Rio+20 and challenges towards sustainable development

East Asia Forum, June 21st, 2012, Author: Fitrian Ardiansyah, ANU
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The United Nations Conference on Sustainable Development (UNCSD), otherwise known as Rio+20, commenced yesterday (20 June) in Rio de Janeiro, Brazil.

This is one of the world’s largest-ever environment conferences, and a useful point at which to examine the progress and regress of countries in advancing sustainable development over the past few decades.

Sustainable development emphasises a holistic, equitable and forward-looking approach to decision making at all levels — not just focusing on economic performance but also on the environmental and social aspects of development, including intra-generational and inter-generatonal equity. The concept was developed in the 1987 Brundtland Report, and re-affirmed at the Rio Earth Summit 1992. This year’s UNCSD marks the 20th anniversary of that summit.

Twenty years on, countries around the world must now demonstrate whether their development paths have upheld the principles of sustainable development, through rethinking their economic growth, advancing social equity and ensuring environmental protection at all levels.

According to many scholars, some progress toward achieving sustainable development is being accomplished, albeit very slowly. Reports show an increase in collaboration between state and non-state actors, which has brought about gradual but important changes, including the promotion, development and application of sustainability principles in the management of key commodities, including forestry (through the Forest Stewardship Council (FSC)), fishery (through the Marine Stewardship Council) and palm oil (through the Roundtable on Sustainable Palm Oil).

In Indonesia, prior to 2009, only 1.1 million hectares of forests were certified under the FSC, amounting to 2 per cent of the country’s production forests. Now, approximately 26 companies with a total 2.6 million hectares of forests are undertaking a rigorous process for FSC certification.

In addition to the Timber Legality Verification System (SVLK) implemented in 2009, which aims to verify the legality of all traded Indonesian timber products, forest certification is seeing Indonesia gradually move toward sustainable forestry practices. But, as those forests certified under FSC still make up only a small proportion of Indonesia’s total forests, achieving sustainability in this sector is still a significant challenge.

Progress has also been made in the prevention of biodiversity loss. In this sense, the Heart of Borneo (HoB) initiative can be seen as a test for Indonesia, Malaysia and Brunei in conserving and sustainably managing 22 million hectares of important forest and terrestrial ecosystems.

However, promoting conservation and sustainable forest managementon such a significant scale requires not only political willingness but also concrete incentives and practical solutions on the ground.

Another immmediate political challenge for the HoB initiative is that a development policy released by the same government, the Master Plan for the Acceleration and Expansion of Indonesia’s Economic Development (MP3EI), may contradict efforts to protect, conserve and sustainably manage its forests and biodiversity in this area.

A recent discussion among scholars, high-ranking government officials, business practioners and NGO activists in Jakarta, facilitated by the Paramadina Graduate School of Diplomacy, agreed that the MP3EI may overlook environmental persectives and parameters.

If the conflict is not addressed, some actors involved in land-use activities in Borneo may use the economic development master plan as an excuse to continue their business-as-usual activities.

When it comes to creating incentives and developing practical solutions, the Rio+20 conference lists ‘green economy’ as one of its two major themes. The ‘green economy’ approach will presumably provide a platform for countries or other entities to address threats to sustainable developmant and conservation, and improve enabling conditions and propose solutions at a practical level.

The HoB initiative, at the Rio+20 conference, is launching a report entitled ‘Investing in Nature for a Green Economy’. This report is intended to show that the initiative concretely and seriously tackles existing and future threats, particularly from unsustainable land-use activities, and further improves enabling conditions, namely good economic policies that create positive incentives, good governance, clear land tenure and environmentally friendly sectoral development.

By using the ‘green economy’ concept, it is expected that the initiative can transform economic growth in the area, particularly through shifting investments — public and private, domestic and international — toward emerging green sectors and the greening of existing sectors, complemented by changes to unsustainable consumption patterns.

Natural capital, especially biodiversity, is under threat at the global level. In its State of Biodiversity of Asia and the Pacific (2010), UNEP ranked Indonesia second after Australia as having the most threatened plant and animal species in the region. The HoB initiative is an important model to demonstrate that development can take place in biodiversity-rich areas without further threatening fragile resources.

For developing countries like Indonesia and its neighbours, reforming and balancing their development pathways is a Herculean task. It is how to move forward with this challenge that is now being hotly discussed at Rio.

Fitrian Ardiansyah is a PhD candidate at the Australian National University, and the recipient of the Australian Leadership Award and Allison Sudradjat Award.


New lending rule helps protect our environment

The Jakarta Post, Opinion, June 09, 2005, Jan Willem van Gelder and Fitrian Ardiansyah, Amsterdam/Jakarta

Let us hail the new regulation issued by the central bank (Bank Indonesia or BI), which demands that banks assess their corporate clients, does not do enough to protect the environment (BI Regulation No. 7/2/PBI/2005, concerning Asset Quality Rating for Commercial Banks).

This can be seen as a promising first step to stimulate the financial sector to help save the environment as banks play important roles in financing the forestry, plantation, mining and other important sectors related to environmental issues.

Few countries around the world have such an abundance of natural resources at their disposal as Indonesia has. Various forest products, oil and gas, minerals and agricultural commodities: all these are produced in large quantities in Indonesia.

By exporting these commodities, Indonesia is earning valuable foreign currency — 56 percent of the export value was made up by the export of such commodities in 2003. These export earnings can theoretically be used to finance numerous development projects.

But reality speaks differently in Indonesia. While the abundance of commodities could be a blessing to all, for many Indonesians as well as for its natural environment it is nothing less than a curse. The United Nations Food and Agriculture Organization (FAO) said Indonesia was among the countries that suffered the greatest losses of natural forests.

Precious ecosystems get destabilized and their functions and services ultimately disappear, causing the demise of many wildlife species and valuable biodiversity as well as the loss of rights and means of living for indigenous and local communities dependent on extensive interaction forms of agriculture and forestry.

The question now becomes, why is this abundance of commodities not bringing wealth to the country as a whole, and improving life for all the poor people?

There are many factors contributing to this. The insatiable international demand for Indonesian commodities stimulates a continuous increase in production capacity and exploitation of natural resources. Unfortunately, because of corruption and a weakly enforced judicial system, irresponsible corporate behavior is not controlled.

Many actors (e.g. producers, buyers, financiers, government officials) are involved in these processes and each carries its own responsibility and could contribute to a more responsible management of commodities.

We must not forget the other actors — banks and other financial institutions (FIs) — that play an indispensable role in supplying capital to commodity producing companies by providing loans or buying their shares.

In the past decade, for instance, more than US$10 billion was invested in the oil palm plantation sector by both national and foreign investors. In pulp and paper industries, the growth over the past decade involved an aggregate capital investment of approximately $12 billion.

But many of the loans poured into natural resource exploitation have become soured, thus bankrupting many Indonesian banks.

It took the Indonesian government several years and billions of dollars in public money to get straighten out these bad loans and to reform the banking system. Learning lessons from this episode and trying to prevent these events from happening again therefore, is of the utmost importance. If not, problems with bad loans and the financing of non-sustainable forms of commodity production will resurface.

It is thus very important that BI, the Indonesian banks’ supervisor, issue a regulation that gives directions to banks on how they should rate the quality of their loans. The regulation lists a number of aspects of the client’s business, which need to be assessed by the bank. When a client scores negatively on one or more aspects, the bank runs a large risk of ending up with a non-performing loan when it lends to this client.

What is most significant here, is that BI explicitly lists “measures taken by the debtor to conserve the environment” as one of the issues that needs to be taken into account by the bank.

BI clearly acknowledges that companies that do not pay attention to their environmental behavior are more likely to become bad debtors and therefore should be avoided.

Outside Indonesia, several commercial banks have developed detailed forest, plantation and mining policies over the past few years. According to the policies, these banks strive to finance only companies which care for High Conservation Value Forests, minimize their environmental impacts and respect the rights and needs of local communities.

Building upon its existing regulation and information from overseas, BI has the opportunity to further develop world-class standards and procedures on assessing the social and environmental behavior of commodity-producing companies.

In addition, BI’s work can be strengthened by relevant ministerial agencies (i.e. the Ministry of the Environment, the Ministry of Forestry, etc.) and environmental and social organizations. They can contribute to the assessment of impacts on commodity producing sectors, as well as helping the identification of company initiatives that merit financing and those that need to first adjust their business plans and policies.

Avoiding future bad loans and banking crises as well as environmental destruction and social conflicts needs to be everyone’s mutual interest.


Jan Willem van Gelder is a financial sector specialist with Profundo in the Netherlands. Fitrian Ardiansyah is a program coordinator for World Wide Fund for Nature (WWF) in Indonesia