Policy consultation response: Defra’s forest risk commodities due diligence

March 11, 2022
Defra’s forest risk commodities due diligence
Defra’s forest risk commodities due diligence
The Department for Environment, Food & Rural Affairs (DEFRA) of the United Kingdom (UK) is proposing a new law to tackle illegal deforestation in UK supply chains. Sylvera supports this proposal and suggests methods for monitoring requirements and enforcing regulations.

1. Identifying key commodities in scope

a. Question 23. Can you provide any further evidence on commodities that drive deforestation? Please provide detail here, aside from cattle (beef and leather), cocoa, coffee, maize, palm oil, rubber, and soy.

It is important to acknowledge the role of biomass in developing countries where it is still the main source of energy, as it is easily accessible and comes at a low financial cost. A representative example in the literature is Malawi, where most households still depend on wood from customary land forests for tobacco curing (69%) and brick burning (68%).

Charcoal, mostly used as an energy source and in steelmaking, is also a key commodity that is driving deforestation. Unfortunately, native forest species are mostly targeted as those are of higher density wood and thus better calorific power. In Brazil 5.2 million tons of charcoal was produced in 2017, 90% of which was used by the iron and steel industry, with 80% of the charcoal being produced from wood from plantations. Some of the charcoal production is considered to be green charcoal. The wood comes from forests that have been commercially planted for charcoal or can provide proof to have been produced in a sustainable manner. Unfortunately, those types of practices still have a lot of negative environmental and social impacts on the local ecosystem. Research has shown that with a semi-automatic detection method it is possible to identify charcoal production sites, including illegal sites, from very high resolution (0.5 m) satellite images.

Depending on the definition of forests in the scope of this legislation we would also highlight the deforestation of mangroves. Mangroves are carbon-rich and provide essential ecosystem services. Key threats to them include aquaculture, especially seafood farming. An example of a country which has directly been affected is Indonesia. According to research, nearly 1 million hectares of Indonesia's mangroves have been lost since 1800 of which 800,000 ha are attributed to aquaculture that occurred between 1970 and 2003.

2. Legislative sequencing

a. Question 24. Which of the following factors do you think should be considered to determine legislative sequencing? Please tick all that apply and state your reasons. 
• the commodity’s impact on global deforestation 
• the UK’s role in this global deforestation 
• ability to deliver effective regulation
• other (please specify) 

Although all three propositions are relevant, it is key to tackle the problem of deforestation from a global perspective, while enabling local action. For this reason, we would suggest that the order of prioritization be led by the global impact of commodities on deforestation by UK-based companies that would be covered by this legislation. Non-directly we would suggest taking into account the potential market growth of the specific commodities analyzed, as the current market may not reflect future trends. Subsequently, the second level of prioritization should be determined by the ability to implement effective monitoring, reporting and verification (MRV) on the commodity, not solely regulation. 

Other metrics which could be considered to help prioritize focus are:

  1. Carbon: to assess the contribution to climate change by deforestation in carbon-rich forests, which are key to sequestering carbon dioxide. Sylvera is at the forefront of working to develop new methods to estimate forest carbon stock changes from satellite data.
  2. Biodiversity: supply chains should ensure no deforestation occurs in biodiversity hotspot areas, and prioritize the protection of primary forests, endemic and protected species.
  3. Ecosystem services: as discussed in the Dasgupta report, forest ecosystems provide multiple co-benefits across socia, for example, recreation, traditional resource uses, environmental, for example, carbon storage, nutrient cycling, water and air purification, and maintenance of wildlife habitat, and economical facets, for example, timber, food, fuel and bioproducts.
b. Question 25. What data sources or information should be used to consider the proposed factors?

The Forest500 report sheds light on particular forest-risk commodities by ranking companies according to their assessment, looking at the following data:

  • the scale of a company's commodity production areas
  • the volume of commodities they process or trade
  • their market share within global manufacturing and retail sectors.

A key consideration is to use independent data, from research institutions, for example, to ensure objectivity and to avoid any manipulation of data. A number of sources of information need to be combined to fully consider all the proposed factors. We propose combining forest monitoring data, to detect deforestation, with information on land use concerning recently deforested land, along with information on land rights and supply chain intelligence.

We will discuss best practices for remote forest monitoring as it is the area in which we have the greatest expertise. These methods could be used to monitor illegal deforestation and assess the drivers of deforestation.

Remote forest monitoring can be done using open-source Earth Observation (EO) data, ideally combining multiple modalities of satellite data including optical, synthetic-aperture radar (SAR), and lidar. Higher-resolution data allows for more detailed inference of forest activity and can even allow for the detection of small-scale activities and degradation. 

Satellite data can then be interpreted using machine learning models (ML) to detect forest cover. By comparing images over a time series the model can output spatially explicit changes in forest cover and therefore detect deforestation. These assessments can be carried out at very regular frequencies, as often as the satellites pass over, typically around every 2–4 weeks. 

Measuring the reflectance frequencies of, for example, SAR, can identify land-use activities, including the identification of crops being grown, on recently deforested land. This presents the potential to infer drivers of deforestation. Using past satellite data may allow trends in these drivers to be identified. 

Using ML and remote sensing has significant advantages over traditional methods of forest monitoring:

  •  Timing: regularity of monitoring. EO data is collected every time a satellite passes over an area, which is far more frequent than the cadence of any in-situ monitoring.
  •  Coverage: using EO data allows a whole area to be monitored, rather than just small sample areas to be extrapolated.

To consider carbon, ML models can be trained to infer biomass carbon in detected forests. This relies on accurate ground-truth data. Traditional allometric methods have high uncertainties and are biased to underestimate carbon in large trees. Sylvera has developed a method using multiscale lidar scanning and volumetric modeling to address these errors, resulting in up to 10x reduction in uncertainty and also addressing systematic error. The paper is under review. 

In regards to biodiversity, there is online information that identifies the location of biodiversity hotspots, from CEPF, and protected areas, from The World Database on Protected Areas. Knowing those locations and the production area allows for greater transparency regarding the impact of extractive activities and biodiversity ecosystems.

3. Risk mitigation level 

a. Question 45. Should businesses in scope be required through secondary legislation to "eliminate risk or reduce risk to as low as reasonably practicable"? Please state your reasons.

We would highly recommend for business operators to eliminate all reasonably practicable and economically feasible possible risks related to deforestation in their supply chains. This risk could be minimized by, for example, owning the plot of land where the wood is produced or buying wood from small or local producers. Companies should be responsible for ensuring proper due diligence of their supply chain and who their contracted suppliers are. We agree with the proposition that a risk mitigation level should be set and may look different according to the higher level of risk in certain places. This would give more flexibility to businesses who have complex supply chains. 

4. Further evidence to inform due diligence system requirements

a. Question 49. Please provide any relevant evidence on current business practices, methods and metrics available to assess and mitigate risk. 
• what indicators or metrics can be used to help assess the risk of illegal land use and ownership at the national and sub-national level 
• what methods are in use or development to help assess whether commodities have been produced on land legally owned and used, including any challenges associated with particular methods 
• what resources are currently available to help understand legal frameworks in producer countries 
• how long would it take to shift to legally assured supply chains for the commodities and derivatives you use

The European Union developed comprehensive plans in this sector: the EU Timber Regulation and the FLEGT Regulation. However, as flagged in the text, “challenges still remain in particular for smaller operators in regards to establishing a due diligence system, partly due to limited awareness and understanding of the obligations. The most critical issues for operators [are] the ability to validate information obtained from their supply chains and the level of governance in exporting countries. This may undermine the reliability of documents supposed to demonstrate the legality of products, and ultimately the robustness of the systems.”

Voluntary market-based certification schemes are also valuable tools to distinguish market shareholders in the same sector. For example, in the forestry sector there are multiple such schemes such as the Forest Stewardship Council (FSC) label, Programme for the Endorsement of Forest Certification (PEFC) and others. The labels ensure that the forest where resources have been extracted is managed in a way that preserves biological diversity and benefits the lives of local people and workers, but also shows that each step of the supply chain is closely monitored through independent auditing to ensure that unsustainable sources are excluded.

A metric that can be used to detect whether commodities are produced in legally owned and used lands is to identify if they are not located in protected areas. Sylvera uses a specific protected areas layer, extracted from the World Database on Protected Areas, to see how carbon credit projects in forested areas affect biodiversity.

Some countries have also started to develop voluntary land registries, such as the Cadastro Ambiental Rural in Brazil, which can affect land use by facilitating both the public’s ability to monitor land use and access of farmers to credit. Research has shown that participation in such a registry does not significantly affect crop area but it does influence pasture expansion, with variation by farm size and environmental compliance level. Overall, this allows for better monitoring and understanding of who owns the land and whether there is environmental compliance.

5. Annual reporting 

a. Question 55. What should businesses be required to report on to enable a regulator to identify areas for further scrutiny? 

Sylvera supports the level of transparency, regarding the information reported, under The Timber and Timber Products Placing on the Market Regulations (UKTR) and UK (Forest Law Enforcement, Governance and Trade) FLEGT Regulations, in place since 1 January 2021, with the same requirements as under EUTR. An additional element businesses should report on as a best practice is the upcoming TNFD (taskforce on nature-related financial disclosures) guidance, which will have specific references to eliminating Commodity-Driven Deforestation.

b. Question 56. Should non-commercially sensitive information about businesses’ due diligence exercises be made public to increase sector transparency and accountability?

Yes, transparency and accountability should be a focus, and reporting should be visible and accessible to the public. The methodology used for supply chain due diligence should be disclosed. This will incentivize best practices to be adopted through collaborative initiatives, stakeholder pressure and external scrutiny. Additional non-commercially sensitive information which could impact a company’s reputation with customers and clients should be disclosed to ensure transparency. Examples of this information could include: the source of grown or mined materials, land rights for those areas and analysis of publicly available Earth Observation data.

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