- In recent years, state and corporate actors have been hesitant to adopt measures to reach climate and biodiversity goals, in some cases watering down regulatory frameworks or pulling out of voluntary commitments.
- Industry experts, the private sector and environmental organizations say this is not surprising, but for different reasons: Some argue the measures are too difficult to meet, while others say parties are putting profits before sustainability.
- The EU has struggled to pass its Corporate Sustainability Due Diligence Directive (CSDDD), a new legislative framework that aims to enhance the protection of the environment and human rights. Meanwhile, major banks and financial institutions are pulling away from various voluntary frameworks, such as Climate Action 100+ (CA100+) and the Science Based Targets Initiative (SBTi).
- Critics warn that a lack of such regulations could deprive Indigenous peoples of important protections to safeguard and guarantee their rights.
The mood is tense. After months of delays, the EU will soon vote on a long-awaited piece of legislation that will require European companies to integrate environmental and human rights due diligence into their corporate policies and risk management systems. This directive, known as the Corporate Sustainability Due Diligence Directive (CSDDD), is one among various regulatory frameworks that state and corporate actors have been hesitant to adopt in recent years to reach climate and biodiversity goals.
According to industry experts, this is due to standards being “impractical” or too difficult to achieve.
For the CSDDD, voting faced constant delays because of reluctance on the part of some EU states, including Germany, France and Italy, to support it. The text, now watered down and missing protection for Indigenous rights, is seen by critics as not going far enough to protect the environment and human rights.
Even for voluntary regulatory initiatives, which the private sector willingly adopts to track and take responsibility for their supply chains, some companies are pulling back. For example, earlier this year, major corporations and financial institutions pulled out of Climate Action 100+ (CA100+) and Science Based Targets Initiative (SBTi).
These frameworks, whether enforced or voluntary, are designed to ensure the state and private sector are actually implementing the necessary measures to meet global climate and biodiversity goals. Climate goals largely focus on meeting the Paris Agreement’s goal to limit average global temperatures to 1.5° Celsius (2.7° Fahrenheit) above pre-industrial levels by reducing fossil fuel use. Biodiversity goals are largely based on targets mentioned in the Global Biodiversity Framework, such as conserving and restoring natural areas while respecting Indigenous rights and territories. Measures to implement these global climate and biodiversity goals are nonbinding, so regulations and voluntary commitments are an attempt to translate some of these goals into an actual reality.
According to Robert Watt, from the Stockholm Environment Institute (SEI), hesitancy among actors to adopt both state-enforced and voluntary regulatory frameworks is partly due to the large upfront costs that are required to meet commitments in the near term.
“Some of this is predictable,” he tells Mongabay. “It’s all very well agreeing on ambitious long-term targets, but when that translates to tough choices in the near term and is experienced as costs, then commitments will wobble.”
The macroeconomic and geopolitical context of Europe has turned a wobble into a retreat, he says. “The narrative and political will has shifted away from seeing climate action as an investment, with some business associations arguing that the transition is too much too fast, and states finding that the regulations are beginning to bite their interests.”
Scrapping voluntary frameworks
In recent months, many companies and financial institutions pulled out of several voluntary action schemes. In February, for example, J.P. Morgan Asset Management (JPMAM), State Street Global Advisors (SSGA) and PIMCO announced their decision to withdraw from CA100+, an investor-led initiative that aims to push highly polluting companies to cut their carbon emissions. BlackRock also reduced its involvement, although this was because it is transferring its participation to its smaller international arm. One month later, Invesco also pulled out, becoming the fifth major U.S. investor to exit or scale back its involvement with the initiative.
The decision of Invesco and the other financial groups came as CA100+ prepares to implement phase two of its engagement plan in June, which would place greater pressure on companies to reduce their emissions. SSGA wrote in a statement that the requirements had gone too far and PIMCO told Mongabay the initiative “is no longer aligned with PIMCO’s approach to sustainability.” JPMAM told Mongabay it had made a “significant investment” in its own stewardship team and corporate engagement instead.
BlackRock also stated that it was dropping its corporate membership because it believes the phase two strategy conflicted with U.S. laws requiring money managers to act solely in clients’ long-term economic interests.
In phase one, CA100+ investors asked companies for enhanced disclosures to enable them to assess the robustness of companies’ plans. The organization argued in a statement that “the updated ask of companies to implement transition plans in phase two is logical and naturally builds on what came before.” Although several big firms have left the initiative, a CA100+ spokesperson notes that membership has overall grown to more than 700 companies, including 60 new ones that joined since the launch of phase two alone.
Other voluntary initiatives have faced similar setbacks. The SBTi, a standard-setting body backed by a coalition of nonprofit organizations to scrutinize climate targets set by corporations, saw several major banks, including Standard Chartered PLC and HSBC, quit over concerns it could hinder their ability to continue financing fossil fuels, according to Reuters. Sources also told the news agency that SBTi’s greenhouse gas emissions target-setting demands are too hard to meet.
SBTi did not respond to Mongabay’s requests for comment by the time of publication.
At the end of 2023, the SBTi forced many companies to revise their climate plans, marking the end of a two-year deadline. Since then, hundreds of companies, such as Microsoft, Unilever and JBS, have been removed from SBTi’s validation process, after failing to submit sufficiently ambitious targets. In an organization-led survey of 971 companies that had not submitted a net-zero target, 21% stated this was because of difficulties getting a handle on scope 3 emissions, which are indirect emissions from a company’s customers and supply chain and are logistically the most difficult to mitigate.
Standard Chartered PLC told Mongabay the initiative’s latest proposal “lacks sector guidance that adequately considers the transition of our clients and markets.” According to Pedro Martins Barata, associate vice president of carbon markets and private sector decarbonization at the Environmental Defense Fund, “SBTi has, to a degree, overextended itself in its process.” HSBC did not respond to Mongabay’s request for comment by the time of publication.
Some of those who left the initiative, including Standard Chartered PLC and HSBC, instead joined another United Nations-backed emissions reduction scheme, known as the Net-Zero Banking Alliance (NZBA), which is less prescriptive and does not require members to disclose intensity-based and absolute emissions metrics. In an attempt to avoid member dropouts, the NZBA recently proposed a change to its guidelines that will require members to disclose more information on their commitments without requiring them to coordinate action. The proposed update has been criticized by policy analysts who argue it grants “even more latitude to its members” and does not require banks to take any meaningful actions.
“Multinational corporations are driven exclusively by profit motive; their only interest is in maximizing returns for shareholders,” says Jake Simms, a just energy transition worker at the London Mining Network, a coalition that works with mining-impacted communities to hold U.K.-based or -financed mining companies to account.
“In order to do that, they need to present a veneer of social responsibility and environmental responsibility because they know that if they’re perceived negatively, that impacts that ability to … deliver profits to investors,” he says in a separate interview with Mongabay.
In some cases, companies just scrapped their own private commitments. In March, Shell weakened a 2030 carbon reduction target and scrapped a 2035 objective, citing expectations for strong gas demand. This follows BP’s footsteps in 2023, as it slowed its plans to shift from oil following record profits in 2022, citing strong demand for oil.
Another voluntary scheme that is well known is the Taskforce on Nature-related Financial Disclosures (TNFD), in line with Target 15 of the U.N. Biodiversity Framework. It encourages corporations and financial institutions to assess, report and act on their nature-related dependencies, impacts, risks and opportunities, as well as the Organisation for Economic Cooperation and Development (OECD) Guidelines, which provide government-back recommendations for multinational enterprises.
The TNFD, made up of 40 senior staff from multinationals such as Bank of America and BlackRock, is criticized by some environmental organizations, such as the Rainforest Action Network, which argue that it “fails to adequately measure nature-related risks” and “creates opportunities for corporations to actively obscure their biodiversity-related impacts.” Similarly, the organization OECD Watch found that a lack of political will, sanctioning powers and coherent implementation have significantly diminished the effectiveness of the OECD Guidelines.
“It is clear that regulators should not rely on voluntary initiatives to drive corporate climate action,” Silke Mooldijk, from the NewClimate Institute, tells Mongabay. “We need strict regulation to ensure that companies report on their emissions, set reduction targets and implement deep emission reduction measures.”
The new Forest 500 report recently published by Global Canopy, explores 10 years’ worth of data on the 500 companies and financial institutions with the most influence on deforestation. According to the report, nearly two-thirds (63%) of companies that have set deforestation commitments are failing to publish adequate evidence of their implementation. Their conclusion: Voluntary action alone is not enough to tackle illegal deforestation and human rights abuses.
“Years of voluntary commitments, pledges and promises made by the large agribusiness, traders, manufacturers and retailers have failed to improve protections for Indigenous peoples and traditional communities affected by global commodities supply chains,” says Lynn Pasterny, policy team lead at Earthsight, who was not involved in the report.
Trouble in regulation land?
To be effective in meeting biodiversity and climate goals and protecting human rights, campaigners from Earthsight, Global Canopy and the NewClimate Institute say regulations need to be strengthened and enforced by leaders at the state level, rather than relying solely on voluntary recommendations, disclosure schemes and standard-setting bodies.
On March 7, the European Environment Agency published its first assessment of climate risks in the EU, warning that without “decisive action … hundreds of thousands of people would die from heatwaves, and economic losses from coastal floods alone could exceed EUR 1 trillion [$1.1 trillion] per year.” So far, it says, EU policies are not keeping up with these risks.
The CSDDD, which will impose fines on companies that fail to meet their obligations, has been long-awaited by Indigenous organizations and environmental and climate NGOs, such as the Forest Peoples Programme and Earthsight. The legislative framework is the first major regulation of its kind to introduce a legally mandated standard for how companies conduct supply chain due diligence, and it could result in serious penalties for companies that do not comply, such as fines of up to 5% of the net worldwide turnover of the company.
“While it’s not perfect, it would be a welcome step in the right direction,” an Earthsight spokesperson tells Mongabay. “It is abundantly clear that the private sector has not been able, on its own, to clean up its act so governments must step up.”
In 2022, Earthsight published a report called “There Will Be Blood,” which revealed that pet food manufacturers in Germany were using Brazilian chicken linked to a soy farm in Brazil that had for decades illegally occupied the traditional lands of the Guarani-Kaiowá, resulting in a leader being brutally killed by gunmen working for the farm. According to its authors, this was proof that the European companies involved in those supply chains had not carried out the necessary due diligence to ensure their products were not linked to environmental or human rights abuses.
“Regulations at the EU level, such as the CSDDD, can put pressure on companies to change this behavior and better monitor their supply chains,” an Earthsight spokesperson told Mongabay.
But the final text was watered down. Delays in passing the directive were due to a last-minute attempt to block the CSDDD by members of Germany’s liberal Free Democratic Party (FDF) who announced they would abstain from voting on the law due to concerns that it would place an excessive bureaucratic burden on companies. According to Ceren Yildiz, from Friends of the Earth Germany, it is likely that the FDF’s concerns had to do with the fact that another act, the German Supply Chain Act, does not have a civil liability clause, meaning German companies cannot currently be sued for damages, which is a possibility under the CSDDD.
The European Parliament tried to amend the law as ambitiously as possible to include protections for Indigenous peoples’ rights to self-determination and obligations to acquire their free, prior and informed consent for activities that would affect them, says Antoine Gibert, the EU policy and advocacy project officer at the Forest Peoples Programme.
“However, the both of these were removed from the final text due to pushback from EU member states that were hostile to strong provisions on Indigenous peoples’ rights,” he tells Mongabay.
Rumors circulated that Germany, France, Sweden and Finland pushed to remove every mention of Indigenous peoples or their rights from the final version of the directive, he tells Mongabay. Representatives from these countries were unavailable to respond to these rumors.
This removal demonstrated a “clear intention” to “deprive Indigenous peoples of any protection of their collective human rights under the CSDDD,” Gilbert says.
For Earthsight, this is “devastating,” as it means companies operating in the EU will not have to consider the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) or the International Labor Organization’s Indigenous and Tribal Peoples’ Convention 1989 (No. 169), as part of their supply chain due diligence. The formal adoption of the CSDDD is still awaiting confirmation by the European Parliament and is expected in April 2024.
Like the CSDDD earlier this year, the EU is struggling to pass its Nature Restoration Law, which was due to be adopted March 25, having passed all prior stages of the legislative process. At the last minute, eight member states, including Sweden, Finland and Hungary, withdrew support for the law, which is designed to reverse decades of damage to wildlife on land and in waterways, saying it would harm agriculture.
Sweden argued the EU is overstepping by trying to regulate how countries manage their forests, while other countries are concerned about costs. Heikki Autto, a member of the Finnish Parliament, writes in a press release that the restoration regulation is disproportionate, unfair and too expensive for Finland. Meanwhile, other measures around the world, such as the US FOREST Act and the International Sustainability Standards Board have faced similar pushback due to insufficient backing or fears that companies would not have time to prepare. And although climate laws have been introduced in several African countries, including Kenya, Nigeria, Uganda and Mauritius, in some, such as South Africa, the bill has not yet become law, meaning the government does not have an explicit statutory mandate to act on it.
Some experts warn about the potential impact of hefty, inequitable and unconsidered due diligence requirements set by regulations on small-scale farmers, lower-class and vulnerable communities. This could have the adverse effect of sparking popular backlash against environmental regulations and turning away governments or election candidates.
According to forest trade experts, smallholders in mainland Southeast Asia are at risk of losing access to European forest commodity supply chains due to a lack of technical capacity and financial capital to be able to comply with the EU anti-deforestation regulation that came into effect in June 2023.
“Getting land use titles and clear land demarcations requires a lot of resources,” said Phuc Xuan To, a policy adviser at sustainable finance think tank Forest Trends. “You have to go to the land, measure the land, mark the boundary and so on; it costs a lot of money. The [Vietnamese] coffee sector estimate it would have to pay $3 billion for that sort of background work. Who is going to pay for that? The smallholders?”
Although there have been increased efforts by some countries to create national climate action plans in line with U.N. goals — which is a legal requirement even though parties are not obligated to achieve their climate targets — a recent analysis from U.N. Climate Change states that progress has been “insufficient.”
Countries have until the next U.N. Biodiversity Conference in October to submit their latest national biodiversity actions plans to meet the Global Biodiversity Framework’s goals. These plans, too, will not be legally binding.
Update (May 15, 2024): The text was updated to clarify German companies can be sued for breaches of their due diligence obligations, but this is currently not an option under the German Supply Chain Act.
Banner image: This land once belonged to the Guarani-Kaiowá Indigenous people, who depended on the dense forest to hunt and fish. But as colonizers swept through the region, they forced the Guarani-Kaiowá off their traditional lands and confined them to a handful of reserves created at the turn of the 20th century. Image by Ana Ionova for Mongabay.
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