Seeing the forests, not just the trees

On Friday 10 May 2019, the World Bank launched three new reports that call for a ‘forest-smart approach to mining’ – to ensure the increasing demand for metals and minerals is not met at the expense of forests. I had the privilege along with John Howell of authoring one of these reports that presents actionable insights for how to ensure offsets in forested areas achieve their desired outcomes.

The evidence outlined in one of the other reports on the prevalence of large-scale mining (LSM) in forests and the aerial extent of indirect impacts is sobering: it challenges our previous thinking on the aerial extent of LSM and calls into question the sustainability of current licensing practices within forest areas. This underscores the importance of getting offsets right when they are required to address residual impacts and achieve no-net-loss.

Overall, the offset report – which is informed by an in-depth analysis of 5 case-studies – outlines recommendations in 8 interlinked areas, but I want to briefly draw attention to just 3 of these.

Firstly, the challenge of long-term protection. In 2017, I was contacted by a representative from one of the independent accountability mechanisms for a multi-lateral institution who asked: surely it is impossible to offset an offset? It transpired was that an offset established for a project that the institution had financed was now zoned for development, which prompted her question.

The reality is that competing demands from other more lucrative land uses has resulted in numerous offsets being used for other purposes. In some jurisdictions, it is hard to find suitable sites that are not overlaying valuable mineral resources. This is certainly true of the Boke region of Guinea where bauxite production is rapidly expanding. But the problem is not restricted to developing economies: in 2014 the New South Wales Planning Assessment Commission concluded that in the Hunter Valley “it is virtually impossible to find a suitable offset area that could be permanently protected from mining interests with absolute certainty.”

In practice, without offsets sites being afforded a high degree of protection, the prospects of them enduring are slim. Responsible companies looking to do the right thing may need to pursue the highest form of protection (e.g. national park status). But companies may be unwilling or unable to apply the resources and expend political capital to pursue this option.  There may also be a legitimate reluctance to create more protected areas due to the concerns about reconciling community rights with conservation. In such circumstances, would it be better for companies to support for underfunded protected areas?

Secondly, the importance of the enabling environment. In Ghana, one mining company was working with the Forestry Commission to identify possible offset sites – and were directed to two potential options: the Atewa and Tano Offin Forest Reserves. Unbeknown to either the company or the Forestry Commission, the Mines ministry were in negotiation with, and eventually allocated both areas to, other mining companies for exploration.

In the ideal, countries would establish legal requirements to apply the mitigation hierarchy to achieve no-net-loss or net gain, supported by institutional capacity to enable rather than impede the establishment of offsets.

Governments need to ensure that the right enabling conditions are in place for responsible foreign direct investment to occur – in a manner that supports companies to effectively fulfil their obligations to mitigate impacts. Currently, even where companies may be willing the enabling conditions are often weak.

Thirdly, the challenge of ensuring sustainable financing for offsets.  Successful offsets depend on long-term sustained financial commitment. In regulated markets (such as the USA and Australia), brokers may be able to provide “off-the-shelf” offsets, or a range of financing options may be available. For example, in the Maules Creek case study in Australia, the company submitted a Conservation and Biodiversity Bond to the New South Wales state government. However, none of the companies profiled in the case studies were willing to commit the capital required for long-term financing of the offset at the outset. Instead, the preferred approach was to contribute as part of the annual budgeting process.

This is problematic for several reasons: firstly, where contributions were tied to production value of profit, the offset budgets were subject to the vagaries of the commodity cycles – in the case of both iron ore and carbon. Secondly, offsets are intended to exist in perpetuity – but where operators may change hands or go bust, the offsets may be short-lived.

One way to overcome this is for providers of finance to ensure that provision is made for the sustainable financing of any offsets, in the event of unanticipated changes. A related question is whether the costs of the offset should be included within the overall financing of projects.

The reality is that compensating for biodiversity loss, is complex, time consuming and costly and in some circumstances is not possible.  In the medium term, I see a need to change the conversation. Many governments are falling far short of the Aaichi targets. At the same time, forests offer significant potential for mitigating the effects of climate change. Encouraging the implementation of aggregated offsets at a landscape levels where the technical, social and financial costs are shared across multiple actors has a much greater likelihood of success.