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Ivo Mulder of UN Environment Programme explains why UNEP has partnered with fund management company Sustainable Investment Management on the Responsible Commodities Facility, which will launch a bond on the London Stock Exchange later this year that incentivises Brazilian farmers to grow soy on degraded lands
Across the world, the production of beef, soy, palm oil, rubber and other soft commodities is a major driver of deforestation, leading to about 7 million hectares of forest loss per year at present. Over the past 25 years, between 1990 and 2015 tropical forest cover decreased by more than 195 million hectares of which palm oil, beef, wood and soy were collectively responsible for 113 million hectares between 2000 and 2012.
As this week’s IPCC report on land use made clear, losing tropical forests means losing the tremendous biological diversity, the regulating functions that forests provide and the carbon that’s been stored both above-ground and below ground that is causing the climate crisis we are finding ourselves in. With global population rising unabated and our (meat-based) diets remaining at what they are, demand for agricultural expansion at the expense of (tropical) forests could rise by 593 million hectares by 2050, leading to a tripling of emissions – which in all likelihood will push the global community beyond planetary boundaries defined as a safe operating space for humanity. This is basically only a generation away from the present time.
There is no time to waste in moving towards sustainable land use models that separate or “decouple” deforestation from agricultural production, rehabilitate degraded land and include smallholder farmers in global agricultural value chains. Such an agricultural system better balances the need for economic growth and jobs with the necessity of increasing climate resilience, emission reduction and better forest protection.
It calls into question the efficiency of clearing forests to produce soy, to feed animals, in order to sustain meat-based diets
One of the biggest priorities is to find a different way of producing soy. Most soy produced ends up in animal feed for chickens and livestock (cows), with a small percentage being used for food products like protein alternatives and soy milk. It calls into question the efficiency of clearing forests to produce soy, to feed animals, in order to sustain meat-based diets in developed countries, and increasingly in developing countries as well.
While there is a need to improve the overall efficiency of the food system, in the interim we need to make sure that soy is being produced in way that sustains agricultural output and value add for the economy, but without further clearing forests and natural vegetation. Besides scaling up production on existing land – including through technological improvements – this could be done by prioritising the use of degraded land for production.
The US and Brazil are the two biggest soy-producing countries in the world. Following the Amazon Soy Moratorium in Brazil, there is strong evidence that production for soy, but also the rearing of livestock, moved to a savanna area known as the Cerrado.
While there is growing demand for land to expand agricultural production, it is it widely recognised that the expansion of agricultural production can happen without further clearing of natural vegetation . It is estimated that over 40 million hectares of already degraded pasture and agricultural land could be made available for more lucrative and productive agricultural uses such as soy .
This is why the UN Environmental Programme (UNEP) decided to partner with Sustainable Investment Management (SIM), a fund management company, to identify practical ways to finance sustainable soy production in Brazil called the Responsible Commodities Facility.
This facility, which is listed on the London Stock Exchange, aims to provide financial incentives to producers that commit to cultivation of deforestation- and conversion-free (DCF) soy (and in the future maize as well). By restricting soy cultivation to areas that are already cleared, levels of deforestation, or conversion of natural habitats, should be reduced and carbon emissions, together with the loss of biodiversity, avoided.
The underlying idea is to use the bond market to raise capital, providing investors with the possibility to finance sustainable commodity production
In doing so, this “pro-growth” facility tries to balance the need to sustain agricultural output and jobs, while doing so at considerably lower environmental and social impact than at present. This will be done by offering farmers a reduction in the cost of capital for annual crop finance in exchange for certain requirements such as cultivating soy on degraded areas.
At the time of writing this blog, UNEP is working with SIM to finalise the environmental and social impact framework that will be part of the eligibility criteria. The underlying idea is to use the bond market to raise capital from a combination of institutional investors, development banks, impacts investors and commercial banks, providing investors with the possibility to finance sustainable commodity production while making reasonable risk-adjusted returns.
This partnership is part of a broader effort by UNEP’s land use finance programme to proactively stimulate and direct public, and especially private, capital towards deforestation-free, sustainable commodity production. With the IPCC report stating that food and drink production alone has been the driver behind 75% of deforestation by area size to date, the task has never been more urgent.
Ivo Mulder is head of the Land Use Finance Unit UN Environment Programme (UNEP)