The Soft Commodities Compact (SCC) was a banking initiative with the goal of reducing deforestation in the supply chains of soft commodities.

It was jointly created by the Cambridge Institute for Sustainability Leadership (CISL), the Banking Environment Initiative (BEI) and the Consumer Goods Forum (CGF). (1) 

Soft commodities are agricultural products, such as corn, wheat, coffee, sugar, soybeans, and pork.

One main aim was for banks to develop practices to finance initiatives which shifted commodity production to sustainable practices. The SCC also aimed to raise the standards banks use in relationships with clients involved in commodities. 

To support the Consumer Goods Forum’s 2010 resolution on zero net deforestation (2), banks in the compact set out to reduce deforestation in the supply chains of client base in four soft commodity supply chains:

• palm oil

• timber products

• soy

• beef

Banks made their own decisions on how to incorporate the compact's solutions into business practices. Banks that signed the SCC included: Barclays, BNP Paribas, Deutsche Bank, Lloyds Banking Group, JPMorgan Chase, NatWest, Santander, Société Générale, Standard Chartered, Rabobank, UBS, and Westpac. 

Banks made their own decisions on incorporating SCC solutions into their business practices, which allowed them to focus on elements most relevant to particular operations.

CISL published a new report, ‘Banking beyond Deforestation’. at the conclusion of the SCC on ways that the banks could contribute to halting and reversing deforestation. (3)

The report’s action plan highlights opportunities for banks to support the supply of soft commodities which are either deforestation-free or forest restorative.

Five action points are highlighted in the report:

1.        Align anti-deforestation policies to a ‘best practice’ standard and support improvements to supply traceability

2.        Structure financing facilities that offer benefits to producers of deforestation-free and forest restorative soft commodities

3.        Set time-bound targets that enable progress toward deforestation reversal, with performance measured and managed

4.        Identify a team responsible for delivering time-bound targets, with C-suite accountability and expertise to implement

5.        Advocate for government action that makes deforestation commercially  unattractive or illegal (4)

The report outlined ways that local, regional and global banks can support activities to halt and reverse deforestation. CISL hoped that sharing knowledge and developing a granular five-part plan for the banking industry to combat deforestation would prompt further action by banks and stakeholders, including by local and regional banks that were not in the SCC.

The ‘Banking Beyond Deforestation’ report concluded that systemic change cannot be achieved by banks alone but that they can make a valuable contribution to the reversal of deforestation. 

It said: “By taking the five actions proposed in this report, a diverse group of local, regional and global banks can:

• Become part of creating the solution to deforestation, rather than waiting for others to define standards.

• Construct a pipeline for capital capable of scaling sustainable soft commodity production. 

• Provide corporates, philanthropic foundations, governments and other stakeholders with additional opportunities to support producers transition, improve livelihoods and reverse deforestation.

• Help prove the origin and sustainability characteristics of soft commodity supply and the impact of deforestation-free financing to a higher degree of confidence.

• Encourage higher standards and expectations across soft commodity sectors in halting and reversing deforestation.” (5)

Using the compact’s technical guidance, banks established anti-deforestation policies and began reporting compliance levels. Now, Forest 500 ranks compact adopters among the most advanced in terms of policy – all are in the top 30 of 150 financial institutions. (6)

Forest 500 identifies companies and financial institutions with the greatest exposure to tropical deforestation risk, and annually assesses them on the strength and implementation of their commitments on deforestation, conversion of natural ecosystems and associated human rights.

Other initiatives that address deforestation and forest degradation include:

• Natural Capital Declaration (NCD): A study and tool to help banks and investors reduce deforestation and forest degradation. The NCD aims to link financial sector decisions to deforestation and forest degradation 

• Sustainable Shipment Letter of Credit: A financing solution to encourage sustainable commodity trade 

• No Deforestation, No Peat, No Exploitation (NDPE) frameworks: NDPE is a commitment by the agricultural industry to protect the planet's resources and the people who grow them

Bibliography

1 ‘Implementation of the Soft Commodities Compact’ (Accessed December 2024) https://www.cisl.cam.ac.uk/centres/centre-for-sustainable-finance/soft-commodities

2 https://www.theconsumergoodsforum.com/ (Accessed December 2024)

3 ‘Banking beyond deforestation’ (Accessed December 2024) https://www.cisl.cam.ac.uk/resources/sustainable-finance-publications/banking-beyond-deforestation

4 ‘Banking beyond deforestation’ (Accessed December 2024) https://www.cisl.cam.ac.uk/system/files/documents/bankingbeyonddeforestation-cisl-jan2021.pdf

5 ‘Banking beyond deforestation’ (Accessed December 2024) https://www.cisl.cam.ac.uk/system/files/documents/bankingbeyonddeforestation-cisl-jan2021.pdf

6 https://forest500.org/