This blog was originally posted on GreenBiz.
Agricultural and forestry commodities, such as soy, palm oil, beef, timber and cocoa, are some of the leading causes of rainforest destruction and the degradation of other natural resources, threatening vital ecosystems and livelihoods, and accelerating global warming. At the same time, they have generated millions of jobs, enabled substantial economic growth and lifted many out of poverty.
Quite rightly, producers, traders and retailers are taking sustainability more seriously, through no-deforestation commitments and ambitions to contribute to U.N. sustainable development goals (SDGs).
But they have typically worked in silos, focusing on individual supply chains (automatic PDF download) through certification schemes, for example. While this has led to better practices at the farm level, it has not led to large-scale transformation across sectors and to lower rates of deforestation.
In response, more and more leading businesses are shifting to “jurisdictional” approaches to sustainable development. This means collaborating with governments, farmers, communities and other businesses to address drivers of deforestation across entire regions or landscapes, rather than within a single farm, plantation or supply chain.
This approach often results in joint sustainable land-use plans, which balance economic growth, social development and environmental protection and can attract new sources of finance. However, such approaches take more time to design and implement. So choosing to work in this way requires clear benefits at short, medium and long term.
As part of a new series titled “Why engaging in a landscape approach is good for business,” IDH, the Sustainable Trade Initiative, spoke to companies already engaged in such approaches. Through interviews for case analyses in Brazil (beef), Indonesia (palm oil), Vietnam (coffee) and Ghana (cocoa), we identified five key benefits to business for approaching development in this manner.
1. Securing market position
Working collaboratively at the jurisdictional level means businesses can support the development of verified sourcing areas (VSAs) — regions that can ensure any commodity produced there is sustainable or moving towards becoming sustainable. This helps attract new buyers, and increase sales volumes and revenues.
In the case of Brazil, where cattle ranching has been responsible for large swaths of forest loss, the Fazendas São Marcelo cattle farm has started working with other supplier ranches to make its practices more sustainable, as part of an initiative convened by IDH. As the region at large becomes more sustainable, the farm benefits from the good practices of others via increased access to finance and interest from new buyers that want to respond to consumers’ demand for sustainable beef. As the supply base grows, the company also can differentiate its products based on quality, and lower production costs as it focuses on more productive cows.
2. Attracting new finance (for conservation)
Jurisdictional-level land use planning can attract finance. This, in turn, could open opportunities to make these areas commercially viable.
In Indonesia, the palm oil company Bumitama Agri is working collaboratively with others to connect disparate forest patches owned by individual companies or communities, giving them far greater conservation value. Now, the initiative can attract conservation finance more readily, and Bumitama has an opportunity to make these areas commercially viable. The situation is similar in Brazil: as São Marcelo increasingly meets the demand for verified calves from an area of socio-environmental control, it helps to deliver on public commitments and unlocks potential impact investment by ensuring an environmental return.
3. Mitigating reputational risks and maintaining customer loyalty
A company risks losing customers when unsustainable practices outside the company’s remit can be associated with its operations. However, this risk can be mitigated by regular dialogue at the jurisdictional level, ensuring that other producers in the region are not jeopardizing the sustainability performance of the company. This helps secure contracts with buyers, while helping them meet their sustainability pledges.
Buyers of the coffee trader Louis Dreyfus Company are prone to switching suppliers and lack loyalty to merchants. These buyers are also asking for compliant, “issue free” traceable coffee but are increasingly less willing to pay the premium for certified products. By engaging in the jurisdictional approach and collaborating pre-competitively with other stakeholders, bringing roasters into the landscape as they contribute financially, customer loyalty increases. Louis Dreyfus can mitigate better against brand risk for itself and its customers in a more cost-effective way.
4. Ensuring long-term supply and price stability
Climate change and environmental degradation may threaten quality and quantity of supplies, and create price volatility. By engaging at the jurisdictional level, a company has the platform to discuss supply challenges with other companies, the local government and farmer groups on a pre-competitive basis and to build resilience to changes in climate. This can help prevent income loss and price fluctuations.
In Ghana, global climate change is compounding local changes in the water cycle caused by localized deforestation. By engaging in a jurisdictional approach in the Bia-Juabeso districts, the cocoa company Touton is mitigating impacts by preventing deforestation and increasing productivity at the same time. By ensuring yields are maintained, the threat of supply shortage is reduced and stability of price ensured.
5. Ensuring license to operate
By building trusted relationships with others, including local communities, a company can secure a social license to operate in that area, ensuring its activities respect the rights of the community and therefore reducing the risk of conflict and the costs associated with it.
Historically, Bumitama has been in disputes with community members in West Kalimantan province, Indonesia who have questioned the legality of the company’s permits. Bumitama, supported by Aidenvironment and IDH, is now using an inclusive approach to land use planning to ensure that communities are given the opportunity to influence decisions made in the landscape, reducing future risk of conflict.
For companies to reach their environmental and social targets, they must go beyond traditional fence-lines and collaborate at jurisdictional level. Only then can they secure the policy change and strengthened governance that are critical for meeting their sustainability commitments in the long run.