2019 The Soft Commodities Compact

Background

Standard Chartered recognises that the Agro-industries sector faces potential environmental and social challenges, some of which may include: biodiversity degradation through clearance of forests and other habitats; water pollution from sediment run-off from forest cover removal; poor labour and working conditions; and, conflict associated with land use and customary rights of local and indigenous communities.

The challenges of population growth and the demand for rising living standards is leading to greater risks of food security and resource scarcity. As a result, there is increasing pressure to intensify production on existing agricultural land and to expand into previously untouched natural areas, which can lead to deforestation. Deforestation and forest destruction globally is the second leading cause of carbon emissions, causing 20% of total greenhouse gas emissions.

We have published several Position Statements outlining how we will seek to limit the negative impacts in the Agro-industries sector.

The Banking Environment Initiative[1] (“BEI”), in collaboration with the Consumer Goods Forum (“CGF”), established the Soft Commodities Compact (“the Compact”) as a unique, client-led initiative with the aim of mobilising the banking industry as a whole to contribute to transforming soft commodity supply chains – and therefore help clients achieve zero net deforestation by 2020.

We became a signatory to the Compact in 2015. The Compact focuses upon the four commodities that have the largest impact upon deforestation, namely soy, palm oil, beef and timber. (Please note Standard Chartered has no meaningful exposure to cattle and therefore this report focuses on palm oil, soy and timber).

This report sets out our approach to managing risks in these supply chains and contains data on our client’s adherence to our standards and how we support the Compact.

How will Standard Chartered contribute to achieving this goal

We are guided by our Position Statements which outline the minimum criteria we require from our clients to achieve the goal of zero net deforestation in soft commodity supply chains by 2020. To ensure our clients meet our standards and requirements for financing, we embed our Environmental & Social (“E&S”) framework directly into our credit approval process. Our relationship managers carry out an Environmental & Social Risk Assessment (“ESRA”), which allows us to evaluate a client’s management systems and E&S performance against our criteria. The ESRA is reviewed each year to capture any changes to the client’s level of compliance with our Position Statements and their associated risk profile.

We engage directly with our clients when there are challenges in complying with our standards set out for these sectors, seeking to formulate a time-bound action plan to strengthen their environmental and social management systems and engaging with external specialists if appropriate to improve our client’s capacity to manage and mitigate those issues.

Agribusiness: minimum criteria for all sectors

We will not provide financial services to clients who:

  • Develop new plantations or livestock ranches which convert or degrade:
    • High Conservation Value forests (“HCV”);
    • High Carbon Stock forests (“HCS”);
    • Peatlands; or
    • Designated legally protected areas
  • Use fire in their plantation operations, including in the clearance and preparation of land for planting;

Palm Oil: additional criteria

We will only provide financial services to clients who:

  • Have Roundtable on Sustainable Palm Oil (“RSPO”) membership at the parent or subsidiary level, and achieve 100% RSPO certification of owned or managed units of production, within 5 years – applicable to Producers;
  • Publicly commit to No Deforestation, No Peat and No Exploitation (“NDPE”), verified by credible assessors when developing new plantations – applicable to Producers; and
  • Have RSPO membership at the parent or subsidiary level and have a time-bound plan to achieve RSPO Supply Chain Certification of owned facilities, and/or obtain a Traders License – applicable to Refiners and Traders with direct linkages to units of production (plantations).

Soy: additional criteria

We will not provide financial services directly towards:

  • Operations that grow, process or trade soy from the Brazilian Amazon or Brazilian Cerrado.

We expect clients to:

  • Implement a Sustainable Sourcing Policy, and/or operate a Chain of Custody system under a recognised industry certification scheme – applicable to processors, traders and wholesalers.

Forestry: additional criteria

We will only provide financial services to clients who:

  • Have Forest Stewardship Council (“FSC”) or Programme for the Endorsement of Forest Certification (“PEFC”) certification for their production sites; or have an agreed time-bound plan to achieve certification – applicable to Producers.

Standard Chartered Bank is also a signatory to the Natural Capital Finance Alliance (“NCFA”)[2].

Reporting Approach

Our refreshed Position Statements came into effect from March 2019. These outline new, stricter standards that Standard Chartered expects clients to meet, who operate in industries known to have the potential for severe negative environmental or social impacts.

As part of the review process, we conducted an in-depth review of our palm oil and forestry portfolio and categorised our clients as Red, Amber and Green[3] according to their alignment with the new requirements of our revised Position Statements. Multiple areas of expertise in the bank contributed to the review including teams in Environmental & Social Risk Management, Portfolio Management, Reputational Risk and our Relationship Managers.

We continue to track our clients’ performance, on a quarterly basis, against our metrics and report our progress to our Group Reputational Risk Committee.

The below table shows our clients alignment with our revised Position Statement requirements

 Palm OilForestrySoy
 201820192018201920182019
Red39%14%6%2%--
Amber25%32%1%1%-100%
Green36%55%93%97%100%-
Behind the Figures

Palm Oil[4]

The data presented shows a significant decline in the number of clients categorised as ‘Red’. These clients were initially categorised as red due to misalignment with our newly adopted stronger requirements, particularly around “NDPE” polices and full certification under RSPO of all management units. We held conversations with these clients during the course of 2018 and those who were either unable or unwilling to put plans in place to comply with our sector requirements were put on an exit strategy, within the limits of contractual obligations, and existing facilities were run down. Two clients chose this course of action. Another client has moved into ‘Amber’ having now implemented a plan to achieve membership and certification by RSPO. We continue to track the progress of these clients to ensure they are meeting their timelines for compliance.

Forestry[5]

As shown above, the forestry sector has seen a marked improvement in moving clients out of the ‘Red’ category. To support a deforestation free supply chain by 2020, we are working with our clients in ‘Red’ to ensure they have a suitable timebound action plan in place to achieve alignment with our standards and we are putting an increasing focus on clients in ‘Amber’ to ensure they continue to move towards ‘Green’. Our new stricter requirements include achieving certification under a recognized forestry sustainability system and greater transparency on supply chains involving high risk suppliers/countries.

Soy[6]

Standard Chartered will not provide financial services directly to operations that grow, process or trade soy from in the Amazon and Cerrado regions, to avoid potentially supporting the highest risk activities for deforestation. Our clients are required to have robust systems in place which includes participating in sustainability forums, being signatories to relevant moratoriums on development in high biodiversity areas and engagement with multi-stakeholder initiatives to tackle the problem of deforestation, in particular in the Amazon and Cerrado regions. With our newly adopted, stronger requirements, we are working with our clients to determine the exact traceability of soy in their supply chains originating from the Cerrado region to ensure all our clients comply with our new standards for soy.

Across all sectors, all our clients in Red are on a time-bound plan to comply with our new requirements. Our goal for the remainder of 2019 and beyond is to continue to engage with our palm oil, forestry and soy clients in Amber to ensure they move into Green and support a deforestation free supply chain by 2020.

We will provide a further update in 2020.

[1] The BEI is co-ordinated and supported by the University of Cambridge Institute for Sustainability Leadership (CISL)

[2] Financial Sector signatories of the NCFA demonstrate their commitment to integrate natural capital risks and opportunities into their products and services.

[3] The Red, Amber and Green categorisation was used during our initial portfolio assessment after we had revised our position statements in these sectors. This method provided an indication on which of our clients were already adherent or had a time bound plan to be adherent to our position and which of our clients we would need work closer with to be develop a plan.

[4] Palm Oil categorisation: Red, Amber, Green status is based on percentage of RSPO certified management units. Red means ongoing client engagement to produce a road map to RSPO membership and full certification; Amber means client is on track with a time bound action plan to obtain certification; Green means the client has achieved full RSPO certification.

[5] Forestry categorisation Red, Amber, Green status is based on FSC/ PEFC certification, time bound plan to achieve certification and policies around HCV/ HCS forests, fire and preservation primary forest or legally protected areas.

[6] Soy categorisation: Red, Amber, Green status is based on client’s implementation of Sustainable Sourcing Policy, and/or operate a Chain of Custody system under a recognised industry certification scheme (i.e. RTRS Chain of Custody standards for soy) as well as compliance to our prohibition on direct financing to our client’s operations that grow, process or trade soy from the Brazilian Amazon or Brazilian Cerrado.