1. INTRODUCTION
Various private initiatives have emerged to tackle deforestation and ecosystem conversion fuelled by trade in agricultural commodities. This article aims to study the alignment of private action with public interests and the influence that public authority can exert over transnational private regulation,Footnote 1 in particular, on the issue of sustainability.Footnote 2 It thus contributes to transnational legal scholarship on the interplay and potential regulatory complementarity between public and private regimes.Footnote 3 As it consists of several intersecting, misaligned and even conflicting regimes, the incipient transnational legal order (TLO)Footnote 4 for trade and deforestation is a fitting case study to appraise the steering potential of the former through enrolling and leveraging strategies. The article explores how public authority can intervene in aligning and consolidating an otherwise conflicting TLO – which consists of various public and, notably, private components – to discipline deforestation, conversion, degradation, and associated human rights violations.
In line with European Union (EU) policy priorities,Footnote 5 the article suggests a legal avenue to improve EU action on deforestation through the mobilization of private authority. An EU feasibility study indicated that non-financial due diligence would be the regulatory tool with the highest degree of effectiveness in achieving deforestation-free value chains.Footnote 6 The contribution analyzes how a possible EU measure building upon the EU Timber Regulation (EUTR)Footnote 7 may align and step up firms’ supply-chain management systems and voluntary private standards in a nascent TLO. A possible EU measure disciplining trade in certain agricultural commodities would contribute to the protection of forests, natural ecosystems, and land-related human rights by requiring that, regardless of their origin, only products and commodities that are neither associated with forest and ecosystem conversion and degradation nor with associated human rights violations can be placed on the EU market. This obligation of result would be operationalized by an obligation of conduct, namely, to perform non-financial due diligence. In addition to its potential effectiveness, the alignment of non-financial due diligence with the human rights due diligence (HRDD) framework is the keystone for enrolling and directly improving supply-chain management activities of firms marketing agricultural commodities in the EU, as well as for harmonizing private standards. While this contribution focuses on the EU, the regulatory model is extendable to other jurisdictions. In the United States, for example, certain senators have signalled their intention to regulate market access for products associated with deforestation.Footnote 8
This contribution is structured as follows. Section 2 briefly illustrates how deforestation, ecosystem conversions, and human rights violations are driven by agricultural expansion and trade. Section 3 sketches a theoretical framework that links literature on transnational legal ordering and transnational business-governance interactions to identify a role for public authority vis-à-vis transnational private initiatives, and the enrolling mechanisms through which it unfolds. Section 4 assesses key elements of the transnational regulatory governance of deforestation, focusing on supply-chain management, private regulatory initiatives, and their substantive requirements. The objective is to discuss the current configuration of private regimes and to highlight shortcomings and coordination challenges which public authority will remedy. Section 5 discusses how EU intervention affects the establishment of a TLO disciplining trade in certain agricultural commodities. It addresses due diligence obligations in the context of the EUTR, the normative desirability of the HRDD framework, its extension to conversion-related domains, and the impact of non-financial due diligence on private standards. Section 6 concludes.
2. ECONOMIC DRIVERS OF DEFORESTATION
Between 2010 and 2015, 7.6 million hectares of forests were lost every year.Footnote 9 Deforestation not only causes immense biodiversity loss; it is also the second largest source of greenhouse gas (GHG) emissions,Footnote 10 accounting for 12% to 29% of total emissions over the last two decades.Footnote 11 Agricultural production is a major driver of deforestation. Fifty-one per cent of global tree cover loss between 2000 and 2015 was caused by agricultural production, including pasture, and another 26% was as a result of forestry activities.Footnote 12 Forests and other natural ecosystems also suffer from degradation through loss of or reduction in ecosystem services provided; 850 million hectares of tropical forest and forest land were in a degraded state in 2002.Footnote 13 Extraction of timber is the leading cause of forest degradation.
A large proportion of forest clearance occurs in breach of local legal requirements. However, between 2000 and 2012 only half of the total tropical deforestation was caused by illegal conversion.Footnote 14 Where political leaders relax law enforcement and conservation activities to favour agribusiness, it becomes difficult to consider the legality of production or land conversion as a meaningful notion in the global fight against deforestation. To tackle forest conversion and degradation, addressing illegal conversion is therefore not enough.Footnote 15 Furthermore, protecting only forests generates leakage, as it risks displacing conversion to non-forest ecosystems. The decoupling of deforestation and soy production in the Amazon, while successful, displaced soy expansion to the Cerrado, with consequent extensive conversion of tropical savannah.Footnote 16 Finally, human rights violations – in particular, land use and the cultural rights of Indigenous communities, together with the absence of free, prior and informed consent (FPIC) – are often associated with forest and ecosystem conversion. Social and environmental considerations are inextricably intertwined, and can be addressed holistically only by taking into account both environmental and human rights impacts.
The concept of forest-risk commodities indicates agricultural commodities associated with deforestation.Footnote 17 However, the term ‘forest and ecosystem-risk commodities’ (FERCs) is proposed here as it recognizes that many ecosystems other than forests are affected by agricultural expansion. FERCs include soy, beef, and palm oil which, alone, are responsible for 80% of tropical deforestation.Footnote 18 International trade worsens the negative social and environmental impacts of FERCs given that a considerable share of their production is exported. The EU is a major global importer. In 2014, EU demand was responsible for 41% of global imports of beef, 25% of palm oil, 15% of soy, as well as large shares of FERCs such as maize (30%), cocoa (80%), coffee (60%), and rubber (25%).Footnote 19
In spite of global concerns about climate change, especially in connection with deforestation and international trade, effective multilateral agreements on the protection of forests and other ecosystems continue to be lacking.Footnote 20 Even where unilateral intervention could be normatively and legally justifiable,Footnote 21 states remain confronted with jurisdictional limitations. These notwithstanding, private authority contributes to bringing degrees of legalization across global value chains.Footnote 22 As is typical for questions of environmental law,Footnote 23 the impact of agriculture on deforestation is governed by a multi-level and multi-actor patchwork of instruments that blur the boundaries between the public and the private, and between pursuing economic and non-economic goals. These tools include voluntary supply-chain sourcing commitments enacted by commodity traders, voluntary sustainability standards addressing a single commodity or a specific use (such as biofuel production), no-deforestation pledges monitored and enforced by multi-stakeholder coalitions, and public measures that require legality of production via due diligence. However, for reasons that will be explained in this article, such private regulatory initiatives have limited effectiveness. There is therefore an urgent need for public intervention.
3. A ROLE FOR PUBLIC AUTHORITY IN THE TRANSNATIONAL REGULATION OF DEFORESTATION
The notion of the TLO identifies a collection of formalized legal norms, organizations and actors that authoritatively discipline the understanding and practice of law across national jurisdictions in a given domain or around a specific problem.Footnote 24 Transnational legal ordering is characterized by its procedural nature.Footnote 25 Over time, top-down and bottom-up interactions between layers of public and private rules generate reciprocal incremental adjustments of norms and align them, more or less effectively, with the issue area in question. This may lead to institutionalization, which is the effective orientation of social expectation, communication and action that occurs where practices converge, diffuse, and are taken for granted.Footnote 26 A TLO may apply only to part of the issue considered, and may overlap with competing regimes underpinned by other, possibly less stringent, rules.Footnote 27 While institutionalization is a sociological phenomenon, this article appraises the first essential steps towards that goal – namely, the formation of a normatively coherent, definitionally clear and predictable, and potentially effective TLOFootnote 28 addressing forest and ecosystem conversion regardless of its legality in countries of production, and associated human rights violations. Such a TLO would entail various components of public and private authority as well as mandatory elements to ensure that compliance is not just symbolic.
This contribution is particularly interested in the role of public authority in steering the formation of such a TLO, and in establishing and reinforcing its substantive and procedural coordinates. Public authority at the national and regional levels remains central to rulemaking, rule recognition and rule enforcement as TLOs are intimately connected with public lawmaking.Footnote 29 Unilateral legal developments in a jurisdiction with large economic power may also affect private behaviour in others.Footnote 30 This holds particularly true for private standardization bodies and firms’ management systems. Transnational private regulatory initiatives are based on existing international and national rules, and are exposed to various pressures from public authority.Footnote 31 Public action has been, and remains, instrumental in the emergence, implementation, enforcement, and evolution of transnational sustainability governance.Footnote 32 TLO processes also affect public authority.Footnote 33 When interacting with private authority, this phenomenon takes the form of a hybridization of regulatory forms, where public regulation absorbs features of private regimes, and vice versa.Footnote 34 Private regulation is thus a ‘laboratory’ of standards and benchmarks to be later institutionalized through public regulation.Footnote 35
While the notion of the TLO does not prescribe desirable conduct on the part of public authority, scholarship on transnational business governance interactions (TBGI) casts some light on the interactions between public and private authority that characterize a TLO. TBGI literature also offers normative guidance to identify circumstances where interactions between regimes can be harnessed to improve output and outcomes of transnational regulation.Footnote 36 TBGI scholarship starts from the premise that public regulators are increasingly in interplay with other regulatory actors.Footnote 37 Normatively, public authority retains a distinct function in scaling up private regimes. It can coordinate between various regimes and actors, and operate as an additional and complementary locus of rulemaking authority to remedy the shortcomings of private governance.Footnote 38 The focus here is on deliberate, cooperative interactions between public and private authority with the aim of engaging private rulemakers and regulatory addressees (firms), and in particular on the standards they draft and their implementation. These interactions can be leveraged to affect the regulatory institutions, the nature and the content of their rules, and the overall conduct of regulated entities.Footnote 39
While public-private interactions take many forms, including those of an informal nature, this article is concerned particularly with interactions unfolding through legal instruments and obligations that directly or indirectly impact on private authority. Such interactions can be directed to increase the ambition and scope of private norms and make them more effective and responsive, while fostering accountability and participation.Footnote 40 Where such interactions include public and private actors at the national and transnational levels they may enhance the regulatory capacity and legitimacy of both public and private regulatory regimes.Footnote 41 Private authority offers institutional complementarity to public action.Footnote 42 Private regimes operating across jurisdictions offer implementing and monitoring functions to provisions and principles determined in public instruments, especially where public authority lacks the capacity or will to define rules in technical or controversial domains, or does not have the authority to monitor compliance.Footnote 43 At the same time, transnational private regulators possess incomplete forms of authority, and must cooperate with public authority to compensate for their capacity, authority, and legitimacy deficits.Footnote 44 Interactions thus foster a division of labour and of regulatory competences, resulting in improved overall effectiveness and legitimacy.
Among possible mechanisms for interaction, enrolment and leveraging are here considered in the light of their potential to enhance the regulatory capacity of public and private regimes and thus of the overarching TLO.Footnote 45 Interactions that were successfully harnessed to enhance regulatory quality or advance the interests of marginalized actors include the enrolment and leveraging of third parties and the strategic mobilization of their resources and capabilities.Footnote 46 Through enrolment, a process of coercive isomorphism leads to scaling up private regimes according to criteria established by public authority.Footnote 47 The success of public authorities’ enrolment of transnational private regulators is thus closely connected with the substantive, procedural, and governance requirements, and their effective verification.Footnote 48
4. THE TRANSNATIONAL PRIVATE GOVERNANCE OF DEFORESTATION AND ECOSYSTEM CONVERSION
This section analyzes transnational private initiatives on deforestation, ecosystem conversion, and associated human rights concerns in the context of a potential TLO to tackle conversion and associated human rights violations. Section 4.1 reviews the tools enacted by individual firms to address FERCs in their value chains. Section 4.2 discusses the aggregate effort of firms and other stakeholders in voluntary certification programmes. Section 4.3 discusses divergent substantive approaches embraced by voluntary sustainability standards.
4.1. Firm-level Supply-Chain Management, Zero-Deforestation Pledges and Moratoria
The purchasing practices of firms and their supply-chain management instruments are key in ensuring that transnational economic activity unfolds in compliance with public goals, and should thus be a focal entry point for the intervention of public authorities in the domain of deforestation. Supply-chain management systems are structured operating systems to assess the actual and potential impacts of a firm's activities on concerns such as labour issues, corruption, or deforestation. Within the boundaries of such a system, firms develop plans to manage their impacts and monitor effects; evaluation takes place regularly and adjustments are made to improve performance.Footnote 49 Sustainability supply-chain management addresses and manages sustainability-related practices and risks not just of the firm implementing the system, but of all suppliers and sub-suppliers in a value chain.Footnote 50
Sustainability supply-chain management unfolds through the definition of substantive criteria, monitoring and sanctioning obligations that determine conditions for entry and exit from a value chain – often including the most remote upstream tiers.Footnote 51 Supply-chain management systems not only require suppliers to deliver products that are compliant with sustainability-related requirements; they also establish obligations concerning internal reporting, and investigate and remedy non-compliance – including by the suppliers of a supplier – going well beyond the scope of individual transactions.Footnote 52 At the same time, long-term engagement, training, and capacity building is offered to establish across-the-chain traceability, and to monitor origin and conditions of production. These practices may include segregation measures to ensure that compliant products are not mixed with non-compliant products in the value chain or at critical bottlenecks.Footnote 53
Sustainability supply-chain management allows for a much greater extent of governance, oversight and supervision than traditional bilateral contracts, as it considerably limits delegation to suppliers. Supply-chain management empowers downstream chain leaders to govern value chains with sophisticated tools to monitor and enforce contractual obligations. By operating across jurisdictions, supply-chain management has the potential to harmonize applicable requirements in alignment with the most stringent jurisdiction, or potentially with standards going beyond public requirements.Footnote 54 Distance between production and consumption, and the complexity of global value chains, make it difficult to identify responsibilities for deforestation.Footnote 55 Properly structured supply-chain management identifies responsible economic operators and excludes them from supply chains.
Such systems represent the space at firm level where public interest considerations – such as ensuring that products associated with negative impacts are not traded – are embedded in corporate activities. Supply-chain management therefore represents an opportunityFootnote 56 for private authority to create a new institutional avenue to diffuse regulation where public authority lacks jurisdiction. This particularly enables the extension to products that originated in other jurisdictions of public, trade-related measures, determining process and production criteria for products to be placed on the market. However, arguably the predominant function of these systems is to tackle and manage operational risk. It is unlikely that firms would fully operationalize public interest goals in supply management without the prospect of liability, and without clear public instructions to harmonize and scale up requirements, and embed interests of affected actors (suppliers, workers, and human rights holders) in firms’ decision making. Supply-chain management must therefore be properly leveraged by public authority. If left unhindered, it enables powerful chain leaders to exploit sustainability-related claims, transferring value from suppliers to chain leaders.Footnote 57
Individual buyers and traders are value-chain leaders and creators of management systems that implement sustainability-related commitments in agriculture.Footnote 58 Despite some convergence, individual firms retain their own commitments underpinned by different requirements.Footnote 59 Particularly relevant for this contribution are supply-chain tools that institutionalize deforestation-free sourcing based on formal, publicly announced policies implementing and enforcing deforestation criteria in purchasing contracts. Eighty percent of the international trade in agricultural commodities is handled by four importers – the so-called ‘ABCD’: Archer-Daniels-Midland, Bunge, Cargill, and Louis Dreyfus. These firms operate as global, cross-sectoral value chain managers. Because of their consolidated vertical integration, they possess enormous power to shape key features of agricultural production and its impacts via supply-chain management.Footnote 60
In recent years, all four of these multinationals have adopted zero-deforestation sourcing commitments in order to ensure that traded commodities are not obtained through conversion of forests and other ecosystems. The individual pledges entered into by the main traders of FERCs are then operationalized via and embedded in supply-chain management. Even on paper these commitments remain ambiguous as firms seldom clarify whether their standard for deforestation is limited to illegal conversion or instead includes any conversion of forest regardless of its legality. Lacking deadlines, most commitments seem limited to refraining from sourcing products obtained from illegally converted forests and do not cover other ecosystems.Footnote 61 For some commodities commitments also include other ecosystemsFootnote 62 – in particular, peatland for palm oilFootnote 63 – thereby limiting policy leakage. Issues relating to Indigenous communities, especially in connection with land use, remain conspicuously absent even in firms’ broader human rights policies.Footnote 64
Private commitments can be effective where they include rigorous standards, are enforced via third-party audit, and are developed in partnership and collaboration between affected entities rather than imposed top-down.Footnote 65 Corporate commitments, however, are entered into and implemented in the absence of formal incentives and sanctions. Their voluntary status going beyond legal requirements may leave them implemented and monitored ineffectively as downstream companies may not assume any responsibility for the practices of their suppliers. It is unlikely that market forces and consumer pressure alone would spur the main traders to implement and enforce supply-chain systems with a strong environmental and social dimension. The ABCD companies are not brand names subject to consumer pressure. Two of them are privately held and hence escape reporting and transparency obligations, and public oversight.Footnote 66 Public intervention therefore remains indispensable.
Firm-level pledges have emerged in an increasingly fragmented landscape of sectoral, single-commodity or geographic commitments made by multi-party coalitions. The Brazilian Soy Moratorium was the first sector-wide commitment with the aim of ending soy-driven deforestation in the Amazon. The ABCD traders and two industry groups of Brazilian processors have committed not to purchase any soy grown on land converted to agriculture after 2006. A monitoring system that relies on remote sensing and satellite mapping enables federal agents, companies, and non-governmental organizations (NGOs) to identify soy farms on converted land.Footnote 67 Information is shared with buyers so that enforcement of the moratorium takes place at the first point of sale, and farmers on illegally converted areas are prevented from selling to signatory traders.Footnote 68 Similarly, the ‘G4 Agreement’ was entered into by the four largest meatpackers in Brazil, who have agreed not to purchase beef from farms in forested land converted to pasture after 2009.Footnote 69 Both the Soy Moratorium and the cattle agreement have been effective in achieving their goals.Footnote 70
Following the success of these initiatives, a plethora of other pledges appeared covering other FERCs.Footnote 71 Several companies committed to a ‘no deforestation, no development on peatland and no exploitation’ policy to eliminate palm oil-driven deforestation of High Carbon Stock (HCS) forests, High Conservation Value (HCV) areas,Footnote 72 and peatland, in combination with social human rights considerations for Indigenous people and local communities.Footnote 73 Attempts to move beyond a single commodity or area included a zero-net deforestation commitment by 2020 of the Board of the Consumer Goods Forum, a business organization of more than 400 companies, which, however, are silent on issues relating to Indigenous communities.Footnote 74 The United Nations (UN) New York Declaration on Forests aims to halve the rate of natural forest loss by 2020 and end natural forest loss by 2030.Footnote 75
Many of these recent commitments, however, are tokenistic, with limited coverage in terms of both geographical application and commodity scope, for example, by ignoring areas with steadily growing deforestation and often lacking implementation and monitoring strategies.Footnote 76 Like the pledges of individual companies, they deploy different concepts such as zero-net deforestation or zero-gross deforestation. The former includes the possibility to cut forests if new trees are planted elsewhere. This discounts the loss in biodiversity and carbon stock from the destruction of old-growth forests. The latter, instead, entails a complete prohibition of conversion to agricultural land, at least for certain forests.Footnote 77 Varying stringency in both scope and enforcement grants companies ample margin for forum shopping and cosmetic compliance.
4.2. Voluntary Sustainability Standards
Predating the development of moratoria, the voluntary sustainability certification movement achieved considerable business uptake where deforestation concerns are rampant, although with differences from sector to sector.Footnote 78 The proliferation of transnational private schemes led to a polycentric configuration in which key actors in the regulation of sustainable production are multi-stakeholder and business organizations.Footnote 79 Private standards attempt holistically to re-embed social and environmental considerations into global capitalism at a time of changing expectations about corporate behaviour.Footnote 80 The establishment of permanent fora allows the exchange of expert information, and the development of best practices and learning on the basis of inclusive deliberative processes. The engagement of various stakeholders helps to resolve internal conflicts and legitimizes non-state, market-driven forms of authority as appropriate arenas where the discipline of value chains is shaped and a new ‘logic of appropriateness’ emerges.Footnote 81 Especially where no clear obligations exist, such as in the domain of deforestation connected with economic activities, rules about appropriate corporate behaviour appear and become institutionalized through interactions between multiple interconnected rulemakers.Footnote 82 If many actors – including, importantly, private standard setters – adopt a coherent conceptualization of societally expected corporate behaviour, a limitative process of constitutionalization emerges. Evading norms and engaging in undesirable behaviour becomes harder, as the authority of rule-defining conduct increases along with its growing acceptance.Footnote 83
Private regimes, however, also reflect and perpetuate asymmetries in power and resources in value chains.Footnote 84 Marginalized actors such as farm-workers, smallholders and Indigenous communities are rarely included in standard setting.Footnote 85 Private regimes often embrace, rather than challenge, a dominant narrative that trade and voluntary market mechanisms contribute to sustainability.Footnote 86 Proliferation complicates implementation, contributes to confusion among consumers, public authorities and civil society groups, and increases risks of a race to the bottom, forum shopping and greenwashing.Footnote 87 Overlapping regimes compete for acceptance and trust from consumers and firms.Footnote 88 Diversity of schemes is reflected in standard-setting organizations, which span from those that represent only industry actors to organizations representing the interests of affected actors and civil society under inclusive procedures for standard setting and governance.Footnote 89 Such general trends are unlikely to change without public intervention as schemes lack incentives to converge.Footnote 90 Thus, convergence around legality verification in timber certification depended on EU intervention with the Forest Law Enforcement, Governance and Trade (FLEGT) plan and the EUTR.Footnote 91
This notwithstanding, private standards tackling environmental impacts of agricultural commodities and deforestation concerns in particular have served as a laboratory for new regulatory solutions.Footnote 92 Public support for private standards increases when they can successfully assist public authority in enforcing domestic policies.Footnote 93 The regulatory capabilities of standards are appealing to public regulators in consuming countries. Certification can be effective in monitoring compliance with requirements in jurisdictions where public authorities have neither the capacity nor the authority to do so. Standards thus usefully feed into the monitoring and enforcement stage. In addition, schemes are used as a reference criterion for sustainable products, such as in public procurement.Footnote 94 Schemes can also specify steps that firms must take in the context of their non-financial due diligence. In both cases schemes are directly or indirectly enrolled and leveraged by public authority because of their implementing capacity, which results from expert and multi-stakeholder work in giving direct meaning to sustainability of production.
Certification is widely used to show compliance with zero-deforestation pledges and make claims about impacts on ecosystems and people. Over time, the uptake of schemes by firms has become linked to a need to manage relations in value chains, define rights and obligations, and implement due diligence and legality requirements.Footnote 95 In addition to substantive obligations regarding product features, private schemes provide for management processes to be integrated within the practices of downstream firms. Within supply-chain management systems, requirements established by private standards in combination with third-party auditing complement individual standards and monitoring of the chain leader, thereby ensuring across-the-chain uniformity, traceability, and segregation.Footnote 96 Standards are based on, and interact with, local, national, and customary norms in the contexts of application, which shape their rules and determine their effectiveness.Footnote 97 They also interact with policies and laws from consuming countries. As offering implementing tools to firms for due diligence-based obligations is central to schemes’ regulatory activities, standards are particularly receptive to public measures that establish non-financial due diligence.
4.3. Forest and Ecosystem Conversion, Rights of Indigenous Communities in Private Standards and the Effects of Benchmarking
The proliferation described above results in schemes that tackle varying aspects of deforestation. While procedural and governance aspects have been extensively studied,Footnote 98 the focus here is on the substance of the standards. It is doubtful whether a scheme exists that can be used as convincing evidence of zero deforestation if the target is understood to include forests, ecosystem conversion, and associated human rights violations. Potential concerns about the quality of private auditing aside,Footnote 99 extensive loopholes in deforestation criteria reduce the ability of private standards to tackle deforestation effectively.Footnote 100 They also limit the extent to which standards may foster a consistent message about normatively desirable corporate conduct and contribute to its operationalization. There is therefore a need to coordinate and streamline regulatory approaches and harmonize key criteria around key indicators of deforestation, such as definitions and identification of forests and ecosystems.Footnote 101
The Forest Stewardship Council (FSC) delivers the most stringent standard for certification of timber products. Among other requirements concerning the sustainable management of forests and plantations, it prohibits in principle conversion of natural forests to other land uses regardless of legality.Footnote 102 However, the popular ‘Controlled Wood’ programme allows non-FSC compliant material to be mixed with compliant timber and certified as ‘FSC Mix’ upon a risk assessment by the firm. As auditors verified only marginally how risk assessment was performed, illegally harvested woods from boreal forests have been certified, including those from intact forest landscapesFootnote 103 – unbroken natural forest landscapes with the highest conservation value. The competitor Programme for the Endorsement of Forest Certification (PEFC) employs the definition of ‘forest’ of the Food and Agriculture Organization (FAO) and allows for conversion under ‘justified circumstances’. The PEFC allows certification of plantations on areas converted before 2011,Footnote 104 whereas the relevant cut-off date for plantations under the FSC dates back to 1994.Footnote 105 The Sustainable Forestry Initiative (SFI) allows change in forest cover type where it complies with legal requirements, apart from native forests.Footnote 106
In other domains the Round Table on Responsible Soy Association (RTRS) prohibits both legal and illegal conversions of critical biodiversity hotspots after 2009, and conversion of natural forests that occurred after June 2016.Footnote 107 However, forests are limited to ‘native forests’, which are identified under requirements less demanding than those under the FAO definition.Footnote 108 The Roundtable on Sustainable Palm Oil (RSPO) until 2018 prohibited the clearing of primary forests with 2005 as a cut-off date, but did allow conversion of secondary forests and peat forests. The revised 2018 standards prohibit conversion and degradation of peatland, HCV areas and HCS forests cleared after 15 November 2018.Footnote 109 UTZ standards, relevant for cocoa production in western Africa, used to distinguish between primary and secondary forests. Primary forestsFootnote 110 were protected by barring certification if conversion had occurred before 2008. For secondary forests certification of farms obtained on lawfully converted secondary forests was permitted.Footnote 111 As the distinction raised criticism and was difficult to implement in practice, following the merger in 2018 with the Rainforest Alliance, the new 2020 Rainforest Alliance standard prohibits conversion of all ecosystems with a 2014 cut-off date.Footnote 112
In the context of rights relating to Indigenous communities, the requirements for sustainability standards are traceable to international instruments and the evolution of customary international law. Procedural rights are essential for addressing the negative impact of agricultural development on such communities.Footnote 113 The development of the notion of FPIC is a necessary element in respecting substantive Indigenous rights connected with their land and natural resources use. FPIC goes beyond a right to consultation and identifies a right not to be removed or relocated without consent. It is recognized as a legal norm that imposes clear affirmative duties and obligations on states.Footnote 114 A right to consultation and consent according to their customs and traditions has been applied also to communities that may not be regarded as Indigenous.Footnote 115 International human rights bodies have clarified that FPIC is part of state obligations under relevant treaties.Footnote 116 Private schemes extend the protection of Indigenous land-related rights from state activities to include private activities. Approaches and outcomes, however, differ.
Since its inception, the FSC Principles and Criteria have recognized the legal and customary rights of Indigenous peoples to own, use and manage their land, and recognized that they control forest management unless this has been delegated with free and informed consent. The addition of prior consent in accordance with evolving international obligations occurred in 2012, parallel with the establishment of the Permanent Indigenous Peoples Committee.Footnote 117 The FSC extends FPIC to local communities impacted by forest management. However, FPIC must be obtained only prior to the implementation of management activities, and not before the issuance of a concession.Footnote 118 FSC Canada has gone further and complemented the FSC three-chamber system with a fourth Indigenous chamber.Footnote 119 This has reinforced the rights of Indigenous communities through the introduction of Indigenous Cultural Landscapes – for which Indigenous peoples have stewardship responsibility – as a means to implement FPIC and as an alternative forest management model. Canadian Indigenous communities affected by FSC certification enjoy greater control over, and participation in, the management of their resources than under national law.Footnote 120 FSC operations in other countries have been less successful, especially where Indigenous rights are not adequately recognized under national law; in Indonesia, FSC certificates were granted despite land leases having been obtained without consent or consultation with such communities.Footnote 121 In contrast, certifications such as the SFI do not mention FPIC or traditional land uses, but refer only to respecting traditional forest-related knowledge, and to protect spiritually, historically, or culturally important sites.Footnote 122
For commodities other than timber, the importance of FPIC is magnified by the relatively greater impact of large-scale agribusiness and land concessions on Indigenous livelihood and land-use rights.Footnote 123 RSPO standards have included FPIC since their first version, and the rights of Indigenous communities were reinforced in subsequent revisions.Footnote 124 This was not an easy process, as the RSPO faced criticism from Indonesian producers – who defected to a more relaxed public certification programme – when it required FPIC to be obtained before new plantings.Footnote 125 Also, in Malaysia, national rules that limit the customary rights of communities clash with certification requirements. This has led companies to insist that compliance with national laws suffices for certification.Footnote 126 HCV areas include areas crucial for cultural identity which must be identified through participatory engagement with affected communities. Schemes protecting HCV areas thus offer additional venues to account substantively and procedurally for Indigenous communities.Footnote 127
In line with the various instruments on FPIC, and the United Nations Guiding Principles on Business and Human Rights (UNGPs),Footnote 128 schemes should also consider effective mechanisms for remediation and redress. Only a few standards, however, have established grievance mechanisms, and doubts persist about whether these satisfy procedural human rights requirements and the principles of accessibility, predictability, equitability, transparency, and provide for continuous learning and dialogue.Footnote 129 Testifying to these concerns, two complaints were lodged recently before the National Contact Points for the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, challenging commitments in respect of Indigenous rights, the effective presence of FPIC and effectiveness of grievance mechanisms of Bonsucro and the RSPO.Footnote 130 Both cases are still pending, and in the RSPO case the parties have agreed the terms for a legal review by the RSPO complaint panel and an action plan.Footnote 131
Generally, a slow scaling-up process of deforestation-related requirements can be observed within some schemes. Private benchmarking across standards has also contributed to this upward alignment. A recent focus on ecosystem conversion regardless of its legality is traceable to the 2019 establishment of the Accountability Framework Initiative (AFI) by international NGOs.Footnote 132 The AFI supports companies in protecting forests and natural ecosystems in their value chains.Footnote 133 After the proliferation of moratoria, pledges and standards, a need arose among the industry to obtain guidance concerning what NGOs would consider as ‘deforestation-free’ value chains.Footnote 134 The AFI addresses this need not through certification but by elaborating common principles, operational guidance, and extensive definitions of natural forests and natural ecosystems, which moves the focus of protection from certain types of forest and a few ecosystems to all natural ecosystems. The AFI embraces a no-conversion approach at the landscape level to ensure that a company's production, sourcing, and financial investment do not cause or contribute to the loss of any natural ecosystem, including but not limited to forests.Footnote 135 It also offers methodologies for the identification of natural ecosystems and the implementation of supply-chain management tools.
While individual firms can directly employ the framework or use it as a benchmark against which to assess certifications, the AFI has found its way into private standardization as well. The Rainforest Alliance's 2020 revision has incorporated the AFI's no-conversion approach and relevant concepts and definitions,Footnote 136 and other standard setters are in the process of including relevant aspects of the AFI approach in their requirements.Footnote 137 Beyond benchmarking, the AFI thus also exercises the functions of a ‘soft’ meta-regulator. Differing from pre-existing private meta-regulators in the domain of sustainability such as ISEAL, the AFI is not concerned with procedural aspects of standard setting,Footnote 138 impact measurement and evaluation,Footnote 139 but ratchets up substantive elements of voluntary sustainability standards by closing definitional loopholes. Additionally, the AFI contributes to extending and possibly harmonizing requirements that affect Indigenous communities. It has produced among the broadest guidance on the rights of such communities, requiring FPIC prior to any activity that may affect such rights, land, livelihood and food security. Failing to do so requires the suspension of all activities and granting remediation.Footnote 140 The AFI has also elaborated extensive guidance on remedies, not only for adverse human rights impacts, but also for deforestation and conversion.Footnote 141
5. TACKLING GLOBAL DEFORESTATION THROUGH MANAGEMENT-BASED REGULATION
The discussion in Section 4 reveals an emerging TLO that disciplines deforestation, conversion, and associated violations of Indigenous community rights that are connected with trade in agricultural commodities. This TLO, however, is currently composed of various overlapping and even conflicting private instruments structured along value chains. It has limited coverage in terms of both geographical application and concerns tackled. It follows the supply chains of the firms which voluntarily embed these concerns in their management systems. It is limited to protecting only certain ecosystems (most often natural forests), with very different definitions and in relation to a few commodities only. While timber, palm oil, and soy are often covered, beef (including leather), pulp and paper, and maize rarely are, even though they are equally high-risk commodities for global deforestation. Finally, an Indigenous rights-related dimension is not always present, with limited protection of procedural rights such as FPIC and weak, if not altogether absent, remediation mechanisms. Substantively, the nascent TLO suffers from divergence and indeterminacy in defining ecosystems worthy of protection and in identifying a human rights standard for Indigenous communities. Corporate management systems lack rigorous and uniform standards, and their operation in the absence of liability prioritizes operational risks over environmental and social risk.
In the domain of timber legality, the FLEGT initiative and the EUTR have generated interactions with several governance actors, resulting in an aligned and ‘joined-up’ transnational regime.Footnote 142 This has been achieved by stimulating convergence among actors and initiatives, and by diffusing consistent requirements. The EUTR set-up can be further leveraged to align voluntary private initiatives and corporate practices across value chains. Cooperation and engagement at the bilateral level should continue through an institutional structure along the lines of the Voluntary Partnership Agreements (VPAs) extended to other commodities. The involvement of local stakeholders in the precise and context-specific definition of no-conversion criteria ensures input legitimacy for non-EU affected actors.Footnote 143 In parallel, as for the EUTR, a mandatory regime should be established requiring firms to place FERCs and derived products on the EU market lawfully only if they demonstrate that goods do not originate from land obtained via the conversion of natural forests and natural ecosystems. Economic actors must also demonstrate that goods are not produced in direct or indirect violation of land-related human rights. Such an obligation would be operationalized in firms’ management systems via non-financial due diligence in line with HRDD.
A FERC measure could thus be based on Article 114 TFEU, in conjunction with Article 192 TFEU. Even if it were to generate extra-EU implications, EU intervention is legitimate and desirable. Under World Trade Organization (WTO) law, countries retain the right to ensure that their market does not contribute to condemned practices.Footnote 144 Countries can unilaterally protect exhaustible natural resources, in particular, after multilateral engagement has failed to deliver results.Footnote 145 A large and damaging EU environmental footprint (mostly happening outside EU borders, including the generation of its most negative effects) could make the EU an ‘accomplice’ in global deforestation.Footnote 146 Such a regulatory intervention should also be accompanied by policies that aim to reduce internal consumption, ensuring that non-EU interests are taken into account, continuing multilateral engagement in REDD+, and providing economic incentives to developing countries for forest and ecosystem preservation.
The complementarity of private authority and public measures is visible in the mobilization by legislators, particularly EU lawmakers, of transnational private regimes for sustainability,Footnote 147 and in the deployment of regulatory approaches that leverage corporate management systems in value-chain regulation, such as in the domain of timber legality. Two distinct but interconnected agents of interaction that exploit the complementarity of private authority and public action are discussed here. They are EU authorities’ enrolment of corporate management through the prescription of mandatory non-financial due diligence, and EU authorities’ indirect enrolment and meta-regulation of private standards through the definition of no-conversion criteria. Section 5.1 discusses due diligence in the context of the EUTR. Section 5.2 presents the framework for non-financial due diligence as outlined by the UNGPs. Section 5.3 discusses its extension to deforestation and ecosystem conversion, and its potential impact on supply-chain management. Section 5.4 discusses implications for private standards and outlines regulatory options for key definitions.
5.1. Non-Financial Due Diligence and Trade in Timber
The EUTR creates and enforces a regime that restricts the placing of products on the market, while incentivizing and endorsing firm-level systems of verification and risk management.Footnote 148 Under the FLEGT plan, bilateral agreements with a permanent institutional setting for certification of timber legality were established in producing countries, including mechanisms for dialogue with governments and civil society.Footnote 149 In parallel, the EUTR prohibits the placing on the internal market of illegally harvested timber or derived products.Footnote 150 Economic operators that place these products on the EU market must establish due diligence systems for timber legality.Footnote 151 Private standards can be used in the context of firms’ due diligence assessment, for example, to obtain information about origin, but certification does not confer the presumption of legality.Footnote 152
Due diligence systems must be capable of allowing operators to access information about origin and legality; they must contain risk assessment procedures enabling operators to evaluate the risk of illegal timber in their value chains; also, in the presence of non-negligible risk that illegal timber is handled, they must provide for risk mitigation procedures.Footnote 153 Risk mitigation measures include requests for additional information, the possible use of third-party or independent audits in the country of origin, and the use of scientific methods for timber identification. If risk is not reduced to a negligible level, operators must refrain from marketing in the EU and disengage from suppliers that cannot guarantee negligible risk.Footnote 154 In combination with the VPAs, the EUTR has had a positive impact on illegal logging. At the same time it has contributed to improving the uptake and requirements of forestry certifications.Footnote 155
Non-financial due diligence, as in the EUTR, is a form of management-based regulation leveraging corporate knowledge and resources.Footnote 156 Responsibility for decision making is allocated to entities with the best information about specific risks that are equipped to control and enforce via supply-chain management systems.Footnote 157 The choice of non-financial due diligence in the domain of timber legality is not surprising: management-based approaches are preferred where risks are hard to assess (in this case because of jurisdictional limitations and the impossibility of distinguishing between compliant and non-compliant products) and in the presence of many diverse firms. As with management-based regulation, non-financial due diligence requires businesses to develop their internal processes to respond to risks within the boundaries of management practices identified by the regulator. Firms engage in self-regulation, planning, information collection, and supply-chain management.Footnote 158 Where non-financial due diligence is implemented, management systems at the firm level become the interface between public and private values, and between the goals and operations of society and the organization.Footnote 159
Non-financial due diligence enrols the regulatory capacity of private firms. Public authorities make use of firms’ capabilities but, unlike delegation of regulatory functions, exercise only a limited degree of control. Firms can thus easily ‘game’ non-financial due diligence-based regulation where it merely prescribes broad principles to be implemented internally.Footnote 160 Constraints must therefore be provided by specifying procedures, providing incentives and sanctions. Furthermore, corporate decision making in the public sphere must be complemented with a procedural dimension ensuring alignment with public goals while accounting for the interests of those affected, and with redress mechanisms enhancing the accountability of corporations as actors of global governance.Footnote 161 This is particularity crucial where corporations deal with multifaceted phenomena affecting stakeholders in countries outside the regulating jurisdictions, and which may directly touch upon their human rights.
5.2. Human Rights Due Diligence and the UN Guiding Principles
Forms of non-financial due diligence are employed by corporations to assess the impacts of their operations on human rights and the environment.Footnote 162 These business practices, and an emerging case law which confirms that business has a duty of care in its activities and towards affiliates, were ‘codified’ in the notion of HRDD as provided in the UNGPs as an integral element of the ‘moral responsibility’ of business to respect human rights.Footnote 163 HRDD ‘comprises an ongoing management process that a reasonable and prudent enterprise needs to undertake, in the light of its circumstances to meet its responsibility to respect human rights’.Footnote 164 It constitutes a global and overarching expectation for all businesses.Footnote 165
HRDD allocates responsibilities for corporate activities that impact on human rights, going beyond the relation between a parent company and its subsidiaries. A firm is potentially responsible for all human rights impacts stemming from any commercial and non-commercial relation it has with business entities, governments, employees, customers, and affected human rights holders.Footnote 166 Corporations are linked to adverse human rights impacts not only through their own activities, but also as a consequence of their business relationships.Footnote 167 In the first scenario, corporations directly cause negative impacts, and should take steps to cease or prevent such impact via HRDD, and offer remediation. Businesses contribute to negative human rights impacts where impact is co-generated with another entity or via a third entity. A company should take necessary steps to cease or prevent its contribution, and use its leverage to mitigate remaining impacts. In the second scenario, a direct link can be established between adverse impacts and a company's operations, products or services through commercial relations with other companies. Remediation is not expected but the company should use its economic and non-economic leverage to prevent or mitigate adverse impacts.Footnote 168 This last scenario involves entities with which the company does not have direct contractual relationships, such as the supplier of a supplier, up to the most remote tiers where resources and raw materials are produced and extracted. Responsibility extends to failure to exercise leverage over suppliers who do not prevent or tackle adverse impacts.Footnote 169
HRDD confers upon companies transnational regulatory functions in their value chains. Corporations have to manage the possible impact stemming from their actions, products and commercial relations. Such functions require corporations to monitor, sanction and discipline other firms in their value chains.Footnote 170 Particularly with regard to impacts generated by suppliers, corporations have to engage, leverage and ‘sanction’ them by discontinuing economic relations where firms cannot guarantee compliance with human rights. This special conferral of regulatory power is enabled and circumscribed by procedural requirements that must be embedded in supply-chain management. These include requirements to seek information about human rights risks, evaluate risks and devise means to reduce them, report to the general public, and provide remedies to those affected. To meet the UNGPs, corporations have to adopt, design and continuously assess, evaluate and improve managerial risk-based processes.Footnote 171 The risks covered by HRDD are, however, not financial or reputational risks for the firm concerned, but refer to the risk that human rights are negatively affected by business activities.Footnote 172 The UNGPs also require meaningful consultation with potentially affected groups and other stakeholders in identifying and assessing actual and potential adverse human rights impact.Footnote 173
Various standards provide guidance on how to operationalize due diligence in practice, the most important of which are various OECD GuidelinesFootnote 174 providing sectoral implementation of the 2011 OECD Guidelines for Multinational Enterprises, which are aligned with the UNGP framework.Footnote 175 The OECD Guidance for Responsible Business Conduct requires firms to ‘understand and address barriers arising from the enterprise's way of doing business that may impede the ability of suppliers and other business relationships to implement responsible business conduct policies’.Footnote 176 It prescribes a cooperative approach to business relationships, including providing technical assistance to suppliers in implementing HRDD processes, and facilitating access to finance.Footnote 177 Firms should engage meaningfully with stakeholders and seek the input of those affected by a firm's activities at critical junctures of HRDD, such as its design and the implementation of corrective plans. Firms should offer remedies to those harmed, including via operational-level grievance mechanisms that support early identification of adverse impacts and early remediation for social and environmental harm.Footnote 178 HRDD, as prescribed by the UNGPs and implementing instruments, contains important other-regarding mechanisms for the incorporation of affected interests (of human rights holders as well as suppliers) in corporate decision making in respect of human rights. HRDD therefore offers the tools to ‘proceduralize’ and ‘publicize’ transnational corporations and contributes to aligning public and private goals.Footnote 179
While HRDD generally has been received positively, criticism has addressed the UNGPs’ lack of binding character, as reflected in the notion of ‘moral responsibility’ over ‘duty’ and their trust in market forces to sanction human rights violations in the absence of public enforcement.Footnote 180 HRDD has an ambivalent nature, as it is used both to define management processes tackling human rights risk, and as a standard of conduct to discharge the business obligation to respect.Footnote 181 The HRDD framework is also afflicted by indeterminacy on crucial issues, such as which human rights are covered. This indeterminacy limits effectiveness,Footnote 182 as corporations exploit open-ended definitions and procedures to strategically dilute their human rights responsibility,Footnote 183 or approach it as a box-ticking exercise.Footnote 184 Human rights impact assessment is frequently limited to human rights such as workspace health and safety, and rarely includes rights of Indigenous communities.Footnote 185 Aspects that are missed in impact assessments will not be addressed by corporate HRDD.Footnote 186
It was claimed in Section 4.1 that firms’ management systems can serve public goals only where public interest considerations prevail over economic interests. Similarly, managing human rights risks by way of the UNGPs can be accomplished only by elevating respect for human rights to a company objective incorporated in risk management systems, and equating human rights impacts to vulnerabilities for the corporation itself.Footnote 187 This can hardly occur through spontaneous acceptance by businesses. Making HRDD mandatory is essential in order to establish proper incentives and expectations. HRDD has been made mandatory in certain countries, albeit with varying stringency. The UK Modern Slavery Act requires companies simply to declare whether a due diligence system has been established, and provide a report on it.Footnote 188 Voluntary reporting generates limited change in supply-chain practices compared with the imposition of corporate liability.Footnote 189 Measures that impose liability in connection with supply-chain practices include a French law on the Duty of Vigilance, which also appraises the quality and effectiveness of the processes established,Footnote 190 and a Dutch law on child labour.Footnote 191 The development with the most impact will be the establishment of EU legislation on mandatory due diligence. Following a preliminary studyFootnote 192 the EU Commissioners for Justice and Consumers and for Trade committed to set out by 2021 a proposal for across-the-board due diligence, with possible sectoral guidance.Footnote 193 The EU Conflict Minerals Regulation is the first EU example of a measure that makes HRDD mandatory in line with the UNGPs.Footnote 194
5.3. Leveraging the HRDD Framework
Both HRDD and non-financial due diligence serve as ex ante modes of accountability where, for various reasons, ex post compensation is suboptimal. Using HRDD constructs in non-financial due diligence for deforestation, ecosystem conversion, and associated human rights violations mobilizes the procedural and conceptual dimensions offered by HRDD. Firstly, HRDD allocates responsibilities for conversion and human rights violations in value chains by outlining expected actions towards entities with which a firm has commercial relations and situations where remediation for harm is required. Where value chains stretch across jurisdictions, firms marketing FERCs downstream have the responsibility to ensure that the products they trade are not associated with certain risks with which they would be directly linked. They must take appropriate actions to leverage their suppliers and disengage with them if necessary. Vertically integrated firms may instead cause detrimental impacts and must thus immediately cease to generate such impacts and offer remediation.
Secondly, HRDD contributes to the granularity of non-financial due diligence processes by prescribing key steps in management-based regulation (policy planning, reporting, offering remedies) as well as including affected interests and providing compensation to those harmed. Such provisions are missing in the EUTR. Policy statements and planning are instrumental in clearly embedding public concerns in business operations and drawing the boundaries of expected conduct. Reporting generates accountability and empowers private monitoring. Including affected interests in decision making and offering compensation implement procedural obligations and responsibilities. If implemented with strong monitoring and enforcement systems – such as mandatory audits to verify the proper establishment and functioning of due diligence systems, ex post checks, private enforcement – and strengthened by a liability and sanctions regime, such a procedural dimension can operationalize public objectives in supply-chain management. It constitutes the vehicle through which substantive standards of no-conversion and FPIC are implemented by companies.
Substantively, HRDD includes ensuring that corporate activities do not infringe or contribute to the infringement of Indigenous rights regardless of domestic law.Footnote 195 This means that companies must not violate the substantive and procedural rights of such communities – encompassing participation in decision making, FPIC, access to justice and information, as laid down in International Labour Organization (ILO) Convention 169, the non-binding UN Declaration on the Rights of Indigenous Peoples (UNDRIP), and in customary international law.Footnote 196 The UNGPs also require and outline firm-level grievance mechanisms to support the identification of adverse human rights impacts and provide remedies.Footnote 197 Public intervention could still clarify the expected standard for land use and cultural identity of Indigenous communities, and the relevant procedural expectations. This could be done on the basis of the UNDRIP, which includes a comprehensive description of substantive and procedural Indigenous standards such as a right to the lands which they have traditionally owned or occupied, the provision of restoration to the status quo ante and compensation, access to justice and remedies,Footnote 198 and a comprehensive treatment of FPIC.Footnote 199
Public intervention should also refer to the relevant REDD+ Guidelines – a normative, policy and operational framework that applies to REDD+ activitiesFootnote 200 and outlines detailed FPIC criteria on the basis of the practice of human rights bodies and developments concerning the protection of traditional knowledge.Footnote 201 Despite the REDD+ Guidelines, the application of FPIC remains challenging given the difficulties in understanding how FPIC is operationalized in different socio-political contexts. The terms of FPIC are also subjective and influenced by cultural interpretations and political interests, and its procedural nature may generate ambiguous results.Footnote 202 To further flesh out relevant standards of FPIC in specific countries and contexts, engagement with partner countries and local stakeholders is indispensable. This could be based on the experience of FLEGT VPAs in defining timber legality. Such engagement would also make it possible to leverage existing human rights commitments and obligations of producing countries.
In practice, corporations would have to assess whether claims of Indigenous land use exist in the area of origin of products, regardless of whether national laws permit such claims. If so, they must obtain evidence of effective FPIC. If they do not then, depending on their association with human rights impacts (namely, whether they ‘caused or contributed’ or they are ‘directly linked’), compensation must be provided and firms must disengage from suppliers. Any decision concerning disengagement should be rights-based, and appraise whether it would not worsen the situation for rights holders such as Indigenous communities.Footnote 203
Moreover, HRDD entails a far-reaching environmental dimension. Human rights impacts can stem from environmental harm, which is expressly considered to be a potentially severe human rights impact that corporations must prioritize in HRDD.Footnote 204 Deforestation and ecosystem conversion are key drivers of climate change, which undermines the realization of a wide set of internationally recognized human rights.Footnote 205 Regardless of climate change implications, agricultural operations have profound ramifications for food, water, health, and the livelihoods of affected communities. It has been argued that all actors that contribute to deforestation – including corporations – could be considered as having a moral obligation to be part of the solution.Footnote 206 The French law on the Duty of Vigilance expressly covers environmental damage or health risks resulting directly or indirectly from corporate operations and firms under corporate control,Footnote 207 potentially disassociating these from human rights violations. The first legal action brought under the new law also concerned environmental impacts.Footnote 208
Including deforestation and ecosystem conversion in the environmental components of HRDD is possible. The content of due diligence for states and non-state actors is dynamic. In several areas of international law due diligence grew steadily to include higher principles and responsibilities.Footnote 209 While the international regime for deforestation is notoriously weak, support for stopping conversion regardless of legality has grown steadily and is reflected in a rising number of public instruments. International standards for responsible business conduct include both social and environmental impacts. The OECD/FAO Guidance on Responsible Agriculture Supply Chains includes deforestation, ecosystem conversion and degradation, and other environmental impacts as part of the expected social and environmental risks assessment.Footnote 210 SDG 15 includes targets with the aim of arresting deforestation and ecosystem destruction and degradation. The Aichi Biodiversity Targets under the Convention on Biological DiversityFootnote 211 similarly aim to reduce natural habitat loss and degradation.Footnote 212 Among the most high-profile multi-stakeholder pledges – involving 200 national and regional governments, companies, NGOs and Indigenous communities – the UN New York Declaration on Forests aims to halve the rate of natural forest loss by 2020, and end natural forest loss by 2030, by establishing a clear link between conversion and human rights violations.Footnote 213
Regardless of whether it is possible to extend HRDD to deforestation and conversion within the framework of the UNGPs, there is nothing to prevent public authorities at the national or regional level from implementing the UNGPs and HRDD in a stricter manner. Public authorities can discipline forest and ecosystem conversion via HRDD without drawing a connection between deforestation and human rights. Expanding the substantive scope of HRDD with non-financial due diligence legislation may ‘simply’ generate liability under the measure in question or under national laws on responsibility for damage or failure to exercise due diligence.Footnote 214 Private frameworks such as the AFI already mobilize HRDD constructs to elucidate expected corporate action on land-use conversion, thereby grounding normatively desirable practices in the UNGPs.Footnote 215 Private standard setters have embraced HRDD, and use its normative weight instrumentally to justify and give meaning to corporate practices that otherwise would be complex to define and support.
EU intervention similarly should prescribe the details of due diligence systems in line with HRDD. Due diligence systems must empower economic operators with appropriate information about whether FERCs are associated with forest and ecosystem risk, on the basis of which they can decide whether to market in the EU. Businesses marketing in the EU must obtain information about the area (or areas) of harvest and pasture, the present status of the area with reference to definitions of natural forests and ecosystems, the status of the area at an indicated cut-off date, the legal status of land and evidence of FPIC. Operators must also acquire information on the entire supply chain, especially on the risks of contamination with products of unknown origin, or originating from forest and ecosystem conversion and degradation, at critical bottlenecks such as collection points, mills, storage and processing facilities. Due diligence systems will thus ensure full traceability while allowing firms continuously to assess forest and ecosystem risk.
Risk would be enhanced where FERCs originate from countries or areas affected by deforestation, conversion and degradation, where violations of land-related human rights (including FPIC) are reported, or where firms are unable to guarantee that the commodities they supply are compliant. Where risk assessment reveals a non-negligible risk, a firm must adopt mitigation measures and require additional information, verification by means of independent audit, and appropriate actions from relevant suppliers. Risk mitigation also includes initiatives with other upstream suppliers, such as chain of custody measures. It includes the use of economic and non-economic leverage towards non-compliant suppliers, ultimately disengaging from those that cannot ensure negligible risks. Operators must report to competent authorities and to the general public.
Meaningful stakeholder engagement with suppliers and competitors throughout due diligence processes is also required. Participating in integrated landscape-management initiatives is a promising option to generate economic and non-economic synergies, to ensure that affected interests are taken into account, and to create positive impact also for products not destined for EU markets.Footnote 216 Rights-based approaches to conservation deriving from the REDD+ experience are also indirectly included in HRDD. HRDD requires embedding human rights considerations at all stages of corporate activities, especially where disengagement with suppliers (in particular, smallholders) on environmental grounds may generate human rights impacts. Meaningful engagement, also with Indigenous communities, must thus determine whether disengaging from a supplier would worsen human rights impacts. Non-financial due diligence must also offer operational-level grievance mechanisms in line with the UNGPs. Firms must offer remediation for impacts on Indigenous communities and restoration for environmental impacts.Footnote 217 Finally, guidance must be established to facilitate rather than exclude smallholders to accede to value chains.Footnote 218
5.4. Indirect Enrolment and Meta-Regulation of Private Standards
Setting detailed procedural requirements for supply-chain management as well as precise no-conversion criteria has the indirect effect of scaling up private standards. As voluntary standards generally also help firms to comply with mandatory requirements, the imposition of non-financial due diligence requirements aligned to HRDD will be reflected in private standards, which will adjust accordingly to enhance their uptake by firms. Adjustments are not limited to the requirements for management processes, but may also include the introduction or revision of grievance mechanisms and other accountability provisions offered by private standards. To achieve this, it is not necessary to identify specific schemes to be used, as happened under the EU Renewable Energy Directive.Footnote 219 It is sufficient to allow firms to use certification against a private standard, which conforms with the legally binding criteria, to serve as non-dispositive evidence of low risk of impact on forests, ecosystems, and people. The most profound effects concern the designation and definition of protected forests and ecosystems, and cut-off dates.
Definitional work by EU authorities would include the definition of FERCs and products covered on the basis of their association with conversion, degradation, and human rights impact. The relevant measure would then define deforestation, conversion of ecosystems, as well as natural forests and natural ecosystems, with appropriate tools for their identification. Definitions in line with those of the AFI can be used to protect all natural ecosystems. A natural forest is a ‘forest that is a natural ecosystem’ and ‘possesses many or most of the characteristics of a forest native to the given site, including species composition, structure, and ecological function’.Footnote 220 Under the AFI, natural forests are understood broadly to include primary forests, regenerated (second-growth) forests, managed natural forests, and partially degraded forests not yet converted to another land use.Footnote 221 A similar definition applies mutatis mutandis for natural ecosystems.Footnote 222 The European Commission must subsequently identify methodologies, and provide further guidance to operators in identifying natural forests and ecosystems. The Commission should also be empowered to manage and update a list of natural ecosystems covered. As a minimum, ecosystems protected under other EU measures addressing the sustainability of commodities should be included. These include HCV ecosystems, some of which are identified under the Renewable Energy Directive, including HCS land. The measure could also include a prohibition on market commodities and products originating from degraded forests and ecosystems. In such a case the Commission also would have to provide guidance on the degree of changes that would amount to degradation as a result of human activity.
A cut-off date must also be determined to establish a point in time before which economic entities are not liable for conversion and degradation. Products and commodities originating from land that has been converted or degraded after the cut-off date would not qualify. Firms must thus acquire information to demonstrate that the area of origin of covered goods did not possess the status of natural forest or natural ecosystem at the cut-off date. Generally, a non-retroactive identification of deforested areas, say, from the entry into force of the measure is unlikely to be effective as it may generate a ‘deforestation rush’. Among possible retroactive options, 2005 is the year against which EU emissions reduction targets are set for the Emission Trading Scheme (ETS) and non-ETS sectors, and 2008 is the cut-off year adopted for land-use change in the production of renewable energy, and is also incorporated in several private regimes.Footnote 223
6. CONCLUSION
Public authorities retain the tools to coordinate various regimes and act as the complementary locus of rulemaking authority to scale up private norms. This article has analyzed how non-financial due diligence in line with the UNGPs can be the keystone affecting private regulation in various guises in a nascent but conflicted TLO governing deforestation, ecosystem conversion and degradation, and human rights violations associated with global demand for FERCs. An EU measure that disciplines market access on the basis of no-conversion criteria would enrol supply chain management systems in the identification of economic operators responsible for deforestation with a view to excluding them from the market and transforming value chains. While it is uncontroversial that HRDD responsibilities include rights of Indigenous communities, the HRDD framework can be extended to forest and ecosystem conversion. HRDD is particularly valuable as it allocates responsibilities for harm caused by or directly linked to firms. At the same time, it provides the boundaries of expected corporate conduct while offering accountability, participation, and remediation mechanisms. Providing detailed obligations concerning non-financial due diligence, clarifying applicable standards for Indigenous rights, and defining relevant ecosystems would also have an impact on private schemes and contribute to their alignment with public goals.
The resulting TLO would then still mainly unfold through corporate management systems but, under public enforcement occurring where products are placed on the EU market and exposed to a regime of sanctions, these tools would be positioned to operate under the appropriate incentives, moving away from operational risks, and would be proceduralized to operate in the public interest. At the same time, public authority could allocate regulatory competences to actors who are currently better placed to affect economic and trade-related drivers of forest and ecosystem conversion and violations of Indigenous community rights. This allocation also indirectly enables private standard setters to exercise implementing functions supporting firms’ compliance with their non-financial due diligence obligations.
These EU-initiated interactions enrolling firms and private standards via the establishment of non-financial due diligence would contribute to establishing a substantively coherent TLO – albeit a partial one, applying to the extent that FERCs are marketed in the EU. EU action, and unilateral action in general, cannot directly address value chains disconnected from the EU market. However, as management practices are often implemented across firms in the entirety of their operations in the light of technical and economic non-divisibility of production,Footnote 224 no-conversion principles could also extend to value chains destined for non-EU markets. This would be the case particularly if key value chain nodes, such as mills and processing facilities, decide to run all their operations in line with EU criteria, and if firms engage upstream in landscape-management initiatives supporting the implementation of zero-deforestation criteria, thereby contributing to the further extension of global regulatory effects, even in the absence of a connection with the EU market.
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