Soft Commodities Compact

In 2018 the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) measured land degradation and its contribution to climate change. It found that deforestation on its own, excluding other land degradation and change, is responsible for around 10% of all global human-induced greenhouse gas emissions (IPBES, 2008).

At NatWest Group we view climate change, resource scarcity, biodiversity loss, and their associated impacts as significant dangers to the livelihoods of our customers and society at large, both now and in the years to come. For more information please see the 2022 Climate-related Disclosures Report (PDF 9.7MB) and 2022 Environmental, Social and Governance (ESG) Disclosures Report (PDF 9.6MB).

NatWest Group, together with eleven other financial institutions was a founding member of the Soft Commodities Compact (PDF 342KB) which was set up in 2014 and concluded in 2020. This voluntary initiative was led by The Consumer Goods Forum (CGF) and The Banking Environment Initiative (BEI). The Compact aimed to mobilise the banking industry to help transform soft commodity supply chains, thereby helping customers to achieve zero net deforestation by the end of 2020.

The Compact concluded at the end of 2020 with the publication of the report Banking Beyond Deforestation. Despite the resolution of the Compact and other global efforts, deforestation has clearly not been halted. However, the Compact Technical Guidance was developed in consultation with banks and other stakeholders which enabled Compact banks to create leading positions for the industry. This was recognised within the Forest 500, where all Compact banks are within the top quartile of financial institutions assessed.

Following the development of the Compact Technical Guidance and with recommendations stemming from the Banking Beyond Deforestation report, NatWest Group acknowledge that the current model of global supply chains require significant improvements in traceability for zero deforestation goals to be met internationally. This is not only critical for deforestation but would also increases the resilience and value of supply chains to withstand shocks - for example from the impacts of climate change. Moreover, there are opportunities provided by nature-based solutions, protecting environments, and improving ecosystem services that will help provide sustainable growth.

The United Nations Biodiversity Conference (COP15) was chaired by China and hosted by Canada in December 2022. COP15 concluded with the adoption of the Kunming-Montreal Global Biodiversity Framework (GBF), which aims to address biodiversity loss, restore ecosystems and protect indigenous rights. The GBF also includes 23 targets to achieve before 2030, including mobilising public and private funding and requiring companies and financial institutions to monitor, assess, and transparently disclose their risks, dependencies and impacts on biodiversity. As a purpose-led organisation, we know we need to play our part. NatWest Group is contributing to collective action on environmental issues through exploratory collaborative groups, including the TNFD Forum. 

NatWest Group applies a sector-based Environmental, Social and Ethical (ESE) risk management framework, established since 2011, to help identify, assess and manage risks associated with certain customers and activities. The purpose of such due diligence is to help establish the commitment and capacity of customers to manage the potential ESE impacts in accordance with international standards. Our policies set out Prohibited, Restricted and Normal activities. We do not support customers and/or transactions involved in prohibited activities. Customers engaged in Restricted activities undergo enhanced due diligence including review by a reputational risk forum or approver and evaluation every one or two years. Customers undertaking Normal (lower risk) activities are assessed for ESE on a five-yearly basis. Access to all publicly available policies can be found in our downloads section.

The ESE framework includes a sector ESE risk appetite position for Forestry, Fisheries and Agribusiness (FFA). The appetite position for FFA expects and encourages customers to demonstrate a commitment to the responsible practice framework that pertains to the relevant soft commodity. The soft commodities that have high deforestation related risks for the UK are rubber, cocoa, pulp & paper, leather & beef, palm oil, soy and timber. In 2022 no rubber, leather or cocoa customers we’re identified through the FFA customers list by this reporting. In addition our FFA policy details that we do not provide project finance to projects involving unsustainable vegetation clearance or peatland clearance/extraction. This includes for example areas of high conservation value, high carbon stock and primary tropical forests. The Equator principles for project financing have also been incorporated, for more information please see our Equator Principles reporting.

Continuing our long-standing management of soft commodities that are associated with a higher risk of deforestation, in December 2022 we updated our ESE risk sector acceptance criteria to clarify we will stop lending and loan underwriting to producers of soft commodities (such as palm oil, soy and cocoa) operating in tropical regions who have not obtained sustainable certification of their direct soft commodities activities and supply chain by 31 December 2024. This means obtaining the following certifications and memberships:

• Forestry, Rubberwood, Pulp and Paper - Forest Stewardship Council (FSC) and Programme for the Endorsement of Forest Certification (PEFC) certified
• Palm oil - Roundtable on Sustainable Palm Oil (RSPO)
• Soy - Roundtable for Responsible Soy (RTRS).
• Beef/Leather - Global Roundtable for Sustainable Beef (GRSB) Leather Working Group (LWG)
• Cocoa – Rainforest Alliance, Fairtrade
  
  

It is important to highlight the limitations and the approach taken by the Compact - the Compact deliberately targets a narrow point in the supply chain, direct production, import and trade of soft commodities from and in tropical regions.

This reporting is completed on a best-efforts basis for the purposes of this report. Customers are screened to ascertain if they are operating or importing soft commodities from tropical regions. Source data was extracted October 2022 and January 2023. Through this customer analysis, best efforts to trace in-scope customers have been made however it may not reflect the complete in-scope exposure.

To ascertain scope and certification data for our customers, publicly available information has been used (including the certification schemes online databases, webpage disclosures and annual reports, as well as ESE reviews with the customers). Limitations of this best-efforts approach are recognised through BEI and the Compact, they include where certification coverage is not reported and the potential of not locating all in scope customers.

NatWest Group is a UK- focussed bank and therefore has limited direct geographical focus on countries experiencing high risk of tropical deforestation. Despite being a relatively small exposure for NatWest Group, the tropical agribusiness sector can have high CO2 intensity and biodiversity impacts, meaning that there are opportunities to help improve the sector.

Certification of palm oil improved from 83% to 100%. The in-scope timber customers with valid FSC certification increased from 96%, returning to 100%. This was due to an inadvertently expired FSC certificate in 2021. Paper and pulp customers have increased their certification to 100% this is due to further investigation of smaller customers supplying hardboard products no longer being in scope as generally they purchase these products from larger suppliers that are in scope, as opposed to directly importing. No in-scope customers were found for rubber, cocoa or leather. Beef decreased from 100% to 67% due to the inclusion of a larger customer with beef as a small proportion of their business operations, this will be investigated further and updated on in the next report.