Comment: Why are rubber companies keeping investors in the dark over deforestation risk?

May 10 - Our latest report on the transparency of the natural rubber sector reveals large gaps in deforestation monitoring and traceability data. It also calls into question the readiness of companies to comply with the European Union's upcoming Deforestation Regulation.

ZSL's (Zoological Society of London) annual SPOTT assessment covers 30 of the sector's most influential companies, including tyre makers Michelin, Bridgestone, Pirelli and Hankook, as well as plantation owners SIPH, Halcyon Agri and Viet Nam Rubber Group. By tracking environmental, social and governance (ESG) disclosures over time, we can evaluate if and how the sector is fulfilling its commitments to tackle the climate and biodiversity crises.

Originally from South America, the rubber tree (Hevea brasiliensis) was introduced to Africa and Asia as a result of European colonialism in the late 1800s. Today over 95% of cultivation happens outside of the Americas, with just two countries, Thailand and Indonesia, accounting for more than half of global production.

New estimates from high resolution satellite images show almost 4 million hectares of tropical forest have been cleared for rubber plantations across Southeast Asia since 1993. Affected forests are often left fragmented and limited in their ability to store carbon and house viable populations of threatened species, such as Asian elephants and Sumatran tigers.

Plantation expansion is driven mainly by the tyre industry, which accounts for most natural rubber consumption. However, the material's versatility makes its application ubiquitous; apparel, condoms, personal protective equipment, medical equipment and flooring can all contain natural rubber.

So why have we heard so little of rubber's environmental impact? Perhaps because its deforestation footprint is not as large as palm oil, which was responsible for 2 million hectares of deforestation in Indonesia alone between 2001 and 2016. While campaigners have linked palm production to habitat loss and the plight of charismatic species such as the critically endangered orangutan, rubber is grown across the same landscapes and impacts the same ecosystems, species and people.

Our research shows that while 69% of SPOTT-assessed rubber companies require all their suppliers to adopt zero-deforestation commitments, only 7% disclose information on how they monitor deforestation in their supply chains, lagging far behind the 36% of assessed palm oil companies that make this information available.

Volatile rubber prices and a rigid cultivation cycle, where trees take years to mature, makes rubber farmers unable to respond quickly to market changes. This often leads to farmers not being able to meet their own basic needs, and causes knock-on impacts such as underpaying workers, using illegal migrant and child labour, and unsustainable agricultural practices.

Negative impacts are not only found at the farm level. During COVID-19, demand for PPE exposed evidence of forced labour in glove factories, leading to import bans, something palm oil companies were also subjected to for the same reason.

The gap between sustainability policies and their implementation is often blamed on the complexity of rubber supply chains. Six million smallholder farmers dominate production and sell to dealers, who often sell to more dealers, creating multiple tiers of suppliers before the raw material even reaches processing facilities. The resources needed to trace rubber used in end-products back to farm are substantial, and that's before any issues are identified and addressed through training programmes.

In 2019 the sector formed a multi-stakeholder platform, bringing together representatives from all parts of the supply chain, including smallholder farmers and civil society. Global Platform for Sustainable Natural Rubber (GPSNR) members must align their sustainable procurement policies to GPSNR's own policy framework and report annually on progress towards policy components. Its membership accounts for almost 50% of global natural rubber volume, meaning the platform now has leverage to transform the entire sector.

GPSNR is currently working on an assurance model to verify compliant rubber and designing a shared responsibility mechanism whereby members contribute to a fund, which is used to support on-farm sustainability projects. However, prolonged discussions are eating away at GPSNR's momentum and there is concern that it will struggle to deliver the rapid transformation needed.

Soon, however, the sector will have no choice but to invest in traceability and sustainability. The EU Deforestation Regulation (EUDR), passed in December 2022, will require any rubber and rubber derivatives placed on the EU market to be deforestation-free. To comply, buyers must navigate their complex supply chains, find and record the location where rubber has been harvested, and then intervene to mitigate any deforestation risk. Enforcement will begin in late 2024 and companies that fail to implement prescribed due diligence may face fines equal to 4% of EU-wide turnover or be excluded from EU markets.

While the regulation was being developed, civil society organisations and academics campaigned for rubber's inclusion, but only one industry voice, Michelin, publicly stated its support. This lack of industry backing is not surprising, as 83% of SPOTT-assessed companies are yet to even publish a list of the countries they source rubber from, the most basic of traceability information. Meanwhile, buyers of cocoa and palm oil, sectors with sizeable smallholder production bases, often disclose the locations of direct suppliers on their websites.

Until now, rubber companies have avoided tracing supply, but it is hoped the EUDR will be the impetus for change and help create more visible, equitable and sustainable supply chains. Companies that benefit from rubber production must now mobilise resources to trace supply, fairly compensate workers, increase farm latex yields, and genuinely improve the working conditions and environmental health of farms. In doing so, the need to expand plantations will decrease and forests will remain standing.

If traceability enables companies to reduce pressures on forests, then transparency is the tool that builds trust with investors, buyers and NGOs. Stakeholders want to see evidence of traceability and sustainability projects published online so sustainability commitments can be scrutinised and progress towards targets tracked. As it stands, we are largely being kept in the dark.

Sam Ginger is a sustainable business specialist at the ZSL, an international conservation charity driven by science and working to restore wildlife around the world. Sam focuses on natural rubber within ZSL's Sustainable Business and Finance team, leading on engagement with companies in the sector and representing civil society at the Global Platform for Sustainable Natural Rubber.

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