Deforestation and businesses

National Geographic describes deforestation as “the purposeful clearing of forested land”. Markedly, the extent to which forested land is being cleared is one of the key problems facing the planet today. Since 1990, approximately 420 million hectares of forested land has been cleared and the problem looks set to continue as around 10 million hectares are cleared year on year. Deforestation is a key problem for various reasons, for instance it:

• displaces indigenous people who live in forest lands;
• destroys the habitat of millions of animals; and
• contributes towards climate change as a result of the carbon dioxide emitted by the practice.

Thankfully many people around the world have come to realise the devasting effect of deforestation and have become vocal about their opposition to the practice. It’s therefore unsurprising that the UK government decided to introduce the Environment Act 2021, specifically Schedule 17, to address the issue of deforestation.

While the continued practice of deforestation can be linked to various sources, Schedule 17 of the Act focuses on the deforestation that’s encouraged by, and is a result of, business activity. Many businesses demand and require various commodities to carry out their activities and notably the production of forest-risk commodities such as beef, soy and cocoa is the leading cause of deforestation worldwide. Schedule 17 addresses this reality by seeking to prohibit certain UK businesses from using products derived from illegal deforestation in their supply chains. While any legislation that seeks to address one of the largest drivers of deforestation is commendable and a step in the right direction, it can’t be denied that Schedule 17 doesn’t go far enough for various reasons. One reason, that’s not been highly publicized, is that the legislation fails to create a level playing field for businesses.

What will the implementation of the law mean in practice?

Notably, Schedule 17 won’t be enforced until secondary legislation is introduced. Yet, once enforced, the legislation will essentially mean that certain UK businesses will have to carry out due diligence within their supply chains to ensure that they’re not using forest-risk commodities that were produced by virtue of illegal deforestation. It’ll be important for businesses to understand the legality of deforestation in producer countries through the assessment of the local laws in operation. However, the legislation will continue to allow UK businesses to use forest-risk commodities that were produced by virtue of legal deforestation in their supply chains.

Indeed, some countries have very weak legislation addressing deforestation and as such the practice can continue to play a role in many businesses’ supply chains. The legality of deforestation varies within countries and can be dependent on the inclinations of the political leader of the moment. For example, in Brazil under the presidency of Bolsonaro bills were pushed that sought to legalise illegal deforestation for economic gain. While the presidency of Bolsonaro and his plans to significantly legalise deforestation will end in December 2022, it shows how the legality of deforestation is variable in countries.

How does the new law fail to level the playing field for businesses?

As the severity of deforestation has become evident and public opinion is largely against the practice, many businesses have decided to go the extra mile and ensure that their business activities remain free from all forms of deforestation. Many UK businesses have made zero-deforestation pledges and some environmental leaders have pledged and are following through on their promises. Prior to the introduction of any legislation, the businesses that have proven themselves as environmental leaders have shouldered the cost and the inconvenience of the removal of all deforestation from their supply chains. Costs were likely incurred and continue to be incurred as a result of the implementation of monitoring systems, staff training, the assessment of suppliers in producer countries and the potential narrowing of supply chains to axe suppliers associated with deforestation. As a result, such businesses will have likely been, and may continue to be, less profitable than their less environmentally-friendly rivals because their profit margins have been squeezed as a consequence of the costs associated with going deforestation-free.

In contrast, some businesses have made little or no effort to address deforestation in their supply chain and as such haven’t had to endure the costs associated with cleaning their supply chain. Admittedly, Schedule 17 makes a start by requiring the businesses that have made no effort to address deforestation to bear the cost and inconvenience of removing illegal deforestation from their supply chains. However, such businesses may still be able to continue with business as normal if they source from a producer country with pro-deforestation legislation and furthermore, any costs they face in removing illegal deforestation will likely not be equivalent to the costs that would be incurred in removing all deforestation. It remains that the businesses that go above and beyond to address all deforestation are still at a disadvantage by shouldering the maintenance costs of a deforestation-free supply chain.

The way forward