Event Report

1 December 2016

Het Tolhuis, Amsterdam

Making No

DeforestationCommitments WorkIntegrating REDD+ objectives in investment decisions

Making No Deforestation Commitments WorkProgram

15:30 Word of welcome by Annemieke Beekmans, Director Aidenvironment

15:40 Introduction by Kristel Verhoef, ACTIAM

16:10 Case : ’Tracing Production to Tackle Deforestation’ by Petra Meekers, Musim Mas Group

Panel Discussion

16:50 Case: ‘Sime Darby and Contested Land in Liberia’ By Tim Steinweg, Aidenvironment

Panel Discussion

17:25 Closing & Drinks

1 December 2016

Word of Welcome

No Deforestation commitments are rapidly becoming standard practice and more than 400 commitments have been made in recent years. As these commitments involve both material and financial opportunities and risks, the challenge lies in their effective implementation.

Aidenvironment already has considerable experience with putting No Deforestation on the civil society agenda and lobbying companies in the palm oil sector, and we are now working on implementing these agreements with industry leaders. Through our experience, we found that the investment community in particular has an important part to play in driving the transformation of the palm oil industry and other deforestation related commodities.

As part of the Chain Reaction Research (CRR) consortium with Profundo and Climate Advisers we are targeting investors and convincing them to integrate sustainability issues into their investment decisions. In 2016 Aidenvironment received a grant from NORAD-NICFI (the Norwegian international climate and forest initiative) to develop and transfer the knowledge gained in the palm oil sector to other commodities and regions.

This event aims to provide a platform where experiences, insights and ideas on the topic of Making No Deforestation Commitments Work are shared with stakeholders from different sectors.

Keynote speaker

Kristel Verhoef

Active Ownership Specialist

ACTIAM

Keynote speaker

ACTIAM is a responsible fund and asset manager, with € 56 billion in assets under management. ACTIAM wants to use its responsible investment policy to contribute to a liveable world, now and in the future. ACTIAM focuses on three themes: climate, land, and water.

In order to stimulate No Deforestation practices, ACTIAM engages with companies and collaborates with several organizations such as the Forest Stewardship council (FSC) to address sustainability risks and advance ESG performance.

ACTIAM applauds the increase of ESG and specifically No Deforestation commitments and notes that a positive change seems to be happening. These commitments address mistrust and stimulate technical innovation and solutions that will be useful in overcoming challenges in compliance.

Further recommendations to make No Deforestation commitments work are:1. Lead by facts instead of stories2. Reward frontrunners, support movers and punish or educate those who block change3. Collaborate and Facilitate through partnerships and multi-stakeholder processes

Case Presenter

Petra Meekers

Director of CSR andSustainable Development

Musim Mas Group

Case Presentation

Tracing Production to tackle Deforestation

Outline

1. Background2. Traceability Process3. Challenges

History of Musim Mas Group

Location Map of Musim Mas Group Plantations

Integrated Business

Musim Mas Sustainability Milestones

Musim Mas Sustainability Policy

• Announced on 4th December 2014• Affirms the Group’s commitment towards sustainable palm oil

Bring benefits to the community

No deforestation of High Conservation Value (HCV) areas and High Carbon Stock (HCS) forests

No development of peatland regardless of depth

Fully comply with local, national and international laws

Establish traceable supply chains

Main Palm growing areas Indonesia

Implementation Process

Nov 14 –Verified first third-party mill on the ground

Mar 15 -Published full list of third-party supplier mills and implemented supplier screening procedure

Jun 15 -Completed 100% traceability to mills and published supply bases for each processing facility

Nov 15 –Completed first third-party verification of our processing plant

Mar 16 –Conducted first workshop for plantation groups

Process Steps

• Supplier Questionnaire (30% returned from our 534 mills now)

• Mill coordinates confirmation and data base development by Aidenvironment

• Link direct managed plantation to mills (concession information) in the data base

• Refinery verification work

Process Steps

Approach

• Largest suppliers by volume and risk assessment finished by third party. Group Approach to Engage

• Supply shed (FFB level) and the link to offtake landscape

• Focus on suppliers in the process to develop new concession

• Suppliers highlighted in the public domain (verification)

An Independent Mill and Supply base

History of Musim Mas Group

Challenges

• From tracing to transformation; how and how fast?

• How much involvement and responsibility will be required from each player in the supply chain ?

• Certain issues need funding streams? (e.g. conservation of community forest, smallholder replant, restoration of areas etc)

Challenges

• Measure change; is suspension the tool?

• How long can an engagement last, when do you stop buying, how do you encourage?

• Leakage; Not all supply chain actors are on board with NDPE policies (local off take and countries with “less” stringent sustainability requirements)

History of Musim Mas Group

The Panel

Michel Ridder Project Advisor, RVO, Netherlands Enterprise Agency

Frank Wijen Associate Professor at the Department of Strategic Management and Entrepreneurship of Rotterdam School of Management, Erasmus University Rotterdam

Gabriel Thoumi Senior Fellow Climate Finance, Climate Advisors, member of CRR Consortium

Statement

A company’s leverage is sufficient to make No Deforestation commitments work

Discussion

Companies have sufficient leverage If companies would really want to achieve No Deforestation, they could be a powerful force. • Within the Indonesian landscape large palm oil companies have a lot of leverage over influential

stakeholders, including regional and national government.• Sector-wide change has been successful in other sectors where companies came together and agreed on

certain standards, for example in the salmon sector.

Larger companies have the power to reach deep into their supply chains. The strength of a (value) chain is determined by its weakest link. Since you cannot determine sustainability by physical characteristics of palm oil and many other commodities, all suppliers need to be on the same page. Influential companies in the value chain could have a catalyst function in this process.

Private sector leverage alone is not enoughAlthough commitments at the level of CEOs and Boards of Directors are essential, other stakeholders need to be involved to make No Deforestation commitments work. No Deforestation practices can for example be advanced by making them financially attractive for companies. If companies would be paid for successfully implementing No Deforestation policies they would be inclined to perform better. This works better for high-value crops such as coffee than low value crops such as palm oil.

Discussion

Pre-competitive solutionsLeakage of deforestation to other areas is a prevailing issue. Increased local demand of palm oil aggravates this problem as these often require less strict sustainability requirements. Pre-competitive space could provide solutions to these kind of issues by engaging all relevant players at scale.

An example where pre-competitive collaboration has been successful is the Soy Moratorium in Brazil, where civil society, private enterprise and governments came together and signed an agreement designed to ensure that traders do not buy soy grown in the Amazon on land deforested.

Role of governments Governments should not neglect their role in making No Deforestation commitments work and take action in the public space where appropriate, for example by increasing minimum wages or exploring ways to include smallholders in value chains.

Evolving the concept of No DeforestationShould we be talking about ‘No Deforestation’ commitments if this is not actually feasible at the moment? it is necessary to evolve the concept to make it more workable.

Case Presenter

Tim Steinweg

Consultant

Aidenvironment

Case Presentation

Sime Darby and Contested Land in Liberia

Chain Reaction Research

• Independent analyst research on financial and sustainabilityrisks

• In-depth case studies with empirical data• 26 company profiles in the coming five years• First profile under NORAD on Sime Darby in Liberia

Sime Darby In Liberia

• Concession with Liberian government signed in 2009 • 311,000 ha gross area;

220,000 ha for own plantation44,000 ha outgrowers

• Legality has been challenged• Aggressive and controversial expansion in initial years• Revision of policy on Free, Prior and Informed Consent (FPIC)• High Carbon Stock (HCS) – moratorium on new planting

Developments since 2009

• Customary land rights entrenched in national legislation

• Liberian government made deforestation commitmentsPartnership with NorwayDeclaration at Marrakesh

• Plethora of no deforestation commitments• Increased monitoring capacity• Analysts continue to assume full development

Contested Land

Buffer Zones

Participatory Rural Appraisal

Three Scenarios

Scenario A: Backtrack on social and environmental commitments • Forceful removal of communities, conflicts, large scale-deforestation• Significant financial risks – legal fines, loss of customers and financiers,

property damage

Scenario B: Full Concession Development With Proper FPIC, HCS, and HCV Tools

• Landbank significantly reduced; lengthy community negotiations required, risk of moving targets;

• Delays, increased costs, reduced reputational risk

Shift in Business Model

Scenario C: A shift to 100 percent Outgrower Model• Abandon large-scale plantation model; reduced risk of conflict,

less strenuous community negotiations• Increased cost, reduced risk of conflict and reputational damage,

access to new finance• Requires paradigm shift, support for customary land rights,

guaranteed financial and technical support to outgrowers

Statement

No Deforestation commitments require a shift in the business model of a company

Discussion

Changing to Outgrower model Changing to an Outgrower model does address the root of the problem, since local communities are the primary forces driving deforestation. Smallholders are going deeper into the forest and need an incentive not to.

Model based on valuesForests represent various values besides financial value that are not taken into account into the current model. A new business model should include such social and environmental values in order to be successful in achieving Zero Deforestation.

Yield ImprovementIn the financial sector a shift in taking place towards a focus on yield improvements per hectare. This implies that there is already a change in business model going on. Now that there is less suitable land available the matter has become more urgent and investors are more aware of it.

Discussion

The business logic of No DeforestationIs it plausible to commit to No Deforestation at all within current circumstances? It is necessary to think about the business logic behind these commitments. How to change from large-scale investment approach to approaches stimulating inclusive and sustainable development.

Banks in developing countries need to get involved to facilitate the change in business models.

Advice for investorsThe presentations show how difficult the playing field is. This makes it hard to identify companies that perform well. What should investors look at when making responsible decisions?• Value appropriation vs value creation; analysts are not including the right information into their

forecasts. • Realize that the large-scale plantation model is no longer viable

Closing Remarks

Joint-Statement on Closure of the Ketapang Complaint

Aidenvironment is pleased to have issued, together with IOI, the final Joint Statement in which we declare IOI’s Ketapang complaint case closed.

Click here to read the full Joint-Statement on Closure of the Ketapang Complaint and the Annex to the IOI-Aidenvironment Joint Statement 1 December 2016.

Thank You!

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