Environment Bill

Written evidence submitted by Global Witness (EB23)

About us: Global Witness campaigns to end environmental and human rights abuses driven by the exploitation of natural resources and corruption in the global political and economic system. We have worked on deforestation for nearly 30 years – exposing environmental destruction, corruption and conflict associated with the trade in timber and forest risk commodities and advocating for changes in policy.

Summary

The Environment Bill represents an opportunity for the UK to play a global leadership role and take action to tackle its global environmental footprint through action to tackle global deforestation. We believe that the bill should be strengthened to include a provision requiring businesses, including finance, to identify, mitigate, prevent and report on risks of deforestation, environmental harm and human rights abuses associated with their supply chains, operations and financing.

The deforestation challenge

The destruction of tropical forests like the Amazon is one of the starkest examples of the impact of global consumption and investment worldwide in the UK on the environment and climate. Despite widespread agreement on the crucial role of forests for our climate and biodiversity, deforestation continues apace.

Forests are crucial to tackling the climate emergency and regulating the global climate. Deforestation is the second largest source of anthropogenic greenhouse gas emissions. A recent study showed that over a four-year period (2010–2014) international trade drove between 29% and 39% of deforestation-related emissions. [1]

Globally, tree cover loss has been rising steadily over the past 18 years. 2018 saw the disappearance of 3.6 million hectares of primary rainforest, an area the size of Belgium. Just over a quarter of global tropical forest loss is due to deforestation through permanent land use change for the production of commodities, including beef, soy, palm oil and wood products, and this can be as high as 78% in South East Asia and 56% in Latin America. [2]

The impact of deforestation, forest degradation and grabbing of forested land for industrial agriculture and illegal logging is also devastating for the human rights of communities that reside in and around the forests and rely on them for their livelihoods.

Local communities on the frontline of efforts to fight climate breakdown and preserve ecosystems are under increasing attack from some industries trying to meet this consumer demand. In 2018, Global Witness documented 164 killings of land and environmental defenders – ordinary people murdered for defending their homes, forests and rivers against destructive industries. Countless more were silenced through violent attacks, arrests, death threats or lawsuits. [3]

The UK’s global deforestation footprint

UK imports of commodities associated with deforestation – like beef, leather, soy, palm oil and timber – have been shown by the WWF and RSPB to take up an area of land more than half the size of the UK. [4]

In our September 2019 report, Money to Burn, we documented how UK-based financial institutions were the single biggest source of international finance for six of the most harmful agribusiness companies involved in deforestation in Brazil, the Congo Basin and Papua New Guinea - providing a staggering £5 billion over the last six years. [5]

UK government action

The UK government recognised the need for action to tackle the deforestation associated with the UK’s supply chains in its 25 year Environment Plan. [6] This led to the establishment of the UK government’s Global Resource Initiative (GRI) taskforce to consider how to reduce the UK’s climate and environment impacts. [7] Global Witness has inputted into the work of the GRI both directly, in the finance working group and the human rights, social equity and gender working group, and indirectly, through the Forest NGO Coalition, of which we are members. Along with others in GRI, we have been advocating for the need for mandatory due diligence to tackle deforestation risk in the UK’s supply chains and investments.

The UK hosting of the UNFCCC COP, the recommendations of the GRI taskforce and the UK Environment Bill provide a crucial opportunity for the UK to show global leadership and take concrete action to tackle its deforestation footprint. Through due diligence legislation, the UK also has an opportunity to spark a ‘race to the top’ highlighting that companies and countries that are innovating proven and reliable practices to combat deforestation will fare favourably with UK businesses and markets.

Failure of voluntary commitments

Some companies recognise their responsibility for the role of their operations, imports and investments in deforestation and have adopted policies to address this. However, these policies are not mandatory and remain at the company’s discretion – so there is no consistency between the corporate commitments and implementation. There is also a lack of transparency and accountability in their implementation.

The stark conclusion of a comprehensive analysis of corporate policies on deforestation was that "The voluntary commitments to end tropical deforestation by 2020 have failed". They observed a lack of any action by nearly half of the companies and financial institutions assessed. 40% of the companies assessed did not have any deforestation commitments and 68% of the financial institutions had no deforestation policy. [8]

Key companies like Cargill are already admitting that they will not meet their zero net deforestation targets and few, if any, of the hundreds of companies in the Consumer Goods Forum will either. [9]

The business case for mandatory due diligence

Effective due diligence is in the interest of companies as environmental and human rights considerations can entail significant material risks. These can include operational blockages, stranded assets, as well as reputational, financial and legal risks. Legislation requiring companies to identify, prevent and mitigate environmental damage and human rights abuses can help them manage these risks and provide a level playing field.

Mandatory due diligence legislation would also help to create a predictable business environment, providing clarity on the expectations of businesses and standardise processes to manage deforestation, environmental and human rights-related risks.

Mandatory due diligence could ensure that no company or financial institution pursues profits linked to deforestation. This would see financing and supply chains redirected towards sustainable activities that will endure and thrive as the economy shifts to adapt to new realities in the climate crisis age – benefitting both the environment and corporate actors.

There is a growing demand from the private sector for regulation. Nestle made a public statement supporting "appropriate legislation that aims at encouraging companies to address their potential impacts on human rights and the environment and would lead to increased transparency, collaborative action and a leveled playing field". [10]

In a recent study conducted by the British Institute of International and Comparative law, the vast majority of business indicated that additional regulation to introduce a ‘failure to prevent mechanism’ with respect to human rights may provide benefits to business: through providing legal certainty (82.14%); through levelling the playing field, insofar as it will hold competitors and suppliers to the same standards (74.07%); and by facilitating leverage with third parties, including in the supply chain (75%). [11]

Mandatory due diligence

We are advocating for the introduction of mandatory due diligence on deforestation risk across sectors, supply chains and finance for UK based companies, including finance, and those providing goods and services in the UK.

Due diligence is an established business practice routinely undertaken for commercial and legal risks. The OECD has already developed internationally agreed guidance on how these checks should be done for environmental harms and human rights abuses. [12] According to the OECD, it "involves a bundle of interrelated processes to identify adverse impacts, prevent and mitigate them, track implementation and results and communicate on how adverse impacts are addressed with respect to the enterprises' own operations, their supply chains and other business relationships." [13]

As a risk-based approach, the extent of due diligence investigations depends on the nature of the company’s activities, the number of suppliers it sources from, where the product is sourced from and its business partners, etc.

Key elements of mandatory due diligence

As set out in a recent joint briefing [14] published with Client Earth, we identified a number of key steps to be included in a due diligence process as well as key elements required to ensure it is effective. These are summarised below.

Due diligence steps:

1. Identify and assess risks and impacts

2. Take action on risks and impacts identified – by ceasing, preventing and mitigating

3. Monitoring and tracking responses

4. Stakeholder participation

5. Remedy harms done

Key elements for due diligence processes to be covered in legislation:

· standards for assessing and dealing with risks, taking into account existing international standards, conventions and declarations.

· proportionate and risk based approach, not excluding companies based on size or turnover

· covers the entire supply chain, subsidiaries, activities of subcontracts and suppliers

· transparency and reporting – public disclosure of relevant and up to date policies and plans for implementing due diligence – following a framework established in statutory guidance

· effective enforcement regime, with an independent body responsible for application of the law, dissuasive penalties for non-compliance and harms done

· role for third parties and complaint mechanisms

Why finance should not be excluded from due diligence obligations

Over the last decade, the digital disruption and influence of technology has made it much easier for policy-makers, researchers, media, NGOs and analysts to track financing linked to deforestation and identify the role that EU finance plays as an integral part of the agribusiness supply chain. [15] Concurrently, a growing number of international and national institutions have clarified that finance should not be exempt from corporate responsibility commitments and standards.

Finance is included under the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines on Responsible Business Conduct. [16] Voluntary initiatives in forest-risk commodities including the Soft Commodities Compact and Roundtable on Sustainable Palm Oil also include financial institutions among their membership. [17] The growing shift to ensure that all relevant corporate entities are covered under a due diligence approach is reflected in France’s 2017 Duty of Vigilance law, which applies to all large French companies, including banks. [18]

The distinction between ‘finance’ and other types of company is not always clear. For example, agribusiness firms can provide credit services or third-party financial services to farmers and an investment firm may fully own and operate an agribusiness enterprise. [19] If due diligence legislation excludes finance it could feasibly result in one arm of a company being prevented from undertaking harmful practices that drive deforestation while a separate arm of the company is able to finance, and profit from, these same activities.

Similarly, inconsistencies and incongruity will arise if UK banks are not working to the same standards and obligations on assessing and acting on deforestation risks as the UK businesses seeking their finance. A due diligence obligation will also help to build the credibility of UK financier credentials on deforestation across their business, which could bring additional benefits to the City of London’s efforts to bill itself as a the green finance capital of the world.

Therefore, any new legislation or policies on deforestation risk must include financial institutions within their scope to avoid the risk of setting double standards for different sectors and sending the message that deforestation risk is acceptable for certain sectors e.g. finance, but not for others e.g. supply chains linked to agriculture.

Conclusion

As the UK prepares to host a key climate summit later this year, the Environment Bill provides a crucial opportunity to show global leadership and take action to tackle deforestation associated with UK supply chains and investments. This should take the form of a mandatory due diligence obligation to require companies, including finance, to identify, mitigate, prevent and report on the risk of deforestation, environmental harm and human rights abuses associated with their supply chains, operations and investments. In order to be effective it should be accompanied by effective enforcement, standards and guidance.

March 2020