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Entries with Years 2021 .

A new transparency pathway to decoupling commodity trade from deforestation

By Thomas Sembres



Global supply chains are notoriously complex and opaque, making it very difficult to address sustainability issues in mainstream markets – including deforestation, sustainable livelihoods, child labour and land grabbing.

In recent years, however, there’s been a surge of global supply chain transparency instruments, data and analysis to help company and government efforts to stop deforestation associated with commodity trade. These include:

  • online databases
  • dashboards
  • scorecards
  • traceability platforms
  • interactive maps
  • independent local monitoring initiatives

These advances in supply-chain transparency are transforming capacities to identify more systematically the greatest opportunities for action. For instance, subnational data analysis across major commodity producing countries in the tropics shows that the vast majority of deforestation linked to the production and trade of agricultural commodities occurs in a handful of places where the commodities are produced.

However, this is not where efforts to manage deforestation risks in commodity supply chains are systematically concentrated. 
 

Traditional approaches to tracking forest-risk commodities

Traditional approaches to tracing and verifying forest-risk commodities rarely penetrate a market far enough to be able to separate the bad from the good, at scale. The bad is often kept hidden in complex and opaque supply chains. Good practices like sustainable production don’t get the market visibility they deserve, and thus often fail to receive incentives from commodity markets to sustain their efforts.

The following are illustrations of the proportion of total world production covered by a sustainability certification scheme (green) versus the proportion that concentrates 80% of commodity-driven deforestation within four global supply chains (red). These are estimations made by EFI based on various sources.
 

Initial situation: efforts and risks disconnected

Share of the world production covered by a sustainability certification scheme (green) versus the proportion concentrating 80% of commodity-driven deforestation in four global supply chains (red) extrapolated from patterns of the largest producing tropical countries for each of these supply chains (Brazil, Indonesia, Argentina and Côte d’Ivoire).
 

This is a situation without prioritisation of efforts, with a high disconnect between areas concentrating the highest risks and voluntary certification and verification efforts.

Clearly, the data revolution alone is not enough. Many actors are overwhelmed with information or remain unable to seize the opportunities that it can provide. Increasingly, the most significant challenge is making data useful for specific policy purposes, based on shared understanding of trusted information.
 

A new approach: the Transparency Pathway

A new approach is possible: one that leverages transparency at both ends of major agricultural commodity supply chains, and that can turn policy aspirations into pragmatic measures to decouple deforestation and trade.

Our new Transparency Pathway offers a pragmatic method to shift commodity markets towards sustainability, by harnessing the potential of existing information and transparency instruments.
 

Transparency Pathway: Channelling efforts towards risks

In this situation, efforts are channelled towards risk areas through the Transparency Pathway, after agreeing on a risk-based mechanism with stricter requirements (e.g. mandatory third-party verification) for high-risk areas only. This also enables reducing the burden of proof on producers in low-risk areas.
 

Six steps for harnessing the power of data

The Transparency Pathway is a tested method that builds on our experience in supply chain transparency in various countries. In particular, it draws on our partnership with Trase, the first initiative to unlock subnational supply chain transparency at scale in tropical countries.

The method charts six pragmatic steps designed to make collaboration between public and private supply chain actors more impactful and inclusive, while reducing costs and gaining positive visibility in global commodity markets. Incremental information disclosure is used as a mechanism to reduce information asymmetry among actors, improve governance and support increased accountability.

The six steps are:

  1. Building trust by engaging stakeholders
  2. Measuring subnational commodity deforestation
  3. Assessing jurisdictional sustainability
  4. Tracking supply chains to jurisdictions
  5. Establishing a central point of information
  6. Independent monitoring

These steps are adaptable to the country and supply chain context, and the whole process can be applied to any measurable sustainability issue.
 

A jurisdictional approach

We have chosen to take a jurisdictional approach in the Transparency Pathway for several reasons:

  • Possibilities for balancing detail and scale.
    Jurisdictional approaches provide a middle ground between finer approaches that are impossible or too costly to implement at scale, in the absence or incompleteness of property-level data on deforestation, production and supply chain connections; and on the other hand, coarser scale approaches. These may be risk analysis at national level that cannot have the necessary finesse for targeted and proportionate interventions, ending up with much fewer levers for action. 
  • A strategy to include vulnerable actors.
    Traditional farm-level certification approaches tend to exclude the people with the greatest needs, such as small-scale farmers and indigenous communities. This is because they usually place the burden of proof on commodity producers. Small-scale producers rarely have the skills and resources needed to meet this burden of proof and obtain certification. Small-scale producers can also struggle to meet sustainability standards if their land is not zoned for legally planting crops, if administrative procedures are complex, or if official monitoring and law enforcement are not fairly or evenly directed. Only the government and local authorities can address these governance issues.
  • Recognition of government authority to control land use and supply chains.
    The advantage of involving local governments is that they often have the authority and legitimacy to implement sustainability policies – and sometimes, in decentralised systems, to issue regulations – that cover the entire land area under their control. They may also have the authority to monitor and enforce relevant laws and regulations. When their authority is limited, through their institutional connections and the involvement of the national administration, they can leverage regulatory changes at the necessary level. Adopting a jurisdictional approach in monitoring enables building on existing national information systems as much as possible.
  • A strategy to reduce the risk of leakage across supply chains and territories.
    Deforestation, water contamination, and child labour are among many challenges that unfortunately have a great capacity to shift across places and supply chains. These ‘leakage effects’ are a constant concern in efforts to reduce deforestation and forest degradation. Jurisdictional approaches allow for going beyond the inevitable fragmentation of other approaches that would focus on just one supply chain or group of actors in a territory. ‘Free riders’ or ‘poor performers’ don’t go unnoticed and peer pressure from other supply chain actors can help bring them on board. Leakage effects may still occur between jurisdictions, hence the interest in nesting a subnational jurisdictional approach within a national process. This is the approach taken in the Transparency Pathway, inspired by the Terpercaya experience in Indonesia.
     

A guide to decoupling commodity trade from deforestation

Governments, supply chain organisations and anyone convening a multi-stakeholder process to improve the sustainability, governance and reputation of a sector or supply chain will find the Transparency Pathway a practical guide for harnessing the transformative potential of data.

Its principles have been informed by several initiatives supporting the sustainability of commodity supply chains. These initiatives have facilitated constructive engagement among stakeholders, and made the Transparency Pathway a tested way to inform domestic policy making, investment decisions and commodity trade.

We invite you to explore the method further – take a look at the new Transparency Pathway website and don’t hesitate to get in touch for more information.

 


Thomas Sembres

Supply chain transparency and land-use planning

EU REDD Facility

 

Supporting sustainable palm oil: a crucial role for Indonesian districts

By Istu Septania


As consumers globally become more selective about choosing products based on sustainable production processes, suppliers must increasingly provide evidence that their goods are made without damaging the environment or ignoring the rights of local people.

Demand for sustainable palm oil is driven by concerns associated with social and environmental impacts of palm oil production. Consuming countries have frequently been held responsible for driving these impacts and for importing deforestation through commodity supply chains. In response, efforts are being made to reduce oil palm related deforestation, resolve land conflicts, improve smallholders’ livelihoods and agricultural practices, and revamp the sector’s image. Multinational companies sourcing palm oil and palm oil products have improved supply chain accountability and transparency. Indonesia as the world’s leading palm oil producer is also making efforts to address concerns and meet expectations.

An EU-supported webinar hosted by The Jakarta Post on 30 March 2021 explored how The Terpercaya Initiative can support Indonesian sustainable palm oil production and trade. The Initiative, established in 2018 through a multi-stakeholder Advisory Committee, has developed a district sustainability monitoring system that will provide credible information to buyers assessing where to source products in Indonesia. It is part of the Indonesian Government’s efforts to promote sustainability in commodity supply chains and improve the welfare of communities, especially smallholders, by providing accurate information to markets. 

The virtual event confirmed that districts in Indonesia can provide a crucial role in achieving sustainable palm oil; one which must be communicated with buyers and consuming countries as their concerns for sustainability have increased significantly. 

The webinar featured a panel of experts: Jarot Indarto (Policy Analyst at the Ministry of National Development Planning (PPN)/Bappenas); Henriette Faergemann (First Counsellor European Union Delegation to Indonesia and Brunei Darussalam); Asep Asmara, (Director of Export of Agricultural and Forestry Products, Directorate General of Foreign Trade, the Ministry of Trade); Jeremy Broadhead (KAMI Project Manager, European Forest Institute); Nur Maliki Arifiandi, (Policy Engagement Manager, Forests at the Carbon Disclosure Project); and Josi Khatarina (Senior Advisor at Yayasan Inobu).

Indonesia has enjoyed enormous benefits from the high-yielding oil palm and the industry has substantially contributed to socioeconomic development in the country. The palm oil industry has absorbed around 5.3 million workers directly and is an income source for more than 21 million people, including farmers and their families. According to the Trade Ministry, Indonesia supplies 56% of the world’s crude palm oil and in 2020, the export value of the commodity reached US$ 21 billion (Rp 307 trillion), contributing 13.5% of the total value of non-oil and gas exports. 

During the webinar, Jarot Indarto highlighted that the Indonesian government has set its policy direction on sustainable food and agriculture in its 2020-2024 National Medium-Term Development Plan, particularly on integrating supply chains to ensure sustainability and improve the agricultural-based processing industry.

The Terpercaya Initiative aims to provide credible and accurate information about district sustainability performance in producing palm oil and has been developed to support similar outcomes. The initiative has been led by Bappenas with financial support from the European Union, and implemented by Yayasan Inobu and the European Forest Institute. 

The initiative seeks to bring lasting impact at scale by tracking and creating incentives for sustainability performance of districts across the country. The initiative is also expected to support district governments in transitioning to sustainability and its development has been informed by experience in four pilot districts: Seruyan and West Kotawaringin in Central Kalimantan, Rokan Hulu in Riau, and North Morowali in Central Sulawesi.

Terpercaya indicators share sustainability principles and criteria with existing commodity certification schemes, such as the Indonesian Sustainable Palm Oil and the Roundtable on Sustainable Palm Oil, and align with the Indonesian legal framework. The indicators also align with and support local governments in progressing towards the United Nations’ Sustainable Development Goals and Nationally Determined Contributions under the Paris Agreement on climate change.

During the webinar, Jeremy Broadhead, Manager of the EU funded KAMI Project which is implemented by the European Forest Institute (EFI), explained the development of the Terpercaya Initiative. He said a data platform for collating and disseminating information has been established and is now hosted by Bappenas. In addition, supply chain traceability to connect consumers and buyers to information on district progress towards sustainability has been undertaken. He hopes that these efforts can help reinforce supply chains for sustainable palm oil.

The Terpercaya Initiative has developed a set of 22 sustainability indicators to evaluate district level economic, environmental, social, and governance performance.

Details of the 22 indicators are as follows: 

A. Environmental Pillar

  • Permanent forest protection
  • Forest and critical areas protection
  • Fire prevention
  • Peatland protection
  • Climate change mitigation
  • Production forest managed sustainably
  • Water and air pollution control

B. Social Pillar

  • Free Prior Informed Consent (FPIC)
  • Customary rights recognition
  • Conflict resolution
  • Smallholders share
  • Smallholder registration

C. Economic Pillar

  • Smallholder productivity
  • Smallholder organizations
  • Smallholder supports
  • Responsible industry (including ISPO)
  • Poverty rate

D. Governance Pillar

  • Public information access
  • Multi-stakeholder participation in district planning
  • Complaint mechanism
  • Sustainable land-use planning
  • Proportion of budget for sustainability

The Terpercaya Initiative adopts the jurisdictional approach, which has several advantages in overcoming the challenges of sustainable agriculture. Compared to the conventional approach where the focus is on individual plantations and supply chains, the jurisdictional approach is more cost effective and covers all forests and producers, including smallholders for whom certification is often either too expensive or unattainable due to land tenure issues. The approach should help district governments to achieve sustainable agricultural production, support smallholders and thus bring holistic impacts.

Among the main goals of the initiative is sharing objective information on district sustainability performance with stakeholders and supply chain actors and providing information on palm oil governance and trade.

Meanwhile, the Terpercaya data platform is expected to be a key tool to inform discussions on the sustainability of palm oil production in the context of Indonesia’s national and international commitments and Indonesia’s trade including with the EU. It is hoped that it will help smallholders to access supply chains for sustainable palm oil and accelerate district level transitions to sustainability.

During the webinar, Josi Khatarina of the Terpercaya Initiative’s secretariat and Senior Advisor at Inobu, explained that the jurisdictional approach is an inclusive one. The Terpercaya Initiative aims to be implemented at the national level, with four districts for detailed piloting. The initiative is set to collaborate with other regions as well in its effort to achieve sustainable palm oil production on a national scale.

Henriette Faergemann, First Counsellor European Union Delegation to Indonesia and Brunei Darussalam, explained that the Terpercaya Initiative builds on the UN Sustainable Development Goals and Indonesian legal frameworks. It also serves as complementing to the Indonesian Sustainable Palm Oil standard by covering entire jurisdictions and all producers and forests so that nothing is left aside and no one is left behind.

To explore these issues further, see the webinar recording and watch the video on Terpercaya

 

Istu Septania

Public Communications Coordinator

Inobu

 

This blog post was originally published by Inobu on 20 May 2021. Read the original English blog post and the Bahasa Indonesia blog post

Climate finance tracking: From data to ambition to action

By Adeline Dontenville and Angela Falconer


Climate change is a whole-economy problem. Tackling it will require looking at every financial decision through a climate lens. Does the decision result in greenhouse gas emissions or will it reduce them? Will it improve resilience to climatic shocks or worsen vulnerability?

As countries move to implement the Paris Agreement on climate change, they need to know the answers to such questions. They need to be able to track and understand domestic flows of finance so they can better align them with their climate goals, identify gaps and unlock the private investment needed for green, resilient development.

Earlier this year, the EU REDD Facility, Climate Policy Initiative (CPI) and the United Nations Development Programme (UNDP) gathered experts from governments, donor agencies, and organisations tracking climate finance to take stock of progress, in an online workshop.

Setting the scene, Chavi Meattle from CPI gave an overview of the various ways dozens of countries are tracking climate finance and mainstreaming climate change into national and sectoral budgets. Padraig Oliver of the UN Framework Convention on Climate Change (UNFCCC) Secretariat explained how climate finance tracking can feed into countries’ national reporting under the Paris Agreement on climate change, as well as the Convention’s periodic global stocktake showing, “where we are, where we are going and what needs to be done”.

There has been considerable growth in climate finance tracking in recent years. While all of this data is great, how can we ensure it leads to policy action? As noted in the workshop, we need greater transparency, we need to ensure tracking approaches are tailored to each country’s context, and we need to better explain the benefits and opportunities for all stakeholders.


 

Impacts of finance tracking

To get an idea of how national climate finance tracking is helping to increase policy ambition, improve reporting and mobilise new resources, we heard from government representatives in Ecuador, Indonesia, Kenya and South Africa.

For example, Noor Syaifudin of Indonesia’s Fiscal Policy Agency said the country has used climate budget tagging for mitigation action since 2016, and recently included tagging for adaptation actions too. Indonesia used this data for the issuance of green bonds (called Green Sukuk) that have generated more than USD 2 billion for financing climate action.

Sarah McPhail from the National Treasury of South Africa said her country was “late to the party” but was taking a “big bang” approach. Having recently mapped out the landscape of climate finance with GreenCape and The Bertha Centre for Social Innovation and Entrepreneurship, in partnership with CPI, South Africa is now piloting climate budget tagging, which it aims to roll out at national, provincial and local government levels. South Africa is also targeting its whole finance sector to improve climate-related financial disclosure.

In Ecuador, climate finance tracking is evolving to also consider the social justice aspects of spending. As Diego Teca of the Ministry of Environment and Water explained, the country is developing a gender-relevant climate index as part of an ongoing Climate Public Expenditure and Institutional Review.

In terms of building ambition, the speakers said it was necessary to provide the evidence base to inform ambition and implementation, build awareness and capacity at all levels of government, and strengthen climate finance institutional arrangements to increase private sector participation. They also highlighted the need to incorporate equity and ‘just transition’ considerations, extend tracking to adaptation and other sectors, and to strengthen budget effectiveness.
 

Aligning with Paris

The Paris Agreement calls for all financial flows to be consistent with low-carbon, climate-resilient development. The second half of the workshop focused on how to ensure that countries, institutions and companies are aligning their financial decisions with that goal, and whether climate finance tracking can accelerate progress by public and private actors.

Clifford Polycarp of the Green Climate Fund spoke about how the fund is driving systemic change through both its investments and by helping countries to put in place strategies and frameworks and investment plans and capacities. Francisco Dall’Orso from Chile’s Ministry of Energy explained how the country is using UNDP’s Investment and Financial Flows assessments to identify ways to achieve carbon neutrality by 2050 cost-effectively.

Chris Dodwell of Impax Asset Management said that in many cases, national policy responses to climate change had not focused enough on financing requirements and so lacked baseline information from which to track progress. Citing the UK Committee on Climate Change’s 6th Carbon Budget report as a positive example, he also pointed to a need for credible sectoral roadmaps that clarify where private capital is needed and are supported by ‘investment-grade’ policies to attract that capital.

Dodwell highlighted strong growth in the amount of private capital coming into the climate solutions sector. There is a huge interest in investing in this sector, he said. What is lacking is knowledge about where that capital needs to be deployed.

Nathan Fabian of Principles for Responsible Investment added that private investors want to know their financial flows are, in fact, being invested in ways that make a substantial difference. He said a lack of alignment with climate goals is raising concerns in private markets about greenwashing. This highlighted the importance of harmonised approaches, common metrics and terms that can give private investors confidence that investments will align with stated climate goals.

Panellists also spoke a need to focus not only on decarbonisation of private investment portfolios but on increasing investment in climate solutions, including adaptation and resilience. They highlighted a need to measure both flows of finance and the effectiveness of those flows.


 

What’s next?

As CPI’s global managing director Barbara Buchner said in her closing remarks, it will not be possible to assess progress under the Paris Agreement without enhanced approaches to benchmark and measure the impact of commitments and finance on climate mitigation and adaptation goals. Enhanced approaches will also be needed to assess the contribution of public and private actors to sector transitions in the real economy across different geographies.

What’s more, the levels of finance currently available are trillions short of the sums needed to mitigate and adapt to climate change.

The workshop also highlighted the need for clear roadmaps for climate action and investment, greater transparency of financial data, harmonised approaches, and standardised criteria and benchmarks. 

Fortunately, the number of organisations engaged in climate finance tracking is increasing every year, and they are digging ever deeper into this vital area. As this community of practice continues to grow, we look forward to more opportunities to develop and share methodologies, tools and best practices.
 

More information

The workshop on domestic finance tracking and planning took place online on 21 January 2021. It was the latest in a series that began with a workshop that took place in 2019 at COP25 in Madrid.

Watch the recording of the workshop, read the summary report or view the presentation slides. For more on tracking the life cycle of climate finance flows, take a look at the Land-use Finance Tool, an open source tool that CPI and the EU REDD Facility have developed.

 


Adeline Dontenville

Land-use finance expert

EU REDD Facility

 


Angela Falconer

Director, Climate Finance Division

Climate Policy Initiative

 

Disclaimer

The views and opinions expressed in this blog are solely those of the original authors and other contributors. These views and opinions do not necessarily represent those of the EU REDD Facility, or other contributors to this site.