Average revenues for the top ten transnational consumer packaged goods companies grew from $13 billion in 1990 to $47 billion in 2010, while the average number of brands they sell rose from 46 to 153[1]. In parallel, KPMG estimates that there is a 2:1 environmental cost to profit ratio for the food industry.  On net sales of US$12.8 trillion, KPMG found an associated environmental cost of about US$200 billion[2]. This is clearly not a sustainable situation.

In addition, recent high profile cases—ranging from cookie and candy brands to children’s book publishers—show the risks to brands from biodiversity and forest impacts in the supply chain. With biodiversity and ecosystem impacts becoming more transparent and understandable to consumers via social media, there is an increasing need for consumer-facing brands to get out in front of this issue.

The palm oil industry is perhaps the most salient example of an industry facing this challenge today. Driven by the demand for consumer goods ranging from cosmetics to food and bio-diesel, the rapid expansion of palm oil production is causing irreversible damage to ecologically complex tropical rainforests. It also represents the greatest single threat to orangutan survival[3].  With China’s palm oil demand forecast to grow at 12% annually for the next 10 years, estimates show that an additional 12 million hectares of oil palm plantation are needed to meet forecast demand by 2050[4]. Thus, forest conversion to palm oil is going to be a continuing threat to species like the orangutan.

Companies engaged in the growing, processing, marketing, distribution, and use of palm oil are under increasing pressure to manage their business, or supply chain, impacts on biodiversity and critical habitat.  A clear starting point for those palm oil producing companies and consumer-facing brands using palm oil ingredients is to develop a pro-biodiversity strategy that embraces measures to control deforestation and to reduce conversion of tropical forests for palm oil production.

Recognizing the need for new models to align biodiversity conservation goals with business ones, New Forests – a company seeking to create pioneering investment models around biodiversity conservation – has focused its efforts in the Malaysian state of Sabah where there is a political commitment to creating a kind of ‘eco-Silicon Valley’ for biodiversity investment.  Numerous organizations including New Forests, Marks & Spencer, Itochu, GIZ, Sime Darby, IKEA, WWF, and the FACE the Future are experimenting with new models to finance tropical rainforest rehabilitation and conservation across Sabah.

Without new and commercially viable business models for conservation, increasing demand for palm oil production will destroy more of Sabah’s rainforests, ultimately diminishing their biodiversity and species habitat.  As part of the Sabah State Government’s decision to seek new models of conservation finance, New Forests proposed a commercial biodiversity investment model for the 80,000-acre Malua Forest.

Located on the island of Borneo, Malua is an integral part of the 240,000-hectare Ulu Segama-Malua Forest Reserves, one of the largest and most biodiversity-rich blocks of natural forest remaining in Sabah. Malua has been logged for at least 50 years but still retains extraordinary biodiversity, including the highest density orangutan population measured in the region.

New Forests proposed to create the Malua BioBank based on the U.S. model of regulated endangered species and wetlands banking instruments.  A key strategy was to unitize the rehabilitation and conservation management of the Malua Forest Reserve in a way that could be integrated into the palm oil supply chain.  In this way the model presented a countervailing option to the status quo: consumer brands could become the primary sponsor of biodiversity conservation, rather than the primary threat. Critically, the model needed to be a positive economic solution and not be seen as a burden on the palm oil industry. In Indonesia and Malaysia every $1 investment in palm oil is yielding a $2.30 rise in regional per capita incomes[5], so a viable conservation solution should support rather than confront the industry.

Creating the Malua BioBank as an eco-investment, New Forests and the Sabah Government are now piloting the biobank model based on the commercial value of conserving Malaysia’s globally significant forests. This ground-breaking agreement means the Sabah State Government will receive revenues comparable to those that could be earned from continued forest-based logging or oil palm plantation concessions, in order to maintain the Malua Forest under “conservation use only” status.

The Malua BioBank issues Biodiversity Conservation Certificates (BCCs) – credits representing the quantified and unitized forest biodiversity and species habitat protected or enhanced by the project.  Each BCC equates to a 100-square meter area of Malua rainforest that is restored and managed according to the Malua Conservation Management Plan. A total of 3.4 million Malua BCCs, valued at $10 each, are issued and registered with the Markit Exchange Registry.

Funders receive one BCC for every $10 they contribute to the project—and acquiring Malua BCCs can be a key part of a corporation’s biodiversity neutral strategy for palm oil. Investing in the Malua BioBank undeniably establishes a brand’s pro-biodiversity credentials.

Most major consumer goods companies are members of the Roundtable on Sustainable Palm Oil (RSPO), an important multi-stakeholder effort to establish standards for and generate a supply of sustainably produced palm oil.   Acquiring BCCs builds on RSPO initiatives and boldly moves beyond minimum discretionary compliance. Right now there is no better way for brands to differentiate around biodiversity, than to demonstrate strong and clear commitments to “no net loss of biodiversity” or “net biodiversity gains.”

From a marketing perspective, embedding conservation actions into the product supply chain to achieve no-net loss for biodiversity, ecosystem or species habitat is very progressive and will garner considerable Social Brand Capital, i.e. the loyalty value that consumers and other supply chain stakeholders attribute to a brand as a result of the its direct ownership of tangible conservation outcomes. The companies that execute a pro-biodiversity strategy will find that embedding critical biodiversity conservation in products can have negligible costs yet offer potential to build competitive advantage and drive sales.

The emerging market for biodiversity offsets that conserve, restore and enhance biodiversity and species habitat – as is happening in the U.S. – also turns potential environmental liabilities into financial eco-assets. For example U.S. federal law mandates that developers who impact wetlands must offset the ecological damage by purchasing credits from accredited wetlands mitigation banks in their region. ChevronTexaco received approval in 2005 to convert a tapped-out Louisiana drilling site into a 2,800-hectare wetlands mitigation bank. Generating these credits for the U.S. wetland mitigation banking market, and targeting to sell them at market prices ranging from around $20,000 to $25,000 per wetland/acre, a project like this can turn a liability into an asset potentially worth up to $150 million for Chevron.

For those leading brands using palm oil that are increasingly being linked to rainforest loss, embracing the RSPO option fails to bring a completely satisfactory solution. Forests are fundamental to the Earth’s “ecological infrastructure” and when a tropical rainforest is destroyed it is irreplaceable. So while RSPO will systematically reduce the negative impacts of palm oil, it cannot recover the forest ecosystems and critical habitat already lost.

One solution is for corporations to create a Biodiversity Balance Sheet.  In simple terms, a hectare of oil palm plantation produces 100 tonnes of crude palm oil over its twenty-year productive life.  If one Malua BCC were acquired and retired for each tonne of crude palm oil, that would ‘square the biodiversity ledger’ by rehabilitating and endowing one hectare of the Malua Forest conservation for each 100 tonnes of crude palm oil used by a corporation (see diagram).  Effectively the palm oil purchaser becomes the sponsor of forest conservation, rather than the driver of forest loss.

The solution for these companies, in addition to any RSPO and certified sustainable palm oil (CSPO) sourcing commitments, is to be transparently accountable by recording their palm oil usage (applying a 5 tonne palm oil yield per hectare per year) and then systematically sponsor the equivalent amount of biodiversity banking. The accounting is straightforward and can be easily monitored and audited by third parties such as the Forest Disclosure Footprint.

The Malua BioBank represents the first opportunity to sponsor and embed biodiversity into consumer brands.  The goal is to eventually replicate the model across a range of critical ecosystems.  In a world heading for a population of 9 billion and a $100 trillion gross world product, these eco-innovations offer a much needed solution.

For further information please contact Malua BioBank Marketing at maluabiobank@newforests-us.com.

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