The private sector is increasingly engaging with environmental and social issues within its supply chain, in particular when sourcing from developing countries. Natural capital subsidizes production economies but is not included on a company balance sheet, although it is increasingly accepted that we are not paying the true cost of our consumables.
Acknowledgement of these costs by the private sector has driven the emergence of private standards and time-bound commitments, the use of certification schemes, and corporate social responsibility (CSR) projects. In the Indonesian palm oil industry, many of the actors involved in pursuing more sustainable practices within their supply chain and operations are those firms with a public profile and vested interest in their branding, those who rely on external capital to finance expansion, or who have seen the market for sustainable products and understood the long-term benefits of a sustainable business model. These large companies also have the resources, knowledge and financing to implement the changes required.
Similar trends can be seen across other industries with their roots in tropical forest regions. However, disregarding questions of the legitimacy and effectiveness of private governance mechanisms, broad uptake across firms is not being achieved. Small- and medium-sized enterprises, and smallholders are being left behind. This has been attributed to: the costs of certification and sustainability; a proliferation of rival standards and mechanisms, which create added confusion and complexity for companies; price-sensitive consumer markets; limited evidence of a business case for sustainability; and being unrecognized due to poor data collection and transparency.
Schemes such as the Roundtable on Sustainable Palm Oil (RSPO) demonstrate increasing membership, mainly from downstream manufacturers and retailers, and governments are increasingly adopting similar mechanisms of third party certification to demonstrate environmental and social compliance. Although many larger producers are pushing the bar higher and higher, how can private sector performance be improved across the board when there is rapid deforestation in ASEAN member states?
Key questions addressed in the session:
- Are current mechanisms sufficiently representative and inclusive (financiers and producers)? What are the barriers to uptake in your sector?
- How can industry leaders encourage uptake and improvements in standards among their peers?
- What incentives can there be for stakeholders along the supply chain?
- How can government and private sector interact to facilitate improved practices in the private sector, especially in countries where governments want to encourage foreign investment?
Background reading:
- Alvarez G and von Hagen O. 2012. When do private standards work? Literature review series on the impacts of private standards part IV.
- Wheeler D et al. 2013. Economic dynamics and forest clearing: A spatial econometric analysis for Indonesia. Ecological Economics.
- Smith T and Fischlein M. 2010. Rival private governance networks, competing to define the rules of sustainability performance. Global Environmental Change.
- Wilmar Statement, No deforestation, no peat, no exploitation policy. 5 Dec 2013.
