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STRATEGIC PARTNERSHIPS TO COMBAT FOREST CONVERSION AND THE ROLE OF FINANCIAL INSTITUTIONS

By Jan Joost Kessler

Continuing forest conversion processes result from the expansion of agro-industrial industries responding to global markets and consumers demands. The role of financial institutions is critical in funding these processes, but the role of this actor has so far not been properly addressed. Strong north-south collaboration has been effective as regards linking local problems to global private sector actors. Strategic partnerships between environmental NGOs and private sector innovators (retailers and financial institutions) are critical for bringing about change and for convincing 'mainstream' actors.

Underlying causes
In recent decades, much attention has been paid to logging for timber as the major activity that causes the decline of primary forests. It has led to the development of sustainable forest management practices and the certification of timber based on sustainable management principles. However, this approach has ignored several important causes of continuing forest decline, such as forest fires in Indonesia. AIDEnvironment took up this issue and coordinated action-research aimed at:

• understanding the dynamics and root causes of forest conversion;
• identifying the key actors involved; and
• developing and implementing solution strategies.

The research is being undertaken in various countries using a model that is generally applicable to problems of illegal and unsustainable exploitation of natural resources. A critical aspect of the research is the collaboration between southern (local) and northern (Dutch) environmental NGOs, with a view to acquiring evidence of the local problems and their impacts on stakeholders, unravel the causal linkages with private sector actors from the Netherlands and Europe operating at a global scale, and then actively address these actors as well as Western consumers.

Forest conversion for monocultures
Forest conversion is the continuous process of declining forest functions leading to man-made monocultures with low biodiversity, causing a loss of economic value and negative socio-economic impacts on local communities. The forest conversion process passes from primary (natural) forest to logged or residual or secondary forest, and finally converted forest. The driving forces for forest conversion are often found beyond the forestry sector. In Indonesia, palm oil plantations are largely responsible for forest conversion; the area affected has increased by 530% since 1985. It was estimated that oil palm plantation owners started more than 50% of the forest fires. While international pressure has led to increasingly stringent regulations for selective logging, forest clearing for oil palm plantations is bound by less stringent regulations. It is estimated that in 2000 forest conversion accounted for 40% of Indonesia's legal timber and pulpwood supply. Similar processes are the expansion of soy monocultures (Brazil), cotton (Western Africa) and pulpwood plantations (Indonesia).

The role of the private sector
The profitability of agro-industrial monocultures constitutes a driving force behind the forest conversion process that does not seem to be fully recognised. The scale and the rapid speed of forest conversion is unprecedented. This can be explained by the connections with global commodity markets. The 'resource-trade-cycle' model describes how consumer markets are related to resource management and forest conversion processes. There are two basic flows that connect consumer markets with the resource: capital flows and product flows. Capital is channelled to the producer through financial institutions. For instance, the expansion of oil palm estates in Indonesia is largely financed by financial institutions which are subsidiaries of international banks. Depending on the type of credit provided, financial institutions can strongly influence their clients' policies. It is remarkable that the role of financial institutions as a driving factor and root cause of forest conversion has so far been ignored. Product flows from producer to the consumer market are generated by a range of actors involved in trade, processing and retail of products. The consumers contribute, through their savings, to the creation of the financial resources that feed the process.

Solutions
The action-research has resulted in a number of solution strategies. These result from a critical combination of:

• joint actions by environmental NGOs to put key private sector actors under pressure, by informing consumers, making known illegal acts and contributions to deforestation, thus putting the reputation of the company under pressure ('pushing' strategy); and
• strategic partnerships with private sector innovators and early adopters, offering and developing alternative options, more sustainable practices, better policies and support by environmental NGOs ('pulling' strategy).

With respect to the Indonesia case, this has resulted so far in the following progress:

• Following a major campaign by consumers, three Dutch banks - ABN AMRO Bank, Rabobank and Fortis Bank - decided to stop or substantially restrict the financing of oil palm plantations for which tropical rainforest is purposely destroyed. They have expressed the need to work towards alternative approaches and to do so are in close contact with environmental NGOs. One result of this collaboration is the formulation of a forest policy for financial institutions now ready for adoption.
• Some large companies have cancelled investments in oil palm plantations or pulp industries, partly as a result of pressure. As a result of partnerships with environmental NGOs, some retailers are working on the development of palm oil that is produced in a more sustainable manner, adopting better practices and being 'HCV-free' (not derived from the cutting of high conservation forests).
• At a local level there have been various court cases supporting local communities and workers on oil palm plantations in their cases against illegal exploitation or social injustice. To succeed, the support from northern NGOs is important.

A similar approach has been adopted for other cases of forest conversion resulting from private sector involvement, and the role of financial institutions in financing these.

Further information:
Jan Joost Kessler
AIDEnvironment, Amsterdam, the Netherlands
Donker Curtiusstraat 7/523
1051JL Amsterdam
The Netherlands
E-mail: kessler@aidenvironment.org

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