end of the day, if you can get regulations aligned with expectations, in a practical way, that’s really going to help support some of [those changes] we’re looking to see.”

deforestation Khlongwangchao
GettyImages/Khlongwangchao

Wong is increasingly convinced that policymakers need to be ‘at the table’ when it comes to anti-deforestation strategy. “We went through almost a decade of saying ‘businesses can’t wait for governments’, but actually I think we’ve probably reached a point now where we can’t continue without government actually at the table.”

Business incentives

Avoiding government-enforced penalisation is one way to incentivise businesses to act responsibly. But are there other ways to encourage corporates to stamp our deforestation from their supply chains?

According to Matthew Leggett, association director, sustainable commodities and private sector engagement at the Wildlife Conservation Society, incentivisation has changed over the years.

“The incentive in the past has always been fear of non-government organisations (NGOs) That has been one of the big incentives to drive supply chain change in many cases,” ​he told delegates.

“And as glib as that sounds, many of these [improvements] have happened because NGOs have banged the drum and consumers have started to pay attention. And that is important.

“I think it’s important that NGOs out there continue to do this work, it’s an important role to play.”

However, as these businesses are operating in a commercial sphere, perhaps a commercially-minded incentive should also apply. Leggett suggested that increasingly so, it does.

“We’re living in a world where it’s going to be harder and harder to buy sustainable products…If you total up all the sustainability commitments of various different companies and then look at the availability of potential sustainable supply, the numbers don’t match.”

For certain commodities in particular, this is ‘absolutely’ the case, he stressed. Therefore, there is a ‘very strong’ commercial incentive for companies to act ‘really quickly’ on some of these issues.

“What we’re seeing in deforestation in a lot of these areas is a market failure. And that market failure needs to be addressed… There is market incentive to act. There are moral and ethical and legal other incentives, which certainly apply across many different landscapes which also need to be considered.

“But I think it’s important that the nuts and bolts of the conversation don’t get too far away from the commercial logic of working quickly to solve this problem.”

Leggett continued: “If companies want predictable supply of a certain quality, they we need to work hard collectively, as a bunch or stakeholders, to try and address this issue.” 

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