Wednesday, March 20, 2013

Forests and the Private Sector

by Duncan Gromko

An immature palm oil plantation; source: Energie-experten
There has been some good news recently from two different corporations that have historically done a lot of damage to forests. Golden Agri-Resources Limited (GAR) and Asian Pulp and Paper (APP) have made announcements that would significantly reduce their impact on forests in Southeast Asia. GAR, a palm oil conglomerate, has agreed to a "forest conservation policy," which would ban conversion of peatland forest and other forests with high conservation value. Similarly, APP, a company that produces pulp and paper products, has committed to a "no deforestation" policy, which would end the sourcing of tree fiber produced from the destruction of tropical rainforests.

A little background. In Indonesia, (and, in fact, most countries) the greatest threat to forests is not timber harvest, but the conversion of forests to agriculture. In Latin America, forests are often burned down to be replaced with soy fields or grazing land for beef production. In Southeast Asia, conversion of forests to palm oil is the primary driver of deforestation. The palm oil species is an incredibly productive and valuable crop; in strict economic terms, it is difficult to make the case that palm oil production shouldn't continue to expand. Conversion of forests to pulp and paper plantations is similarly profitable. Most typically, a palm oil or pulp and paper company leases forest land - a "concession" - from the government. Concessions give different rights to company and a palm oil concession allows the company to convert the forest on the land to palm oil.

So why would a company agree to not convert forest on land in a concession that is has paid for? Doing so is forgoing potential income.

There is a cynical answer and an optimistic answer.

The cynical answer is that the companies are doing this purely as a response to pressure from outside groups. Greenpeace and other advocacy groups deserve a lot of credit for calling attention to the conversion of forests to palm oil and pulp and paper plantations. Images of orangutans being burned to death (warning, disturbing video) make palm oil companies look like villains, which leads to actual financial risk for the companies, and ultimately a public relations campaign to improve their public image. APP has made similar commitments before, only to renege on them. Supporting the cynical perspective is the argument that APP has already destroyed nearly all of the natural forests in their concessions (meaning that this recent announcement has no cost to them). According to this argument, their only reason for the policy change is to stop Greenpeace from making them look so bad.

The optimistic answer is more nuanced. Concern over public image plays a role, but companies are ultimately interested in their long term sustainability. Most corporations are dependent on natural resources; therefore, their profitability depends on good management of resources. In Costa Rica, for example, hydropower producers have recognized that increasing forest cover upstream from their power plants improves power production. It is economical for them to pay to protect forests. Another example is the water bottling company Perrier in France, which likewise realized that improving water quality was most easily done by paying farmers to protect the watershed.

The World Business Council on Sustainable Development has developed a methodology (corporate ecosystem valuation - CEV) for identifying and valuing corporations' dependency on ecosystems. I recommend reading the report; there is a particularly interesting case study of Dow Chemical recognizing how dependent it is on water resources and making investments to protect those resources.

Ultimately, we need both the optimistic and pessimistic pressures. In some (optimistic) cases, better recognition of corporate dependency can improve management. In other (pessimistic) cases, however, the environmental costs of degradation are not borne by the company that profits from them. In such a case (like with APP and GAR), organizations like Greenpeace have an important role to play in calling attention to the damage that corporations are doing to other groups and shaming corporations into more responsible actions.

The combination of reputation risk from shaming and a better understanding of the private sector's dependence on natural resources has led to some very positive outcomes. The Consumer Goods Forum (which includes CEOs from Walmart, Unilever, Coca Cola, General Mills, and Cargill - the combined revenues of the group amount to 5% of global GDP) has announced that all the agricultural products in their supply chain will be sustainable and deforestation free by 2020. There is a lot of work to be done to get the companies of the CGF to no deforestation and even if they do accomplish their goal, there are still plenty of other barriers to overcome. But this is definitely a step in the right direction.

No comments:

Post a Comment