BARCELONA, March 31 (Thomson Reuters Foundation) - Leading agricultural processor and food-ingredient supplier Archer Daniels Midland Company has agreed to stop deforestation due to soy and palm oil production in its global supply chains, according to investors.
Chicago-based ADM, one of the world's biggest soy traders and a top soy exporter in Latin America, joins a growing group of multinational firms that are taking action to ensure their businesses do not destroy forests around the globe.
New commitments from companies related to reducing deforestation jumped 80 percent in 2013-14, meaning more companies are taking the problem seriously, according to a recent report from Forest Trends, a Washington-based NGO.
ADM's move came in response to pressure by shareholders Green Century Capital Management, which manages fossil fuel-free mutual funds, and the New York State Common Retirement Fund. They have now withdrawn a proposal outlining the investment risks associated with deforestation.
"ADM's commitment to using only sustainably sourced palm and soy products validates our message that strong environmental policies make economic sense," said New York State Comptroller Thomas P. DiNapoli.
"Business practices that destroy the environment and foster climate change can not only harm the public, but can damage corporations' reputations, their bottom line and their investors," he added.
Since 2000, more than 60 million hectares of tropical forest have been converted to agriculture, according to Forest Trends.
Agriculture is widely recognised as the largest driver of deforestation globally, and is linked to 80 percent of forest loss around the world, the London-based Overseas Development Institute (ODI) says in a new report.
The report, published on Monday, argues that government subsidies for agricultural commodities are undermining international aid to protect forests, and should be reformed.
"While international forest aid seeks to promote private investment in forest protection, governments around the globe are incentivising commodities that drive deforestation," said Will McFarland, the report's co-author.
In Brazil and Indonesia, where over half the world's deforestation occurs, an average of $41 billion of domestic public finance has been spent each year subsidising some of the leading causes of that forest loss, around 127 times what the two countries received in annual forest aid, the ODI said.
Subsidies influence both investment and consumption patterns by reducing the price of a natural resource.
"Subsidies can accelerate environmental degradation through resource inefficiency, over-capitalisation, over-consumption and by depriving the state of resources to support sustainable management," the report said.
It can be difficult to track their impact, as they come in various forms and are often not directly earmarked for a particular commodity, it added.
The researchers identified 48 different domestic subsidies to support Indonesia's palm oil and timber industries and Brazil's beef and soy sectors.
In addition, even though agreements may be in place to prevent the cultivation of a crop causing deforestation, they may not work, the study said.
In Brazil, for example, under a private-sector led moratorium in place since July 2006, groups representing 90 percent of the soy market committed not to buy soy grown on land cleared of trees in the Amazon rainforest.
But soy is still linked to deforestation because cattle pastures have been converted to grow it, displacing beef production to areas where forest loss is occurring, the report said.
ADM - which purchases soy but does not farm its own - plans to launch a "Responsible Soy Standard" in Brazil on a pilot basis, with a group of growers who will be assessed on their adherence to standards covering labour practices, water and soil usage and observance of land rights, among other things.
Some international aid should be used to reform subsidies in a way that safeguards forests, as well as livelihoods and food security, the ODI report urged.
"Through subsidy reform, modest sums of forest finance can be used to ensure any subsidies are provided in a manner that both protects forests and the poor," the ODI's McFarland said.
Incentives could be shifted towards boosting yields or making subsidies conditional on following environmental regulations, as has been done in Brazil with loans to cattle farmers, the report said. (Reporting by Megan Rowling; editing by Tim Pearce)