Zero deforestation commitments in Indonesia’s palm oil sector : a governance case study

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Zero Deforestation Commitments in Indonesia’s Palm

Oil Sector

A governance case study

MSc Political Science: International Relations

MSc Thesis Project: New Forms of Governance: From the EU to the World?

24 June, 2016

Author:

B. L. Drion

10210393

Supervisor: Prof. J. H. Zeitlin

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nd

Reader: Dhr. Dr. P. Schleifer

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i Acknowledgements

There are several people without whose help this thesis would not have materialized. I would like to use a few words to express my gratitude to them.

First and foremost, I would like to thank my supervisor, Professor Jonathan Zeitlin, for providing me with guidance throughout the process, for drawing my attention to relevant articles and interesting developments in the forestry and palm oil sectors, and for always returning my work with feedback within no time.

Secondly, my field trip to Indonesia would not have been as comfortable or as fruitful if I had not been welcomed into the Jakarta home of the warmest people, who helped me find my way around in every single way. On that note, I am grateful to every Ojek, Gojek, or Uber driver for getting me to my meetings on time despite Jakarta traffic, and for being able to locate me despite my non-existent Bahasa Indonesia.

I would like to thank my interviewees, each of whom provided me with relevant insights and a decent amount of time despite busy schedules.

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iii Abstract

This thesis assesses the potential of zero deforestation commitments in Indonesia’s palm oil industry to become an effective mechanism for ensuring sustainable palm oil. In order to analyze this, and to place these commitments in a broader theoretical framework, it makes use of several governance concepts and theories. Private regulation is used to explain the emergence of zero deforestation commitments. The governance triangle is used to assess the effectiveness of private schemes on the basis of actor group competencies. Regime

complexity accurately describes the current overlapping and polyarchic governance structure

of the palm oil industry. The potential contributions of new forms of governance to coordinate the palm oil regime complex are explored.

This thesis concludes by arguing that zero deforestation commitments have the potential to accelerate the transition to sustainable palm oil, yet that these commitments are subject to several limitations. Drawing on lessons from the European Union Forest Law Enforcement Governance and Trade (EU FLEGT), the Forest Stewardship Council (FSC), and EU Biofuels certification, it argues that Experimentalist Governance as well as

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v List of Abbreviations

BKPM Badan Koordinasi Penanaman Modal (Investment Coordination Board) CIFOR Centre for International Forestry Research

EIA Environmental Investment Agency

EC European Commission

EU European Union

EUTR EU Timber Regulation

ESG Environmental and Social Governance FAO Food and Agriculture Organization FFB Fresh Fruit Bunch

FLEGT Forest Law Enforcement Governance and Trade FSC Forest Stewardship Council

GAPKI Gabungan Pengusaha Kelapa Sawit Indonesia (Indonesian Palm Oil Association) GAR Golden-Agri Resources

GHG Greenhouse Gas

GoI Government of Indonesia HCV High Carbon Value HCS High Carbon Stock

IDH Initiatief Duurzame Handel (Sustainable Trade Initiative) InPOP Indonesia Palm Oil Platform

IO International Organization IPOP Indonesia Palm oil Pledge

ISCC International Sustainability and Carbon Certification ISPO Indonesian Sustainable Palm Oil

KADIN Kamar Dagang dan Industri (Chamber of Commerce and Industry) KPK Komisi Pemberantasan Korupsi (Anti-Corruption Commission) MASP Ministry of Agraria and Spatial Planning

MoA Ministry of Agriculture

MoEF Ministry of Environment and Forestry

MS Member State

NGO Non-governmental organization

OJK Otoritas Jasa Keuanga (Indonesian financial services authority)

RAN GRK Rencana Aksi Nasional penurunan emisi Gas Rumah Kaca (National Action Plan for the Reduction of Greenhouse Gas Emissions

REDD+ Reducing Emissions from Deforestation and Forest Degradation RSPO Roundtable on Sustainable Palm Oil

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vi SDG Sustainable Development Goal

SVLK Sistem Verifikasi Legalitas Kayu (Timber Legality Verification System) SPOM Sustainable Palm Oil Manifesto

TFT The Forest Trust

UN United Nations

UNDP United Nations Development Programme

USAID United States Agency for International Development VPA Voluntary Partnership Agreement

WRI World Research Institute WTO World Trade Organization WWF World Wide Fund

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In response to rapidly growing global demand, palm oil production has more than doubled between 2000 and 2014, with an average growth rate of 11 per cent per year in Indonesia1 (FAOSTAT, 2016). Growth in Indonesian production has developed entirely through plantation expansion: the harvested oil palm area multiplied by 26, while the average crop yield remained stable (Brack, Glover, & Wellesley, 2016). Palm oil, Indonesia’s main export product (FAOSTAT, 2016) and important source of economic growth, has become a controversial commodity, as plantation expansion often happens at the deterioration of primary forests, peat lands, or forest communities’ settlements (Brack et al., 2016). Consequent loss of biodiversity, increased carbon emissions, and land rights conflicts urgently require a shift towards a more sustainable industry.

Pressured by extensive non-governmental organization (NGO) campaigning throughout recent years, an increasing number of companies along the palm oil supply chain have signed zero deforestation pledges. These corporate commitments, which culminated in the New York Declaration on Forests in 2014 (Climate Summit, 2014), often entail ‘no peat, no deforestation, no exploitation’ promises, and aim to encourage producers to embrace higher sustainability standards, with the ultimate goal of removing deforestation and land rights abuses from their supply chains (Pirard, Fishman, Gnych, Obidzinski, & Pacheco, 2015). Such private governance initiatives have been emerging in several issue areas since the 1990s, often as a response to weak state governance (Abbott & Snidal, 2009; Abbott, 2012a; Bartley, 2003; 2007; Brassett, Richardson, & Smith, 2012; Gnych, Limberg, & Paoli, 2015). However, they are often accompanied by questions of legitimacy and of their capacity to include all relevant stakeholders (Abbott & Snidal, 2009; Brasset, Richardson, & Smith, 2012).

This thesis assesses the potential of corporate zero deforestation commitments to become an effective mechanism for ensuring sustainable palm oil. The zero deforestation concept has encountered resistance from the Indonesian government, which claims the pledges to be destructive to economic progress as well as to smallholder farmers, who lack the necessary capacity to comply. Moreover, the Indonesian regulatory framework is said to be unsupportive of zero deforestation commitments (Pirard et al., 2015). As transnational initiatives need to be implemented domestically or locally, they cannot succeed without supportive national and subnational regulatory structures (Abbott, 2012a). Several authors

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2 have therefore argued that the effectiveness of private transnational initiatives increases with greater public collaboration (Abbott & Snidal, 2009; Abbott, 2012a; Bartley, 2010; 2014; Biermann & Pattberg, 2008; Brassett et al., 2012). Consequently, implementation of corporate zero deforestation commitments has encountered a number of governance challenges (Pirard et al., 2015).

Issue-areas such as palm oil that are characterized by divergent interests among key actors, and where there is no hegemon with the power to impose a dominant policy, often result in regime complexity, defined by Overdevest and Zeitlin (2014, p. 3) as ‘a proliferation of regulatory schemes operating in the same policy domain, supported by varying combinations of public and private actors, including states, international organizations, businesses, and NGOs’. Incoherence and ensuing fragmentation among these schemes can undermine transnational regulation (Alter & Meunier, 2009; De Búrca, Keohane, & Sabel, 2014). The concept of a regime complex is suitable to describe the palm oil industry, which over the past decade and a half has been increasingly influenced by NGOs and states concerned with the environmental and social impact of palm oil cultivation. Zero deforestation commitments may therefore contribute to a diverse and fragmented regime complex.

Numerous authors have mentioned the potential capacity of regime complexity to enable cross-institutional learning and governance experimentation (Abbott, 2012a; Alter & Meunier, 2009; Keohane & Victor, 2011; Overdevest & Zeitlin, 2014). Literature on new forms of governance explores the promising potential of more inclusive governance structures and decentralized implementation, both of which increase the role of domestic institutions in transnational sustainability politics (Abbott & Snidal, 2009b; Overdevest & Zeitlin, 2014; Sabel & Zeitlin, 2008; Sabel & Zeitlin, 2012; Schleifer, 2013). Several governance interactions in the palm oil sector demonstrate such governance characteristics. This thesis therefore also evaluates the potential of new forms of governance to overcome the challenges associated with zero deforestation commitments.

1.1 Research Question

The overarching question that this thesis aims to answer is: ‘Does the zero

deforestation movement represent a potentially effective mechanism for ensuring sustainability of the palm oil industry?’ This question is divided into the following

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3 a) How do NGOs, the private sector, and domestic and foreign governments interact in the

emergence of the zero deforestation movement in Indonesia’s palm oil sector?

b) To what extent are conflicts among these groups a challenge to implementing zero deforestation?

c) What forms of governance may help to mitigate or overcome such conflicts?

1.2 Structure

This introduction is followed by an overview of the research design, data collection methods, and case selection used for this thesis in Chapter 2. Chapter 3 sets out the theoretical framework that the data analysis builds on and provides a literature review. Chapter 4 provides a history and governance overview of the palm oil industry, and discusses the stakeholders involved in the emergence of zero deforestation commitments. Chapter 5 assesses the conflicts among these stakeholder groups and the governance challenges that zero deforestation commitments face. Subsequently, Chapter 6 evaluates the potential of new forms of governance to mitigate these challenges, drawing on existing initiatives. The 7th and final Chapter reveals the conclusions of this thesis and provides recommendations for future research.

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4 2. Research Design and Case Selection

This chapter provides an overview of the research design, case selection, and data collection methods used in this thesis.

2.1 Research Design

This thesis is based on qualitative case study analysis. The case study explores the governance opportunities and challenges of zero deforestation commitments in the Indonesian palm oil sector. Della Porta (2008) describes the differences between variable-based and case-oriented research: ‘Variable-oriented studies mainly aim at establishing generalized relationships between variables, while case-oriented research seeks to understand complex units’ (Della Porta, 2008, p. 198). Qualitative case studies have demonstrated several strengths, such as understanding context and processes, and linking causes and outcomes (Flyvberg, 2011). These characteristics make qualitative case study analysis more suitable for understanding the palm oil regime complex than statistical methods, which have been said to yield limited understanding of underlying mechanisms (Flyvberg, 2011).

In order to obtain a full understanding of the emergence of zero deforestation commitments, this thesis uses process tracing (George & Bennet,, 2005; Vennesson, 2008). Process tracing is defined as ‘a research procedure intended to explore the pathways through which initial conditions are turned into outcomes’ (Vennesson, 2008, p. 224). Process tracing hence provides a suitable structure for analysing governance interactions in the emergence and diffusion of zero deforestation commitments.

Venesson (2008, p. 236) distinguishes several potential pitfalls in case study research and in process tracing in particular, such as the need for empirical data, and cognitive biases (See also: Checkel, 2006, p. 367-9). Case study analysis strongly relies on the existence and reliability of empirical sources. Moreover, although not exclusive to case study research, cognitive bias can alter a researcher's reasoning and skew results. These challenges constitute significant limitations to the validity of the arguments made in this thesis.

This thesis analyses zero deforestation commitments by means of within-case process tracing. Within-case process tracing analyses congruence between theoretically expected and empirically observed outcomes. However, this type of process tracing is vulnerable to equifinality and omitted variable bias (Bennett & Checkel, 2014). Within-case process tracing is often used in combination with cross-case comparison (Venesson, 2008). In order to deepen the understanding of the context and processes behind zero deforestation

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5 commitments, and to explore the potential contributions of new forms of governance, this thesis incorporates lessons from empirically related governance cases, as chapter 3 explains.

2.2 The Case

The choice of Indonesia’s palm oil industry as a governance case study is based on several reasons. First and foremost, Indonesia is the world’s largest producer of palm oil. The industry size has more than doubled since 2000 (FAOSTAT, 2016), and is expected to double again within 20 years (Brack et al., 2016). The environmental and social effects of deforestation for palm oil cultivation in Indonesia (Brack et al., 2016) regained global media attention during the fall of 2015, when forest fires associated with plantation expansion rampaged across Sumatra and Kalimantan, spreading a toxic haze across the region (The Guardian, 2015). These developments urgently require a transition towards sustainable practice.

However, palm oil is Indonesia’s main export product (FAOSTAT, 2016). It provides work and income for many Indonesians, and is known as the highest-yield or most efficient vegetable oil (Brack et al., 2016; Gnych et al., 2015). Conflicting interests, and the wide range of private as well as public initiatives working on multiple governance levels to (re) shape the palm oil industry make for a complex and extensive governance issue that is worth researching. Findings may contribute to governance literature in the area of sustainability.

Second, having visited Indonesia (and in particular Sumatra and Java) previously, and having seen both local practice as well as the global reach of this issue not only made me highly engaged with the topic, it also made it more feasible and comfortable for me to travel to this country once again for research purposes.

2.3 Data Collection

Process tracing requires data from a wide range of sources (George & Bennet, 2005). In order to corroborate information, source triangulation is important. This thesis draws on elite interviews (Tansey, 2007) and on documentary analysis (George and Bennett, 2005).

10 Semi-structured interviews were held with experts and key informants in Jakarta and Bogor, Indonesia, between 26 March and 14 April 2016. To select interviewees, the non-probability method of purposive sampling as well as snowballing was used (Tansey, 2007). In preparation of the field work a list of stakeholders was created, comprising NGOs, private sector corporations, and public institutions involved in the Indonesian palm oil industry, whose perspective would contribute to answering the research question. Names and contact

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6 details of relevant people involved with those organizations were added to this document for as far as they were available (purposive sampling). Some interview requests were sent out before departure from Amsterdam, but most potential interviewees were contacted in Jakarta. By asking initial interviewees for recommendations on whom else to speak with a connection was made with more relevant experts and informants (snowballing). In order to ensure the inclusion of all involved interests, perspectives from NGOs, the Indonesian government, foreign government, and the private sector were collected2.

The documentary analysis included academic literature on private governance, regime complexity, transnational governance, and on new forms of governance; academic literature on empirically related topics; and publications and reports by NGOs, public institutions, and corporations. These documents were obtained through (online) searches as well as through contact with interviewees.

2.4 Research Period

Greenpeace has been campaigning against for zero deforestation since 2007, which led to the first high profile zero deforestation pledge in the palm oil industry being made in 2011 (Pirard et al., 2015). Implementation of zero deforestation is currently in progress, and governance responses are still emerging. I have therefore focused my analysis on developments between 2011 and 2015. As mentioned before, Interviews were held between 26 March and 14 April 2016. In order to answer the overarching research question as well as its sub questions, the collected data were analysed along a suitable theoretical framework that is set out in the next chapter.

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7 3. Theoretical Framework and Literature Review

This chapter sets out the theoretical framework that this thesis builds on. In order to analyse the emergence of corporate zero deforestation commitments, the work of Bartley (2003; 2007), Cashore (2002), and Bernstein and Cashore (2007) on private regulation is used. To place these commitments in a broader governance framework, and to analyse stakeholder interactions involved in these commitments, this thesis uses Abbott and Snidal’s

Governance Triangle (2009). Furthermore, this thesis argues that palm oil governance over

the years has taken the shape of a regime complex. Regime complexity can lead to fragmented governance systems and forum shopping, however it can also facilitate governance experimentation (Alter & Meunier, 2009; Overdevest & Zeitlin, 2014). Therefore the potential of new forms of governance to mitigate the challenges that zero deforestation brings along are explored, by evaluating the possible contributions of Experimentalist Governance (Sabel & Zeitlin, 2008) as well as those of Orchestration (Abbott & Snidal, 2009b; Schleifer, 2013). This chapter explains and rationalizes these analytical approaches in three subsequent sections. The fourth section of this chapter discusses empirically related precedents that could provide lessons for the potential of zero deforestation commitments.

3.1 Private Regulation

Private regulation based on market mechanisms, information provision, or informal shaming processes as opposed to traditional ‘command and control’ strategies grew significantly in the 1990s (Abbott, 2012a; Bartley, 2003; 2007; Cashore, 2002). This type of regulation is typically controlled by various types of non-state actors, such as NGOs and private businesses (Bartley, 2003), and often arose as a response to weak state governance (Brassett et al., 2012), as well as to dynamics of controversy, conflict, and innovation (Bartley, 2003). The important role that NGOs play in crafting this type of regulation is shaped by a neo-liberal institutional context, which facilitated the emergence of private regulatory initiatives through limiting state and inter-state regulation. After having encountered difficulties diffusing environmental or social campaigns in intergovernmental arenas, NGOs turned to developing social movement strategies in the transnational realm.

Moreover, Barley (2007) explains the rise of private certification based on both on an increase in market-based collective action problems and on the political construction of market institutions. Private certification involves social movement pressures against companies that value their reputation, in commodity chains with a highly internationalized

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8 scope (Bartley, 2003; 2007). NGOs certify corporations based on their social or environmental performance (Abbott, 2012a). The social movement – industry interaction that emerges from these pressures involves both sides seeking to claim credibility and legitimacy (Bartley, 2003). This complies with Dingwerth & Pattberg’s (2009) argument that environmental NGOs attempt to enhance their influence on policies by providing legitimacy to private corporations, who, on the other hand, wish not to be influenced but seek the legitimacy that these NGOs can provide. This interaction between social movement and industry is most durable when the industry target has a public image to uphold, for example when it produces branded products (Bartley, 2003). Zero deforestation shows a variation to this type of interaction, as palm oil is an intermediate product. Zero deforestation campaigns initially targeted consumer goods companies such as Unilever, which led to these companies cancelling their contracts with palm oil producing and trading companies and facilitated bargaining power (Pirard et al.,, 2015).

As private governance initiatives are often led by and aimed at private organizations, some authors have argued that private governance has the ability to bypass state governance (Abbott, 2012a; Bernstein & Cashore, 2007; Cashore, 2002). Yet domestic implementation of transnationally established standards requires national and regional regulatory support. A common criticism of private governance literature is that it neglects the role of the state (Abbott & Snidal, 2009a; Giessen, Burns, Sahide, & Wibowo, 2016; Overdevest & Zeitlin, 2014). Giessen et al. (2016) therefore argue that state actors play a crucial role in the emergence, diffusion, and shaping of conceptually private governance systems. In addition, Bierman and Pattberg (2008) argue that the effectiveness of transnational environmental governance grows the more these policies are tailored to the needs and capacities of the national administrative and regulatory structures of the country in which they are to be implemented.

3.2 The Governance Triangle

Because the nature of problems that private governance standards address is often social or environmental, and due to the corresponding need for monitoring and enforcement of these standards, Abbott & Snidal (2009a) consider such private governance initiatives to engage in Regulatory Standard Setting (RSS). Often RSS schemes are managed by one type of actor, such as NGOs or industry, or by two types of actors combined. Few RSS schemes involve tripartite structures. Abbott and Snidal address the question as to whether such RSS structures can be effective regulators by analysing the governance triangle. The governance

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9 triangle systematically depicts possible varieties of actor group composition with RSS structures on a figure that places NGOs, firms, and the state each on one vertex3. In their evaluation of RSS schemes the authors assess the extent to which these schemes can serve public interests as opposed to particular interests, and they consider the practical and political challenges that come with private schemes.

Each of the three actor groups being placed on one vertex of a symmetrical triangle does not imply equality between these groups: NGOs, firms, and states differ greatly in their interests, power, and capacities (Abbott & Snidal, 2009a). Differences also occur within actor groups, for example between developing states and developed states in regulatory capacity; between firms producing branded products that are vulnerable to NGO shaming and firms producing intermediate goods, in their need act responsibly; and between NGOs pursuing different sets of interests. NGOs tend to pursue at least partially contradictory goals, such as economic development versus environmental protection. Developing countries tend to object to the growing influence of foreign NGOs (Bierman & Pattberg, 2008), as these organizations often represent the perspectives and interests of developed countries rather than those of their own.

Conceptualizing the effectiveness of RSS schemes is complex due to the usually high number of variables involved and interests at stake (Abbott & Snidal, 2009a), as for example in the case of zero deforestation, where material factors such as gross forest cover intertwine with subjective factors such as social responsibility and legitimacy. In addition, the majority of zero deforestation commitments are not yet fully implemented, as committed firms are still mapping out designated conservation and cultivation areas (Interviews 6; 9). Evaluating outcomes may therefore be premature. Abbott and Snidal overcome this analytical obstacle by asking what competencies an institution needs to successfully operate throughout the regulatory process. The authors identify five - not necessarily strictly distinct or subsequent - stages of the regulatory process: Agenda-setting, Negotiation, Implementation, Monitoring, and Enforcement (ANIME). Actor groups have variable influence in particular stages, for example: NGOs engage actively in Agenda-Setting, Monitoring and Enforcement, whereas Firms are well equipped to Negotiate and Implement standards. The role of the State varies between domestic and international contexts, but is often that of catalyser or provider of regulatory support.

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10 Through analysis of the regulatory process Abbott & Snidal (2009a) identify four key competencies that, if present, are likely to improve a scheme’s effectiveness: independence,

representativeness, expertise, and operational capacity. Independence is particularly crucial

during Agenda-setting, Monitoring, and Enforcement (A M E) of standards. Representativeness is of most importance during Negotiations and Enforcement (N E). Expertise is essential in every stage of the process (A N I M E). Finally, operational capacity is especially important in Implementation, Monitoring, and Enforcement (I M E), yet it is relevant throughout the process (A N).

Although all of these competencies prevail in well-developed state governance at the domestic level, any national government lacks certain competencies to successfully govern border-transcending issues such as international commodity chains. Likewise, non-state actors are incapable of providing all required capacities by themselves. Collaborative arrangements between NGOs, Firms, and States are therefore superior to schemes carried out by a single type or two types of actors, as none of these actor groups possesses all of the competencies required for effectively governing issues in the transnational realm (Abbott & Snidal, 2009a; Abbott, 2012a). In this respect, corporate structures such as zero deforestation can be expected to fall short on the ability to be implemented and enforced to their optimal extent.

In sum, by evaluating actor competencies and by analysing interactions between actor groups involved with RSS, the Governance Triangle provides a useful framework for assessing the effectiveness of the zero deforestation movement.

3.3 Regime Complexity and New Forms of Governance

As discussed, the rise of non-hierarchical organizations in the early 1990s; failure of state and multilateral governance to effectively address certain issues; and increased collaborations between international organizations and civil society actors have lead to the emergence of a variety of governance arrangements, and in particular to regime complexes (Abbott & Snidal, 2009a; Brassett et al., 2012; De Búrca, Keohane, & Sabel, 2014). De Búrca et al. (2014, p. 481) define a regime complex as ‘an array of partially overlapping and non-hierarchical institutions governing a particular issue area’. Overdevest and Zeitlin (2014, p. 4) add to this that regime complexity most likely emerges in situations in which ‘there is no single, unified body of hierarchically imposed rules governing a transnational issue-area or policy domain’. The concept of regime complexity suits the wide range of private, public,

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11 and private-public initiatives that have tried to shape the palm oil sector since the early 2000s, as the next chapter will further demonstrate.

Alter and Meunier (2009) argue that regime complexity can undermine transnational regulation when institutions are not hierarchically coordinated. Moreover, regime complexity can lead to fragmented systems and facilitate forum shopping, according to these authors. Alter and Meunier furthermore comment that regime complexity can create a heightened role for informers such as NGOs to help states manage rule and institutional confusion, and that it brings along opportunities as well as challenges for developing effective solutions to international problems. Several authors have argued that productive interactions among components of a regime complex can emerge (Abbott & Snidal, 2009; Keohane & Victor, 2011; Overdevest & Zeitlin, 2014). Overdevest and Zeitlin (2014) build upon this work to analyse joined up transnational regimes in contested policy fields, where there is no single actor who has the power to impose its own will.

Numerous authors have discussed the potential of fragmented governance systems to facilitate cross-institutional learning and experimentation (Abbott, 2012a; Alter & Meunier, 2009). Governance interactions in the palm oil regime complex are demonstrating several Experimentalist features as well as signs of governance orchestration, as the next section explains. Therefore this thesis also explores the potential contributions of both Experimentalist Governance (EG) (Sabel & Zeitlin, 2012); and Orchestration (Abbott & Snidal, 2009b) to palm oil governance and particularly for zero deforestation commitments.

3.3.1 Experimentalist Governance

Experimentalist Governance (EG) as developed by Sabel and Zeitlin (2012) involves a multi-level architecture, which consists of four consecutive elements linked together in an iterative cycle. The four key elements of an EG structure according to Sabel and Zeitlin are for broad framework goals to be established by joint action among stakeholders; for ‘level’ units to be given the autonomy to advance these goals as they see fit; for these lower-level units to be required to participate in regular reporting and peer review on their performance in return for this autonomy; and finally for framework goals, metrics, and procedures to be periodically reviewed and revised where necessary. These four elements can be performed through various institutional arrangements. Moreover, one institutional mechanism can perform several governance functions, such as formal peer review can assess comparative effectiveness as well as hold local units accountable for their relative performance.

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12 Local units are to be understood broadly: these can be public, private, or hybrid public-private actors or actor groups. In regulatory systems local units are most likely firms. Scope conditions for EG to emerge according to Sabel and Zeitlin (2012) are strategic uncertainty, and a polyarchic or multipolar distribution of power. Experimentalist structures are often strengthened by a penalty default, which induces participation of actors by presenting them with an undesirable policy alternative to be implemented in case of non-compliance, as opposed to top-down imposed measures (Overdevest & Zeitlin, 2014). The penalty default under zero deforestation is reputational damage to companies who fail to comply, and the possible consequent loss of product sales in sensitive consumer markets (Pirard, Gnych, Pacheco, & Lawry, 2015).

Overdevest and Zeitlin (2014) distinguish four distinct, yet not necessarily exhaustive pathways through which EG structures can emerge. The first pathway entails emergence of a private experimentalist regime as a response to weaknesses in international negotiations and public governance, followed by vertical diffusion along supply chains from downstream customers to upstream producers or horizontal diffusion through industry associations. This pathway involves retailers, producers, and manufacturing companies having responded to NGO campaigns for responsible sourcing, and NGOs forcing or assisting suppliers to upgrade sustainability standards and achieve certification. This pathway applies to zero deforestation, which involves campaigning NGOs such as Greenpeace pressuring firms along the supply chain to commit, and implementing NGOs and consultancies assisting these firms to achieve their goals. Industry associations have proved to be important institutional devices for recruiting forestry firms into certification schemes; for coordinating their responses to changing demands from external actors, and for pooling learning from implementation experience (Overdevest & Zeitlin, 2014). In the case of zero deforestation this dynamic is visible in the Indonesia Palm Oil Pledge (IPOP), an industry organization for companies committed to zero deforestation (IPOP, 2016).

The second pathway that Overdevest and Zeitlin (2014) distinguish is that of unilateral regulatory initiatives subject to procedural requirements imposed by multilateral institutions such as the World Trade Organization (WTO). In Europe several such initiatives have emerged with respect to palm oil imports from Indonesia, as the next chapter will discuss. A third pathway entails mutual influence between multinational corporations and advocacy networks, where there is no procedural constraint on unilateral regulations by international treaties but transnational pressure for coordination of separate national or

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13 regional regimes instead. The fourth pathway works through benchmarking and public comparison of competing components. In the case of zero deforestation this pathway emerges from the first pathway of vertical integration, as chapter 4 will demonstrate. Overdevest and Zeitlin argue benchmarking and public comparison to be a key accountability mechanism for polyarchic governance arrangements. As polyarchic systems such as palm oil lack a central authority with the legitimacy to impose its own will, public comparison creates a platform for enhancing accountability, deliberation, and reflexivity (Overdevest & Zeitlin, 2014).

The four pathways and underlying mechanisms appear to be facilitating the emergence of an experimentalist regime for forestry and illegal logging. Overdevest and Zeitlin (2014; 2015; 2016) among others have analysed forest governance initiatives such as the European Union (EU) Forest Law Enforcement Governance and Trade (FLEGT) and the Forest Stewardship Council (FSC) along the EG framework. From these analyses they have drawn several conclusions that could benefit palm oil governance. The virtues of an EG architecture according to Overdevest and Zeitlin (2014) are that it accommodates diversity in adapting general goals to varied local contexts, rather than imposing uniform measures (Overdevest & Zeitlin, 2015). EG encourages capacity building support to domestic institutions. Furthermore, EG provides a mechanism for coordinated learning from local experimentation through disciplined comparison of different approaches to advancing broad common goals. The means to achieve these goals are provisional and subject to revision in the light of experience. Furthermore, the use of a penalty default to induce participation is considered more effective than top-down imposition of rules and norms. EG entails a more inclusive and deliberative structure of governance than a conventional hierarchical structure. Reviewing Overdevest and Zeitlin’s analysis of FLEGT and FSC could hence yield insights for zero deforestation commitments, as the fourth section of this chapter will further explain.

3.3.2 Orchestration

Abbott and Snidal (2009b) discuss the orchestration deficit that private new transnational governance brings along. These authors argue that the full potential of private transnational governance can only be reached by bringing the state back into regulation. This way, misalignments between private and public governance can be harmonized. The role of the state however changes from its ‘traditional’ function as top-down diffuser of mandatory centralized regulation, to becoming orchestrator of diverse RSS schemes. Abbott and Snidal furthermore argue that new governance usually engages only in soft law as opposed to mandatory rules. Greater orchestration could therefore enhance legitimacy and impact of RSS

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14 schemes, and the extent to which RSS schemes serve the public interest, according to the authors. Abbott and Snidal distinguish between directive orchestration, which can be employed domestically, and facilitative orchestration, which is more feasible in the international realm. Both states as well as International Organizations (IO)s can act as orchestrators, most effectively in directive orchestration and facilitative orchestration, respectively.

In the domestic sphere, states can enhance the reach of an RSS scheme by relaxing legal and administrative requirements for firms that adhere to approved RSS schemes (Abbott & Snidal, 2009b). Developed states can sponsor existing RSS schemes such as eco-labels or certification. Furthermore, states can incorporate techniques and schemes as developed by private RSS schemes into mandatory government regulation. IOs typically lack mandatory implementing authority for directive orchestration. In the transnational realm however, IOs can engage in facilitative orchestration, which allows them to achieve their regulatory goals within the scope of their power. To this end IOs can incorporate rules set by private RSS schemes into international implementation strategies. Equally, RSS schemes often draw on rules set by international legislation.

By adopting privately established measures, orchestration can build on a wide range of expertise and become compatible with stakeholders’ incentive structures (Abbott & Snidal, 2009b). In addition, orchestration provides an opportunity to synergize overlapping RSS schemes. However, in some cases orchestration can also lead to forum shopping and adverse competition between private schemes, as Schleifer (2013) argues in his work on EU Biofuels governance. Reviewing EU Biofuels governance hence provides possible lessons for palm oil governance, as the next section will demonstrate.

In the case of palm oil, the Indonesian government has developed its own mandatory certification system for plantations in 2011, Indonesia Sustainable Palm Oil (ISPO) (Hospes, 2014; Schleifer, 2015). Some authors have considered this certification scheme a state interpretation of the Roundtable on Sustainable Palm Oil (RSPO), which has been established by NGOs and private sector in 2004 (Gnych et al., 2015). Chapter 6 evaluates this argument. Analysing the role of states and International Organizations (IOs) as orchestrators in the palm oil regime complex could contribute to orchestration literature and provides possible contributions for enhancing the reach and impact of zero deforestation commitments. Chapter 6 of this thesis therefore explores the possibilities of orchestration for palm oil governance. In order to better understand the possible contributions of EG and orchestration, this thesis

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15 builds on governance literature on the FSC, EU FLEGT, and EU Biofuels Governance. The next section rationalizes comparison with these specific cases.

3.4 Literature Review

Environmental forestry, among other fields, has witnessed a particular rise in private certification structures (Abbott, 2012a; Bartley, 2003; 2010). The establishment of the Forest Stewardship Council (FSC) in 1993 accurately demonstrates this development. FSC constitutes an NGO-led private certification structure for sustainably sourced forest products. However, despite being privately led, FSC entails a deliberative, multi-stakeholder process for the setting and revising of broad, principles-based standards for sustainable forest management (Overdevest & Zeitlin, 2014). FSC facilitates institutionalized decision-making procedures and considers social, environmental, and economic interests in the regulation of timber trade equally (Abbott, 2012a; Biermann & Pattberg, 2008; Overdevest & Zeitlin, 2014). FSC furthermore demonstrates the experimentalist mechanism of benchmarking and public comparison of competing components in regime complexes, facilitated by NGO pressure. FSC hence reaffirms the important role of NGOs in private-led regimes, and demonstrates an EG structure initiated by private actors. Both zero deforestation and FSC demonstrate benchmarking and public comparison of competing components facilitated by NGO pressure.

Like FSC and zero deforestation, EU FLEGT demonstrates the ability of NGOs to play an important role in the development and implementation of forest policy (Overdevest & Zeitlin, 2015; 2016). It was environmental NGOs pushing up illegal logging on the multilateral institutional agenda in the 1990s, and it was NGOs pushing for the adoption of the EU FLEGT Action Plan in 2003 and the European Timber Regulation (EUTR) in 2010 (Overdevest & Zeitlin, 2015). Transnational NGOs such as Greenpeace, the Environmental Investigation Agency (EIA), and FERN (Forests and the EU Resource Network) successfully pressured the European Commission (EC) to take action against imports of illegally logged wood, in which Indonesia was prominent. These NGOs found public resonance for their cause as members of trade federations in the Netherlands and the UK became aware of the risk of reputational damage to their tropical wood consumer products. By educating developing countries, i.e. emphasizing the positive effects that acting on illegal logging would incur for them, environmental NGOs contributed to developing countries’ participation in international efforts to reduce illegal trade in forest products (Overdevest & Zeitlin, 2015).

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16 The importance of providing capacity-building support to domestic institutions in the promotion of sustainable forest governance is demonstrated by the creation and adoption of EU FLEGT Voluntary Partnership Agreements (VPAs) (Overdevest & Zeitlin, 2015; 2016). FLEGT VPAs build on private certification schemes as well as on public legal timber regulations of both sourcing as well as third countries. Features such as capacity-building, independent monitoring, and regular review and revision, which are inherent to an EG structure, characterize FLEGT. Encouraged by the FLEGT VPA process, Indonesia developed its own timber legality verification system (SVLK) (Overdevest & Zeitlin, 2016). Lengthy negotiations between the EU and Indonesia finally led to an agreement on legality standards in April 2016, and Indonesia will be the first country to be issued FLEGT export licenses (FLEGT, 2016). The FLEGT VPAs hence created an incentive for Southern governments to participate in regulatory standard development by means of a penalty default, as participation grants timber access to the European market, whilst non-compliance results in exclusion from this large importing market. As timber imports are subject to EUTR, which does not discriminate between European timber and imported timber, these measures are World Trade Organization (WTO)-compliant (Overdevest & Zeitlin, 2015). This complies with the second possible pathway that Overdevest and Zeitlin (2014) distinguish for an EG structure to emerge. By integrating domestically established non-discriminatory standard as opposed to imposing Western developed norms on developing countries, FLEGT evades thorny issues of sovereignty and territorial rights (Overdevest & Zeitlin, 2016). Implementation of FLEGT VPAs led to significant improvement in Indonesia’s forest governance (Overdevest & Zeitlin, 2016; Interview 9), and therefore provides possible contributions to the zero deforestation movement.

Brasset, Richardson, and Smith (2015) analyse the case of EU biofuels along the EG framework. This system has been developed through multi-stakeholder deliberation, with the broad open-ended goal of achieving more sustainable transport in Europe (Brassett, Richardson, & Smith, 2015). EU biofuel promotion has incurred two-fold criticism, being 1) a fundamental argument on the (un) sustainability of biofuels given their direct link to land-use change, consequent tropical deforestation, and a fuelling effect on food prices, and 2) a governance defect, as the emergence of many decentralized biofuel certification bodies, a lack of effective sanctioning, and incoherent forms of peer review between these bodies have led to forum shopping and (major) stakeholder behaviour that inhibits sustainability goals. Environmental NGOs, who played a crucial role in bringing the need for more sustainable

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17 transport up the EU’s agenda in the early 2000s, largely withdrew from the process due to the first argument. As a consequence of the second criticism, EU Biofuel Certification in its current form cannot be considered a functional Experimentalist structure according to Brasset et al. (2015). Hence in contrast to FLEGT and FSC, EU Biofuel governance fails to utilize EG characteristics successfully.

Schleifer (2013) analyses EU biofuel governance in terms of orchestration, as the EU developed biofuel criteria relying strongly on private certification schemes. In this sense, private certification brought the EU a cost-efficient way of organizing biofuel governance, by building on the expertise of NGOs and the private sector. Embracing transnational schemes has also increased the extraterritorial implementation of the EU’s sustainability policies. However, according to this author, the EU has failed to create a level playing field among private certification schemes. Consequently, biofuel orchestration has led to forum shopping. Moreover, economic pressures may have contributed to undercutting rather than improving EU biofuel governance. By demonstrating potential pitfalls, the analyses of EU Biofuels along the EG framework (Brassett et al. 2015) and in terms of orchestration (Schleifer, 2013) provide possible lessons for the palm oil regime complex.

In sum, like the palm oil regime complex, the fields of forest governance and biofuel certification demonstrate conflicting interests as well as the absence of a hegemon who can impose a dominant policy (Overdevest & Zeitlin, 2014). Reviewing FLEGT, FSC, and EU Biofuel Certification can therefore contribute to a better understanding of governance interactions in the palm oil sector.

Conclusion

This chapter has demonstrated that literature on private governance (Bartley, 2003; 2007), the governance triangle (Abbott & Snidal, 2009a), and the concept of regime complexity (Alter & Meunier, 2009; De Búrca et al., 2014; Overdevest & Zeitlin, 2014) provide a suitable framework to analyze the emergence of zero deforestation commitments and governance interactions in the palm oil sector. Moreover, this chapter argued that the EG framework (Sabel & Zeitlin, 2012) offers potential benefits for zero deforestation commitments, by employing a more inclusive system of establishing, implementing, and revising policy goals (Overdevest & Zeitlin, 2014). Additionally, orchestration literature could provide insights into the virtues of an increased role of the state and IOs in adopting and diffusing private regulation (Schleifer, 2013). The next chapter provides the empirical background for analysis of these governance dynamics in the palm oil sector.

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18 4. The Palm Oil Regime Complex

This chapter offers the context for empirical analysis. It is divided into three sections. First it introduces the relevance of palm oil as an agricultural commodity and explains the need for sustainable practice. Subsequently it provides an overview of the main palm oil governance attempts and discusses the emergence of zero deforestation commitments. This chapter concludes by describing the roles of the main interest groups involved in or affected by zero deforestation commitments. Data has been drawn from relevant reports, documents, and expert interviews, and source triangulation has been employed to ensure reliability.

4.1 Palm Oil

Palm oil is highly versatile and is used widely yet differently across the world (Brack et al., 2016). Western countries mainly consume palm oil through processed products such as chocolate, soap, and ready-made meals. Palm oil derivatives can be found in 50 per cent supermarket products (Gnych et al., 2015). Although demand for processed goods in Southern countries like Indonesia, China, and India is increasing along with an expanding middle class, palm oil is still mainly used as cooking oil in these countries. In addition to serving these two purposes, palm oil is increasingly used for the production of biofuels.

The oil palm was introduced to Indonesian and Malaysian plantations in the late 19th and early 20th century (Brack et al., 2016; Sheil et al., 2009). As Indonesia and Malaysia both provide the tropical, equatorial conditions that are best for palm oil to grow, and have a large remaining forest cover to convert, production has thrived in this region (Sheil et al., 2009). Nowadays Indonesia and Malaysia account for more than 80 per cent of global palm oil production (FAOSTAT, 2016). Indonesia alone accounted for 56 per cent of globally produced palm oil in 2014 (FAOSTAT, 2016). Palm oil supply has followed demand, and more than doubled between 2000 and 2014 (Brack et al., 2016; FAOSTAT, 2016). Indonesia produced over 20 million tonnes (MT) of crude palm oil (CPO) in 2010, and the government aims to increase this amount to 40 MT of CPO annually by 20204 (Brack et al., 2016; Gnych, 2015). This government goal implies nearly doubling the land area used for plantations from 8 million hectares in 2010 to 15 million hectares in 2020 (Brack et al., 2016).

Palm oil has the highest yield per hectare of any vegetable crop, producing an estimated fivefold of the amount that its closest competitor, soy, generates (Brack et al.,

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19 2016; Gnych, 2015). Because of its efficient land use and versatility, palm oil is known as the most cost-effective vegetable oil. Moreover, by being a perennial crop and thus providing years of employment and income, palm oil production has the potential to contribute to poverty alleviation (Gnych, 2015). The palm oil industry furthermore contributes to state revenue as well as to infrastructure development in rural areas. However, less favourable aspects associated with its production have led to palm oil becoming a controversial commodity.

4.1.1 The Need for Sustainable Practice

Palm oil production has been associated with community conflict and displacement caused by large companies acquiring indigenous lands for cultivation, a practice known as

land grabbing (Sheil et al., 2009). Moreover, infamous slash-and-burn practices used as a

cheap way to clear tropical forests for palm oil cultivation have caused major environmental and health issues across Southeast Asia (Sheil et al., 2009; The Guardian, 2015). Peat soil, which characterizes many of the forest areas affected by slash-and-burn practices, is highly flammable. This clearing technique hence causes extensive forest fires that are difficult to stop from spreading.

Palm oil, together with other globally traded agricultural commodities such as soy, pulp and paper, and beef, has been identified as key driver of tropical deforestation (Brack et al., 2016). Tropical deforestation is the main cause of land use change (LUC)5, it increases greenhouse gas (GHG) emissions, and it fuels loss of biodiversity. Consequently, tropical deforestation accelerates climate change (Brack et al., 2016; Brack & Bailey, 2013; Gnych et al., 2015; Supply Change, 2016). NGOs, governments, and private businesses have therefore been exploring governance options to delink agriculture from deforestation.

Reducing agricultural impact on deforestation contributes to achieving the United Nations (UN) Sustainable Development Goals (SDGs) (Sustainable Development Goals, 2015), and in particular to SDG numbers 12: ‘to ensure sustainable consumption and production’, and 15: ‘to end deforestation and restore degraded forests by 2020’. The international community formalized its goal of eliminating deforestation in the New York

5

Land-Use Change (LUC) (IPCC, 2016). Greenhouse gas emissions from human activities which:

1. Change the way land is used (e.g., clearing of forests for agricultural use, including open burning of cleared biomass), or

2. Affect the amount of biomass in existing biomass stocks (e.g., forests, village trees, woody savannas, etc.).

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20 Declaration on Forests at the UN Climate Summit in September 2014 (Brack et al., 2016; United Nations, 2014). This Declaration was signed by governments, corporations, and NGOs, and includes a commitment to ‘support and help meet the private-sector goal of eliminating deforestation from the production of agricultural commodities such as palm oil, soy, paper, and beef products by no later than 2020, recognizing that many companies have even more ambitious targets’(Climate Summit 2014, p. 3). Acknowledging its role in consumption-related deforestation (European Commission, 2013), the European Union (EU) committed to ending deforestation by 2030 (European Commission, 2008/645). Several initiatives such as EU Reducing Emissions from Deforestation and Forest Degradation (EU REDD+) and EU FLEGT have been employed to achieve this goal. The palm oil industry itself has seen a rise in private and public governance attempts from the early 2000s and onwards. The next section discusses these initiatives.

4.2 Palm Oil Governance

Responding to a lack of government action on the social and environmental impact of palm oil production, the World Wildlife Fund (WWF) in 2004 established the Roundtable on Sustainable Palm Oil (RSPO), which developed a private voluntary certification scheme for palm oil suppliers and organizations involved with the palm oil supply chain (RSPO, 2015; Schleifer, 2015). Today, RSPO has more than 2800 members, and 21 per cent of globally produced palm oil is RSPO certified as of March 2016 (Impacts, 2016) leaving nearly 80 per cent uncovered. RSPO has been slow to find traction among Indonesian growers, as its standards are voluntary. Moreover, the organization has received continuous criticism on the internal validity6 of the certification scheme’s criteria (Nikoloyuk, Burns, & Man, 2010) as well as on its assumption of a North to South trade model, which fails to address increasing South-to-South trade of palm oil (Schleifer, 2015). RSPO defines forest areas using the High Carbon Value (HCV) approach7, which according to many allows for deforestation within concessions (Gnych et al., 2015). Although RSPO membership is still increasing in numbers, questions remain as to whether the incentive to become a member is merely financial benefits for manufacturers and retailer companies.

6_{The Palm Oil Innovation Group (POIG) emerged from discontent with RSPO’s criteria as a coalition between}

companies and NGOs that are looking to move beyond RSPO standards in order to break the link between palm oil and negative social and environmental impacts.

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21 Notwithstanding these criticisms, the RSPO has played an important role in the palm oil complex during the last decade by driving the need for sustainable production up the agenda, and by triggering the emergence of new governance initiatives (Interviews 6; 9). Since the establishment of RSPO, many private and public initiatives, often –yet not always- originated in the North, have tried to reshape the palm oil sector8, which has led to the emergence of a regime complex. These initiatives, ranging from NGO campaigns supported by foreign governments, to an Indonesian moratorium on plantation concession permits on primary forest areas and peatlands as of 2011, have yielded mixed results (Pirard et al., 2015). Figure 1 depicts the main palm oil governance attempts that are relevant for this thesis on the governance triangle (Abbott & Snidal, 2009a).

In 2011, the Indonesian government developed its own certification scheme ‘Indonesian Sustainable Palm Oil’ (ISPO) (Hospes, 2014). ISPO standards are based on Indonesian legislation and are meant to be mandatory for all palm oil plantations by 2020 (Gnych et al., 2015). Uptake of ISPO standards so far has been slow, and the Indonesian palm oil growers association GAPKI has requested to postpone the 2020 deadline. In 2014, United Nations Development Programme in collaboration with the Ministry of Agriculture developed a multi-stakeholder platform InPOP (Indonesian Palm oil Platform) to disperse

8

Other initiatives include International Sustainability and Carbon Certification (ISCC), designed to comply with the EU Renewable Energy Directive; and Rainforest Alliance, an NGO led standard.

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22 sustainable palm oil and to bring smallholder farmers up to ISPO legality standards. InPOP brings together stakeholders from government, civil society, private sector, and development partners, and is working on a government-led sustainable palm oil national action plan (NAP) that is to be finalized in 2016 (Indonesia Palm Oil Platform, 2016). The quality of ISPO standards is not unchallenged, as discussed in chapter 5 of this thesis.

Several consumer countries have tried to accelerate the transition to sustainable palm oil. In an attempt to make transport more sustainable, the EU started promoting biofuels in the early 2000s (Schleifer, 2013). The EU, being the second largest palm oil importer in 2014 (Table 2), mainly controls palm oil imports through criteria for biofuel composition (European Parliament, 2009/28). As discussed in chapter 3, these criteria were highly criticized by environmentalists (Brasset et al., 2015; Schleifer, 2013). EU biofuel criteria are due to be strengthened: public consultation rounds for the enhancement of its criteria have ended February 2016 (Preparation of a new renewable energy directive, 2016). The EU endorses RSPO criteria for sustainable palm oil (EU palm oil approval, 2012). The majority of uncertified palm oil is imported by India and China, being the first and third largest importers of palm oil respectively (Table 2). This demonstrates the importance of South-to-South trade (Schleifer, 2015). The EU is leading an effort to increase demand for certified palm oil in these markets (Interviews 2;3).

Table 2

Palm oil Imports 2014

Rank Country Imports (1000 MT)

1. India 8,900

2. EU 27 6,800

3. China 5,700

Note: Adapted from http://www.indexmundi.com/agriculture/?commodity=palm-oil&graph=imports

On EU Member State (MS) level, a number of bilateral initiatives have arisen in recent years. Norway provided the Indonesian government with funding in exchange for better forest management (Letter of intent, 2010). In December 2015 five EU MS signed the Amsterdam Declaration, in which the UK, Denmark, France, Netherlands, and Germany committed to using 100 per cent sustainable palm oil by 2020 (The Amsterdam Declaration, 2015). In addition, France recently imposed an import tax on non-certified palm oil based on

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23 environmental grounds (‘France imposes new palm oil tax’, 2016). This tax is yet to be implemented and is perceived as highly discriminatory by the Indonesian government (‘Sin tax on palm oil’ 2016; ‘French palm oil tax’, 2016).

Palm oil prices have varied over the past decade, influenced by pricing of other vegetable oils, natural conditions, and by biofuel policy (Gnych, 2015). This affects the profit outlook for investors. Nonetheless, the palm oil industry – including mills, infrastructure, and plantation facilities - attracts ample capital from local as well as foreign private investors (Interviews 4; 6). The financial sector is sensitive to investment risk, and is increasingly bound to Environmental, Social, and Governance (ESG) investment standards (Interviews 4; 6). A huge opportunity for foreign actors to inspire sustainable practice in Indonesia is therefore through private investment, according to a Centre of International Forestry Research (CIFOR) representative: ‘If foreign banks that are ESG compliant provide funds to Indonesian banks, then these Indonesian banks are required to guarantee that under lending is conform ESG standards’ (Interview 4). In order to achieve this requirement, the Indonesian financial services authority Otoritas Jasa Keuanga (OJK) has drawn up a ‘roadmap to sustainable finance’ for Indonesia, endorsed by the Indonesian Ministry of Environmental Affairs and Forestry (MoEF) (OJK, 2014). The role of private investment in accelerating the palm oil industry transition towards sustainability makes for a relevant research topic. However, it is beyond the scope of this paper to thoroughly analyse this issue. Nonetheless it is important to note financial governance as an important influence in the palm oil complex. Future research can help create a better understanding of these financial dynamics.

4.2.1 The Emergence of Zero Deforestation Commitments

Greenpeace started campaigning transnationally for zero deforestation across different agricultural commodities in 2007 (Interview 1), by enhancing Western consumer awareness on the urgency to protect remaining tropical forests (Pirard, Gnych, Pacheco, & Lawry, 2015). NGO ‘naming and shaming’ of companies that have a public image to uphold drives this movement, by spurring consumer rejection of deforestation-related goods and increasing investor awareness of the reputational risks for these products (Pirard et al., 2015). The campaigns resulted in major consumer product firm Unilever cancelling its contract with Golden-Agri Resources (GAR), one of the larger palm oil producing companies. A collaborative structure between GAR, Greenpeace, and the Forest Trust (TFT) arose from this development, with TFT functioning as an independent monitoring body. Golden-Agri Resources (GAR) became the first major palm oil company to sign a high profile zero

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24 deforestation pledge in 2011. The Indonesian chamber of commerce, KADIN, facilitated this pledge.

As much forest area exists within current cultivation concessions (Interviews 1; 4; 6; 9), Greenpeace and GAR advocated for a new standard to define forests. This resulted in the ‘High Carbon Stock’9

(HCS) approach developed by TFT, GAR and Greenpeace, which became the benchmark definition for companies committing to zero deforestation. The zero deforestation movement hence took shape of a collaborative structure between private sector and NGOs. The next chapter elaborates on the differences between HCS and (HCV) and the consequences that these differences have for implementation.

Since the first pledge in 2011, Greenpeace has been publically benchmarking other companies along the supply chain with the goal of eliminating all deforestation from these firms’ sourcing processes. Two broad coalitions of overlapping zero deforestation pledges have emerged since: the Sustainable Palm Oil Manifesto (SPOM), which works on HCS analysis, and the Indonesian Palm Oil Pledge (IPOP), which functions as an industry association (Pirard et al., 2015). ‘IPOP is an independent and voluntary platform for growers and industry’, according to both IPOP member and Greenpeace representatives (Interviews 1; 7). IPOP lobbies the Indonesian government to support implementation of zero deforestation commitments. IPOP receives assistance from the United States Agency for International Development (USAID). This fuels concerns among Indonesian stakeholders about IPOP being an imposition of Western interests on Indonesian industry.

80 per cent of the palm oil industry is now committed to zero deforestation, due to pledges made by six of the largest companies: Wilmar; GAR; Musim Mas; Astra Agro Lestari; Cargill; and Asian Agri (Member, 2015). By achieving 80 per cent of palm oil industry commitment as opposed to 21 per cent of palm oil plantations being RSPO certified, zero deforestation has been named a significant addition to the palm oil regime complex (Pirard et al., 2015; Interviews 1; 4; 6; 9) . A Greenpeace representative argues that zero deforestation has the potential to accelerate traceability down to plantations, and that it provides an incentive for compliance at the risk of market exclusion (Interview 1). A wider scope of the zero deforestation concept aims to harmonize the economic benefits of agricultural expansion with the goals of sustainable development (Pirard, Gnych, Pacheco, & Lawry, 2015). Several interviewees agree that implementation of zero deforestation

9

This approach has been developed to delink agriculture from deforestation, and defines forests in terms of their above ground ability to store carbon and facilitate biodiversity (Daemeter Consulting, 2014)

Zero deforestation commitments in Indonesia’s palm oil sector : a governance case study